Hermes ‘overt plot

Wen/Most Talks FunTalk He Yiran‍‍

In today’s environment, there may be and only Hermès that can continue to hold consumers ‘luxury brands.

“On the one hand, there are some customers who originally promised to give them bags before the New Year, but suddenly stopped giving them before the New Year. They said they would give them after the public price was increased, and the quota was also increased. rdquo; A Hermès user complained on social media that on the other hand, many good bags were finally released after the new year, but the ratio was raised to a huge high level, which is different from what was said before. If customers take the bag, they will feel that they have been slaughtered, but if they don’t take it, they will feel that I have waited for so long and finally have a bag, but I can’t take it.” rdquo;

At the beginning of the new year, Hermès products have completed price increases, with an overall increase of 5% and 12%. After the price increase, the minimum price for the full range of Hermes ‘most classic Birkin platinum bags exceeded 100,000 yuan. What can be compared to this price is that the selling price of best-selling new energy vehicles such as BYD Dolphin and BYD Qin is also around 100,000 yuan. The public price of a Hermès platinum bag is equivalent to that of a new energy vehicle.

How does it feel to hold a car in your hand?

In addition to its high price, Hermès is also known for its large distribution and long waiting times. Three years ago, Ms. Leng had to buy a Birkin platinum bag worth more than 100,000 yuan at the SKP Shopping Mall in Beijing. Due to the epidemic and other reasons, she waited for two years before getting the goods. During this period, the counter sister neither helped to rush the goods nor accepted returns, which really made her feel the coldness of Hermès.

Although from 2024 onwards, the distribution ratio of Hermes bags has dropped significantly. Many horse breeders report that the consumption limit of receiving the three major king Kong has become lower, and the counter sister will even take the initiative to contact the bag. However, compared with other luxury brands, Hermes ‘attitude of waiting for goods for a long time and stocking more goods is still high.

Even so, in today’s environment, daring to raise prices shows that Hermès is confident that consumers are willing to pay a premium. The entry Eveline 29 has increased from 31500 yuan to 33700 yuan, and the mini Eveline has increased to 19300 yuan after the price increase; the Neo Garden23 handbag has increased by 5% as soon as it was released, and it has increased to 22850 yuan after the price increase;Lindy Mini and Lindy26 both increased by 11%, and Lindy Mini exceeded 70,000 yuan after the price increase;Roulis Mini Pig Nose increased by 9%, and after the price increase, it was 75400 yuan.

This round of price increases, some consumers with less economic strength may not be able to accept them and be forced to squeeze them out. But for Hermès, isn’t this another test to screen core consumers, squeezing out those consumers who have changed hands and sold products that are not very practical at lower prices, leaving behind the most powerful consumers who have the ability to pay have maintained their most luxurious status.

After all, there is no shortage of rich people in the world. The rich people most hate ordinary people carrying bags like hers. Especially for VIC users who care about Hermès most, they do not want to see Hermès small pieces appear in the second-hand market. When there was a conflict between the business model and maintaining brand tonality, Hermès made a choice. Whether it was raising prices or adjusting the distribution quota, it might not be for promotional volume, or it might not be to push the product to non-core target groups.

Hermès’s move has caused conflicts among other luxury brands. Either they follow the price increase to maintain the brand’s ecological niche and not drop in price; or mid-waist brands like Burberry and others have to cut prices and are first abandoned by the rich. As a result, the brand’s status declines, ordinary consumers refuse to pay a brand premium, and eventually fall out of the ranks of luxury brands and slowly decline.

You can say that this is Hermes ‘overt plot.

01

In fact, for the entire luxury goods industry, the past few years have been difficult.

According to financial reports, Kaiyun Group, which owns Gucci, Balenciaga, Saint Laurent and other brands, has revenue of 17.194 billion euros in 2024, down 12% year-on-year. Due to the sluggish stock price, Arnold, the head of LVMH Group, has lost more than 25 billion dollars in one year, making him the most frustrated richest man of the year on the Bloomberg Billionaires 500 list.

During the turbulent period of the industry, major luxury brands are thinking about how to survive the cold winter.

Recently, Gucci, Dior, and Loewe have announced creative directors, seemingly wanting to use style changes to satisfy consumers ‘increasingly unpredictable preferences; Burberry and Saint Laurent have even re-delineated prices, greatly reducing prices for popular products, and the brand is increasingly moving closer to the luxury positioning of middle-class consumption habits.

For a long time, the China market, with explosive economic growth, has been the growth engine of major luxury goods groups around the world and a key market frequently mentioned by company executives at earnings conferences.“” In 2020, when the epidemic broke out, the global luxury goods market shrank by 23%, while the China market bucked the trend and surged by 48%. In 2021, it also achieved rapid growth of 36%.

However, this market performance does not come from the boost in consumer income, but more because of strict entry and exit management requirements, which has caused those who used to choose to buy luxury goods while traveling overseas to choose to buy them in domestic stores, resulting in consumption. Return.

