Hermes Advanced Think Tank (HATT)

[papertiger]

HATT

To keep many, many other H threads on-topic, I thought we should have one thread just to discuss:
Globally perceived Hermes strategy (aka 'The H Game') its evolution and geo-specific H-cultures, resultant reseller/flipper/grey market(s) issues (or 'issue') and 21C challenges to a heritage brand (SM/digital/metaverse/celebs/mass production technology/Pantone compliancy/lux-industry standardisation/etc)

All subjects are general (unlike other threads) - that's the point.

Newcomers are welcome to post but keep this thread on-topic.
OG or new, there is an unpopular opinion thread already, no divisive comments or gate-keeping permitted.

 

[DME]

First, many thanks to @papertiger for starting this thread! And deepest apologies for veering more specific threads off topic; it's great to have space now to discuss H more generally.

Continuing some of the topics that started over in the relationship thread, I am curious to hear what members think of some of the trends I see emerging. To be clear, the below is from my perspective based on my experiences with the SAs I have worked with and the stores I have visited; your mileage may vary (and I would love to hear your thoughts/experiences!).

To step back a bit to yesterday's discussion that started in another thread, maintaining an H relationship has three components (at least to me), based on both on my personal experience and the questions I've seen asked here on tPF: How to begin a relationship, how to build the relationship toward a first QB and how to sustain that relationship to ensure continued offers. The notions of waitlists and prespend are not new, but they seem to have been exacerbated over the past two years by the pandemic as demand shot through the roof and the supply chain suffered (the latter seems on the mend, but the former is still there). Bags that were once readily available (e.g., Evie, GP), as now gone from the shelves, at least in U.S. boutiques, and seem to require an SA relationship, with a waitlist/spend to obtain them in many boutiques. SLGs, long considered entry-level items, are also nonexistent and those, too, seem to require a relationship, waitlist and/or spend. To quote an SA I met in Chicago recently, "Leather is hard to come by these days."

So to kick us off, I am wondering how sustainable this business model is? It is clearly working in the short-term, as sales are through the roof and demand is high, but what are your thoughts on long-term viability? If bags (and, perhaps, SLGs) are relegated to the top 2% of spenders, as some have suggested, how does H cultivate new clientele? And how does H keep the rest of its current clientele satisfied to round out its sales numbers, since that top 2% only accounts for a certain percentage of sales?

 

[allanrvj]

Regarding the H game:

A lot of H customers, especially ones from the US and Asia, assume that just because pre-spend ratios are the norm in their country, that it's the same all over the world. Here in Europe, except from a few places where the pre-spend games actually happen (I know of some stores in Germany and Italy), the general idea is there is no such thing. It's more of a wishlist scheme where you talk to an SA about a bag you want, put it on the list, and then wait. When the bag arrives, you can buy it, no previous purchase required, and no other purchases required alongside the bag. Sometimes, if one is really lucky, one can just enter an H store and if a Birkin or Kelly is not reserved, one can immediately buy it, no other purchases required. The downside of this is, of course, only the basic choices are the ones that the store gets from Paris (black, etoupe, gold; often Togo or Epsom). Special leathers like box, barenia, volynka and other push offer bags are almost always unavailable. Also not all stores are equipped to take in SO's (a la carte).

 

[textilegirl]

First, many thanks to @papertiger for starting this thread! And deepest apologies for veering more specific threads off topic; it's great to have space now to discuss H more generally.

Continuing some of the topics that started over in the relationship thread, I am curious to hear what members think of some of the trends I see emerging. To be clear, the below is from my perspective based on my experiences with the SAs I have worked with and the stores I have visited; your mileage may vary (and I would love to hear your thoughts/experiences!).

To step back a bit to yesterday's discussion that started in another thread, maintaining an H relationship has three components (at least to me), based on both on my personal experience and the questions I've seen asked here on tPF: How to begin a relationship, how to build the relationship toward a first QB and how to sustain that relationship to ensure continued offers. The notions of waitlists and prespend are not new, but they seem to have been exacerbated over the past two years by the pandemic as demand shot through the roof and the supply chain suffered (the latter seems on the mend, but the former is still there). Bags that were once readily available (e.g., Evie, GP), as now gone from the shelves, at least in U.S. boutiques, and seem to require an SA relationship, with a waitlist/spend to obtain them in many boutiques. SLGs, long considered entry-level items, are also nonexistent and those, too, seem to require a relationship, waitlist and/or spend. To quote an SA I met in Chicago recently, "Leather is hard to come by these days."

