The fashion pack has always known an Hermes handbag is a good investment, but the clamor to invest in the exclusive French handbag-maker has given it a new wow factor: The super-luxury group is now valued far more highly than France’s second biggest bank, Societe Generale (SocGen).
The firm behind the famous Kelly and Birkin bags, which cost more than a car, and Queen Elizabeth II’s favorite headscarves, is now valued at more than 28 billion euros (US$39.76 billion) on the Paris stock exchange, while SocGen is worth 18 billion euros. The disparity means the nimble fingers of an Hermes artisan, who spends up to 24 hours painstakingly stitching a bag with one long waxed thread, are valued 30 times higher than the moneymaking brainpower of a SocGen banker.
“It is extremely demanding to turn 700-odd bits of leather into a useful bag,” says Pierre-Yves Gauthier, head of research at AlphaValue, who says that with a fraction of SocGen’s staff and turnover, Hermes’s market capitalization equates to 3.3 million euros per employee.
Photo: AFP
Luxury goods sales have bounced back from the financial crisis thanks to the growing ranks of the super-rich in emerging markets such as China. Last week, Hermes said its sales jumped 22 percent to 1.3 billion euros in the first six months of the year as consumers in important markets such as the US, which were battered by the recession, rediscovered their taste for the finer things in life.
Such is the demand for the firm’s coveted handbags that CEO Patrick Thomas warned of a shortage that would stifle sales in the coming months.
“We can only make so many bags,” he said, adding that Hermes had hired 400 new staff to raise production of leather goods by nearly 10 percent.
With 174 years of experience under its buttery leather belt — and still 73 percent owned by about 60 members of the sprawling founding family — luxury experts put Hermes in a class of its own.
Thomas told one interviewer recently: “We try to do poetry and we get excellent economic results.”
That poetry comes at a price: The Birkin bag, named after singer Jane Birkin, starts at £5,400 (US$8,700), but can cost as much as £100,000 in exotic skins such as saltwater crocodile.
In the company’s main workshop in the Paris suburb of Pantin, time has stood still. There, 340 craftsmen and women spend 18 to 24 hours hand sewing each bag. Only the zipper and inside pocket are finished by machine. Orders can be delayed for several years as the company scours the globe for the right color of crocodile.
Harrods managing director Michael Ward says the waiting list is “the new VIP pass” and after what can be an 18-month wait for a Birkin, the store performs an “opening ceremony” when the box arrives: “The last person to touch the bag was the artisan and when [the customer] opens the box she is the next one to touch it.”
Maria Eugenia Giron, a professor at Madrid’s IE business school and author of Inside Luxury, says customers will pay for expert craftsmanship that has been passed down through six generations of the business, founded in 1837 by Thierry Hermes, a French harness-maker who supplied royal houses throughout Europe.
“Hermes has the magic combination of tangible and intangible brand values,” Giron says.
The craft skills make its handbags unique, but there is stardust sprinkled on products such as the Kelly, named after Grace Kelly, the princess famed for her style and beauty, she says.
Giron says Hermes has never made sunglasses because it does not believe it has the rigorous level of manufacturing expertise that would enable it to make “unique, authentic products.” The material for its famous colored scarves is woven in Lyon from silk raised on its own farm in the mountains of Brazil and the fragrance Un Jardin sur le Toit, launched this year, was concocted by Hermes’ perfumier in Grasse, the world’s perfume capital in the south of France.
Pierre Mallevays, a former head of mergers and acquisitions at LVMH, who now runs boutique advisory firm Savigny Partners, says much of Hermes’ current success is down to the “brand vision” of Jean-Louis Dumas, who took the helm in the late 1970s. Dumas relaunched the Kelly in bright colors and introduced the bigger Birkin after a chance meeting with the actress on a Paris to London flight. Birkin told him her Kelly bag was not big enough.
“Hermes owns that unique ‘artisan’ space where it can charge a fortune based on the perception that its products are the ultimate degree in craftsmanship and use of the best materials,” Mallevays says.
Hermes shares are up 70 percent this year, closing on Friday at about 270 euros, turbocharged by the unexpected — and unwanted — arrival of the predatory LVMH luxury group on its shareholder register. The group, overseen by Bernard Arnault, France’s richest man, has snapped up a 21 percent stake in Hermes, saying its intentions are friendly.
The Hermes family and Thomas are determined to retain the company’s independence, with the latter memorably telling a press conference this year that: “If you want to seduce a beautiful woman, you don’t start by raping her from behind.”
Rather more politely, the company has said of LVMH: “[There is] an intruder in the garden, but we don’t want him in the house.”
A merger, Thomas added recently, would “kill” Hermes.
“You would keep the brand and keep the name, but Hermes would be dead,” he said.
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