With the significant relaxation of entry and exit policies and the domestic economic development has entered a new situation. In the past two years, the China market has become an uncertain factor for the luxury goods industry.

According to the “2024 China Luxury Market Report” released by Bain. Sales in the personal luxury goods market in mainland China are expected to decline by 18% to 20% in 2024. In contrast, the power of China consumers in luxury goods consumption in overseas markets has rebounded significantly. Affected by the exchange rate, Japan is the favorite place for domestic consumers to buy overseas luxury goods, and consumption in the Asia-Pacific market has recovered to 120% of 2019.

However, judging from the overall consumption quota, China users ‘spending on luxury goods is still declining.

Urban middle class and high-net-worth people have always been the two main forces in luxury consumption. However, in the current economic downturn, the middle class has to make careful calculations on spending. The three years since the epidemic have made many people lament that time has passed too quickly and many life experiences have been missing. Consumers ‘sense of identity with luxury goods is dissipating. Even if they have spare money to reward themselves, they still take precedence over travel or various types of experiences. consumption.

In addition, the luxury goods that we had previously gritted our teeth to bear not only cannot bring added value to identity, but may also cause a lot of extra things. In the past, young people would carry A goods and pretend to be authentic for face. Now, the reverse is reversed. Many people also carry authentic goods and say that they are A goods, for fear that people around them will borrow money from them when they see big-name bags.

But even the more resilient high-net-worth users have become conservative, more inclined to spread risk and invest spending in a wider variety of value-protected assets.

Such a shift in concepts has made the divisions within luxury goods more and more obvious. As the absolute king of the industry, Hermès delivered a satisfactory answer in 2024.

According to the 2024 financial report released by Hermes on February 14. Based on fixed exchange rates, Hermès comprehensive revenue in 2024 will reach 15.2 billion euros, a year-on-year increase of 15%; the annual recurring operating profit will be 6.2 billion euros, a year-on-year increase of 9%; and the net profit will be 4.6 billion euros, a year-on-year increase of 7%.

In terms of regional performance, Hermès has achieved growth in all regions around the world.

Asian (excluding Japan) market revenue was 6.648 billion euros, a year-on-year increase of 7%; Japanese revenue was 1.437 billion euros, a year-on-year increase of 23%; American market increased by 15% year-on-year to 2.865 billion euros; Europe (excluding France) increased by 19% year-on-year to 2.147 billion euros; France increased by 13% year-on-year to 1.447 billion euros.

It should be emphasized that sales in the Japanese market have been stimulated by positive exchange rates, and a considerable part of them come from non-local consumers.

02

“One of the factors that distinguishes Hermès is that it adheres to its products, which can attract consumers even in the downturn of the entire industry. rdquo; Axel Dumas, the sixth-generation head of Hermès, commented on the company’s performance.

Hermès CFO also believes that if there is anything that has surprised the company in the past few quarters, it is Hermès resilience, which is in sharp contrast to other brands in the industry. rdquo;

In 2014, Hermès and LVMH ended a year-long equity acquisition war. LVMH showcased its shares to shareholders, and Hermès maintained its independent business model. Dumas, the company’s sixth-generation successor, has repeatedly stated that Hermes and LVMH Group are not comparable and have very different concerns.

The implication is that LVMH cares more about business and scale, while Hermes cares more about cultural inheritance. Or to put it bluntly, he believes that in order to make money, LVMH is dumping LV to ordinary middle-class and even newcomers in the workplace. Every office worker has a LV, while Hermes focuses on serving the truly rich. The two are different.

To be fair, Hermes ‘core user group is only high-net-worth people, and middle-class consumers are not included. Compared with other brands that strive to expand their influence and audience, Hermès has always maintained a cautious growth rate and tends to focus on serving core audiences with a stable business model.

Since 2020, Hermès has raised product prices every year, with an increase of 6% and 12%.

At present, the official selling price of Hermès flagship product Birkin bag in China has exceeded the 100,000 yuan mark. Hermès said that the company’s pricing strategy remains consistent and there are only two reasons for the price increase. One is that inflation leads to an increase in production and personnel wage costs, and the other is fluctuations in regional market exchange rates. The company will continue to adjust the price at its own pace.

Of course, this statement is only superficial. The rise in product prices has quietly further shut out the middle class and better satisfied the superior recognition of high-net-worth users with their identity and status.

Hermès’s hidden rules of distribution shut out the middle class, although it never recognizes the existence of distribution rules.

As we all know, Hermès leather bag sales are matched with other products. Birkin, Kelly and Constance are the three major kings of Hermès bag. Only customers with sufficient purchase records under the brand are eligible to purchase. In terms of performance incentives, Hermès sales staff receive no commission on selling Birkin bags, other styles of handbags receive a 1.5% commission, and a commission rate of 3% for selling auxiliary products.