So to kick us off, I am wondering how sustainable this business model is? It is clearly working in the short-term, as sales are through the roof and demand is high, but what are your thoughts on long-term viability? If bags (and, perhaps, SLGs) are relegated to the top 2% of spenders, as some have suggested, how does H cultivate new clientele? And how does H keep the rest of its current clientele satisfied to round out its sales numbers, since that top 2% only accounts for a certain percentage of sales?

I’m not sure of the numbers, but I thought I read somewhere that the top 2% accounts for a rather large percentage of revenue, 40% maybe? My sense is that’s part of what’s driving the ultra-exclusive luxury experience concept. These clients are the core and will be pampered.
Then there the fairy dust of lipsticks and less complicated leather/toile bag designs to sprinkle on the rest of us (I’m not a VIP, just a longtime lover of the brand). It also seems that supply is increasing somewhat, post-pandemic, and that may keep people ’in the game’.

ETA: just caught up with the convo in the Maintaining thread

 

[DME]

Regarding the H game:

A lot of H customers, especially ones from the US and Asia, assume that just because pre-spend ratios are the norm in their country, that it's the same all over the world. Here in Europe, except from a few places where the pre-spend games actually happen (I know of some stores in Germany and Italy), the general idea is there is no such thing. It's more of a wishlist scheme where you talk to an SA about a bag you want, put it on the list, and then wait. When the bag arrives, you can buy it, no previous purchase required, and no other purchases required alongside the bag. Sometimes, if one is really lucky, one can just enter an H store and if a Birkin or Kelly is not reserved, one can immediately buy it, no other purchases required. The downside of this is, of course, only the basic choices are the ones that the store gets from Paris (black, etoupe, gold; often Togo or Epsom). Special leathers like box, barenia, volynka and other push offer bags are almost always unavailable. Also not all stores are equipped to take in SO's (a la carte).

Thanks so much for sharing a perspective from Europe! Out of curiosity, what happens if you put in a wish, only to turn down the offer when it comes in (e.g., financial situation changed)? Does that damage your chances of having a future wish fulfilled? Or maybe it’s unheard of in Europe to decline an offer once you’ve made a wish?

As you know, there is a lot of emphasis here in the U.S. on the SA-customer relationship, and customers are often concerned with turning down an offer that doesn’t quite align with their interests because they fear another offer just won’t come. But maybe this does not hold true elsewhere?

 

[allanrvj]

Thanks so much for sharing a perspective from Europe! Out of curiosity, what happens if you put in a wish, only to turn down the offer when it comes in (e.g., financial situation changed)? Does that damage your chances of having a future wish fulfilled? Or maybe it’s unheard of in Europe to decline an offer once you’ve made a wish?

It goes to the next one in the queue that requested for the same bag. Otherwise it becomes a store stock that someone who just happens to drop by can purchase it at once. European stores are also interconnected (as long as it's not a franchise), so it's easy for other stores to request transfer the bag if unsold, depending on store director (though I heard B/K are not transferred because of the demand).

There's no relationship damaged since putting the name on the wishlist didn't require one to begin with, although of course it always helps to be nice to SAs and explain why you're not taking the bag anymore.

 

[momoc]

On top spenders, I’d say it’s more like the top spenders can get whatever bags they want (and however many they want). The rest can of course still have some - it’s just that if there is ever a question over who to prioritize there is going to be a clear winner.

It is my understanding that the “2 per year” quota is “very much more flexible here in Asia, if you know what I mean” (direct quote from someone who shops there that I would call a VIP client). On top of that, these clients are often courted with a lot extra exclusive experiences.

On moving into a new age: I do think luxury buyers who are younger may have different values and consequently spending habits. The advent of the digital age and social media etc has made a difference in how and why people shop. Definitely many articles floating around if you search luxury clients with some other words for specific areas you are curious to read about - BoF, Forbes etc. all have some and I’m sure many more publications too. They do tend to be about all luxury brands in general. How different is Hermes perhaps compared to the general industry?

Finally, to play devil’s advocate (I do not know the answers to any of these questions myself, just some I ponder about)

- if profit is ultimately the goal (as
they are a business), how do markets that use the wishlist model (which we’ve also seen reports of people going in, prespend then quickly gets the bag, jumping the wishlist line so to speak) perform in comparison to a more lucrative prespend model, in a world where people (and information) travel around increasingly faster and more easily than prior generations, if there comes pressure to increase total revenue and profit?

- Hermes has sort of established itself as the “next level higher” brand in luxury handbags; the Birkins and the Kelly are supposed to be the “ultimate” tier. (Let’s not get into how a lot of H clients look down on those of other houses…) What happens as other brands raise prices so they are now positioned closer? How to distinguish the perceived value to make your stuff seem like the “more special” one (note: very different from the actual intrinsic value of the goods, which we all know is way, way lower than the price tags)?