According to a person familiar with the matter, Hermès sales records the wish list of first-time consumers. In order to guide consumers to continuously increase their consumption quotas, the products they want most will be the most difficult to obtain. Until the consumption standard line is reached, the shop assistant will regard the desired products as victory products are sold to consumers. Judging from the sharing of horse breeders, the current distribution ratio of bags is 1.5 to 2 times.

The distribution model makes Hermès entry threshold much higher than that of other luxury brands. After understanding the sales model, the small white people consciously backed out. In short, Hermès doesn’t want users who can only afford two or three bags, but needs to buy a rich person who doesn’t blink to match a pile of goods.

The distribution model also allows Hermès to maintain a relative balance in various categories of products. In addition, Hermès has always adopted a production method made by craftsmen and strictly controlled output. Compared with other luxury brands, Hermès’s inventory backlog is almost negligible.

03

Of course, Hermès’s outstanding performance in 2024 may also be due to Chanel ‘s reverse assist.

In the luxury brand hierarchy, Hermes, Chanel, Dior and Louis Vuitton are the top three. In recent years, Chanel has obviously wanted to move closer to Hermès and has raised prices significantly many times. The price of the classic CF large handbag in the China market has soared to 90,000 yuan.

The price increase will increase Chanel’s revenue by 16% year-on-year in 2023, which has an immediate effect, but has a certain negative impact on social platforms.

Judging from the main products, the lambskin material used in Chanel bags is far less durable than the cowhide promoted by Hermès, which makes Chanel bags wear more seriously after a period of use, and at the same time causes Chanel to maintain value in the second-hand market. Far less than Hermès. Previously, Chanel relied more on the changeable design styles to attract users who liked elegant styles. However, the sluggish economic environment forced consumers to put value preservation in an increasingly important position.

On Tik Tok, many clothing bloggers who promote luxury brands have released videos titled why I gave up Chanel and switched to Hermès, further strengthening the public’s perception of Hermès being more valuable. At the beginning of 2025, Chanel announced a 2.5% layoff in the U.S. market. It is hard to say that it has not been affected by the social platform turmoil.

But this is not the core reason for the gap between the two. Since the epidemic, European and American countries have opened the floodgates to release water. While inflation is serious, the gap between rich and poor has further widened. Take the United States as an example. Since the first quarter of 2020, the net worth of American households has increased by approximately US$56 trillion, reaching a record of US$160 trillion in the third quarter of 2024. Among them, the richest 10% have US$111 trillion in wealth, accounting for 69% of the total wealth, while the richest 0.1% have US$22 trillion, accounting for 14% of household net assets. In contrast, the bottom 50% of the population owns only US$3.9 trillion, accounting for only 2.4% of total wealth.

At the same time, the S & P 500 and Nasdaq 100 have risen 128% and 166% respectively since the first quarter of 2020, and home prices nationwide have also soared by about 50%.

The rich are getting richer, and the middle class, the bottom class and young people are relatively poorer. Chanel’s designs are more popular among young people, while Lao Qian prefers Hermès with stable design. Lao Qian ‘s ability to pay is higher, so Hermès will naturally preserve its value. People who admire Lao Qian are also more willing to buy second-hand Hermès to create a character that I am also an old rich man. In contrast, after Chanel raised prices and harvested a wave of young people, the potential for subsequent price control weakened.

In the final analysis, luxury goods have no technical content. It is a storytelling industry. By constantly promoting historical accumulation and the legendary narrative of the founder, it builds non-replicable brand assets and supports premiums, making it a tool used by the rich to demonstrate their identity., middle-class and petty bourgeoisie to create people’s designs.

But this creates tension, that is, the more wealthy people like which brand, the more the middle-class and petty bourgeoisie follow which brand. However, the more the middle-class and petty bourgeoisie follow, the more taboo the wealthy people become, and feel that holding this brand is no longer enough to show their identity.

Therefore, in order to maintain the brand’s luxury status and premium, Hermès had to increase prices and allocate goods to select the most affordable consumers. As for the middle-class and petty bourgeoisie groups, the most willing to pay, it did not refuse and waited for the goods.

This is the Veblen Effect. The higher the price, the stronger the social symbolic value of the commodity. Luxury goods strengthen their identity attributes through price increases, meeting the psychological needs of old money to show wealth and status. This in turn has driven the emerging wealthy class to achieve self-identification through luxury consumption. In particular, China consumers tend to use luxury goods to prove success, creating the group pressure that people around them are buying and I also need.

Luxury goods can control consumers through FOMO (Fear of Missing) and anchoring effects. By regularly releasing price increase signals, consumers can be encouraged to consume in advance driven by the psychological drive of not buying now and making it more expensive in the future. At the same time, the continued price increase of classic models will raise the price acceptance threshold for all products.

The proliferation of social media, the out-of-box content of Internet celebrities and celebrities has amplified the show-off effect, and has promoted ordinary consumers to pay for luxury goods as social currency.

It can be said that luxury goods are the most humane industry, but Hermès is indeed the only company in the world that can play its brand value to such an extent. nbsp;