- This maybe also ties back a bit to the changing luxury clientele stuff; again this is about luxury in general but I remember reading some data where they surveyed why people buy luxury; some do it because they see it as a symbol of success, a way to set themselves apart, some do it for aesthetic, for comfort, some who truly see it as a way of life. The earlier groups tend to be younger. So assuming we think about the future, how does a brand cater to those younger audiences and nurture / shift them into latter categories as they age? (ETA: there is also a racial component but I don’t know if I really want to go deep into discussions on the prevalence of systematic racism in societies on a purse forum )

- Semi related to the previous: I often wonder just what percentage out of everyone who want these bags want them partially because they are hard to get, not in spite of? I know it’s non zero as we have members saying that in some other threads. Let’s say magic happens and now the bags are all immediately available for purchase when one walks into any store, how much less sought after would they be? (And of course, the reseller prices would immediately crash.) There is something to be said about being difficult becoming part of the allure. I would think that they are beautiful bags and will be valued regardless by many - the question is, is that as many as now? I personally think the answer is no and it’s more of a question of how much less. How much is the component of the desirability driven by the “game” itself?

 

[momoc]

Thanks so much for sharing a perspective from Europe! Out of curiosity, what happens if you put in a wish, only to turn down the offer when it comes in (e.g., financial situation changed)? Does that damage your chances of having a future wish fulfilled? Or maybe it’s unheard of in Europe to decline an offer once you’ve made a wish?

As you know, there is a lot of emphasis here in the U.S. on the SA-customer relationship, and customers are often concerned with turning down an offer that doesn’t quite align with their interests because they fear another offer just won’t come. But maybe this does not hold true elsewhere?

It’s totally ok to turn down bag offers in the US (or Asia for that matter)! I try to say that every time I see someone concerned about turning something down. As long as it doesn’t match your wishlist it’s actually the beneficial thing to do. I’m not sure where this misconception comes from that it actually hurts?

 

[fice16]

- if profit is ultimately the goal (as
they are a business), how do markets that use the wishlist model (which we’ve also seen reports of people going in, prespend then quickly gets the bag, jumping the wishlist line so to speak) perform in comparison to a more lucrative prespend model if there comes to a time where there is pressure to increase total revenue and profit?

Regarding how H still managed to increase their revenue and profits over last 1-2 quarters even other luxury houses are showing signs of softness in customer spending, I would like to offer my two cents based on some (limited) datapoints that I experienced/heard or observed from TPF here.
Besides H is cultivating many new relationships with new clients...in recent quarters (esp. In Q1/Q2 2023), I have been hearing H customers who have been with H-houses for several years & with consistent good spends, being offered the (rarer) exotic pieces or Limited edition pieces. I recall these items started coming in waves since Mar 2023 or so... These items are generally not expected or on the wishlists of the clients, but H customers would likely accept because they know these items are rare or are considered desirable by H enthusiasts/collectors. In a way, H is pushing the limited edition/rare pricy items to the long-time customers, and afterwards, these H customers would be typically expected to increase their other spendings as a means to "thank" H for offering the limited edition pieces. This was at least my personal experience, which I notice I had suddenly increased my spending at H by two-folds within a short period of time even it was not planned from my end. I think the more H does this 'favor" to their clients, the more it likely to contribute/increase their business bottom-line.

 

[880]

From my limited observation, H quietly devotes significant resources towards analyzing and managing high net worth client relationships. H may not be as loud about their 1% clientele as Chanel, but it is paying very close attention. I have gleaned from the experience a VIP friend that, even in the US, two BKs are definitely not the limit. From articles I’ve read about new store openings like Aspen, the top tier is not expected to be impacted by recession in quite the same way.

The maisons and flagships have thrown more of their budget at guaranteed sure sellers, at least in RTW, and the most lavish RTW runway pieces were not slated for production. However, the outlook is still very positive for H investors and shareholders whose happiness may be true top priority. From what H SAs have told me, it does not make economic sense for them to cultivate new clients that nickel and dime their prespend when the SAs can more lucratively lure in new VIPs or grow existing regulars into higher brackets of spending. A VIP client who can easily afford to shop at vacation or second home destinations is also not expected to maintain strict loyalty to a single location. They don’t have to do so. While some on TPF say that H will eventually be sorry not to lavish attention on mid tier clients, the numbers do not bear this out. During Covid, the very rich simply became far richer, and the chasm between the rich and the poor widened considerably. Of course H does hedge their bets by churning out more entry level, lower priced items like cosmetics and perfume.

I have regularly heard SAs, not just mine, from several premier luxury brands, shy away from covering the door or the line outside or from clients that shop the first floor merchandise. It does seem very different for European locals whose home boutique attitude is more relaxed. I assume that this attitude is a carry over from the Paris boutiques where no prespend is required or even expected at all.

 

[textilegirl]

Top Spenders: is it really a news flash that top spenders have different relationships to the world than the rest of us? What seems new to me is that with the proliferation of social media more of that rarified space is public knowledge.

And having seen what’s available, people who have some means want to partake, and feel they are entitled to do so. Nope, and it has, for the most part, been ever thus.

 

[momoc]

The other thing is I feel like resources - be it the bags themselves or something more abstract like the number of hours in an SA’s day - are limited (whether deliberately by manufacturing or universally inevitable). It’s not like I ever believe more general tier clients aren’t important; it’s that the top tier is very, and seems (backed by data) increasingly disproportionately so, more important. Hence the term VIP I guess? So it is perhaps not that an SA is thinking “these people at the door aren’t important” more that “I’d love to help even more people if I can, but my time and efforts are going to be rewarded much more efficiently and effectively if I instead take care of Mr A who just sent me a text”. These preferences don’t need to be actually defined, they sort of fall into place as a result of the way the world spins.

Covid reminds me of another point that I forgot about earlier! Since it, we have seen explosive growth, at certain brands like Hermes, whereas some lower tier luxury brands struggled a bit more. When discussed, there seems to be a sentiment amongst those who can afford luxury but perhaps not that freely, that if they were to spend their budget on luxury, they prefer to do it at Hermes or other luxury brands (watches, jewelry) that “hold more value” than some others. I do think the recent years’ climbing “prespend” is also partially coming from this.

Another hypothetical I like to sometimes think about: let’s say the exact same quality of a bag as a B/K, hand made (let’s say someone with the skills of an Hermes artisan), sourced with the same quality of leather Hermes uses, satisfies the same functional needs of the B/K, perhaps too impossible to say that they have as much after sales service like Hermes does but there are plenty good 3rd party leather cleaner/repairers out there, and let’s say no intellectual properties are fringed on the design (or just imagine the design is also aesthetically pleasing to you).

How much would this bag be worth? How many people would be happy to pay the same amount for it as they are willing for one that has Hermes stamped on it?

 

[FaubourgTropical]

Another hypothetical I like to sometimes think about: let’s say the exact same quality of a bag as a B/K, hand made (let’s say someone with the skills of an Hermes artisan), sourced with the same quality of leather Hermes uses, satisfies the same functional needs of the B/K, perhaps too impossible to say that they have as much after sales service like Hermes does but there are plenty good 3rd party leather cleaner/repairers out there, and let’s say no intellectual properties are fringed on the design (or just imagine the design is also aesthetically pleasing to you).

How much would this bag be worth? How many people would be happy to pay the same amount for it as they are willing for one that has Hermes stamped on it?

Peter Nitz and Mila Jito (Lili Storella) came to mind. Lili is particularly great as her bag in 'Barenia' (she uses the same supplier as Hermes) reminds me of an improved version of shadow birkin AND she solves the harness problem with birkins. Her bag is not as expensive as a Birkin and I am sure will not command the same second-hand price.

Let’s be honest. Birkin will not be priced that much without the Hermes stamp. People are willing to pay the premium coz of the brand and that’s the reality of all branded goods. IMO.

 

[tinkerbell68]

So it is perhaps not that an SA is thinking “these people at the door aren’t important” more that “I’d love to help even more people if I can, but my time and efforts are going to be rewarded much more efficiently and effectively if I instead take care of Mr A who just sent me a text”. These preferences don’t need to be actually defined, they sort of fall into place as a result of the way the world spins.

Exactly! Everyone has to prioritize their time for the best ROI...if you're a small software company with a bunch of five figure contracts and one eight figure contract, you're going to do your best to retain the eight figure client while not ignoring your smaller clients and if you're a NPO, your front line fundraisers have to spend the most time with the biggest donors even as they continue to steward the smaller donors. As you say, it's the way the world spins.

 

[papertiger]

It goes to the next one in the queue that requested for the same bag. Otherwise it becomes a store stock that someone who just happens to drop by can purchase it at once. European stores are also interconnected (as long as it's not a franchise), so it's easy for other stores to request transfer the bag if unsold, depending on store director (though I heard B/K are not transferred because of the demand).

There's no relationship damaged since putting the name on the wishlist didn't require one to begin with, although of course it always helps to be nice to SAs and explain why you're not taking the bag anymore.

Are there any franchised stores left?

That is definitely one part of the H business model that is being phased out