A brief look at Hermès’ latest news and how the Chinese market is a major player for luxury brands. Will and be able to steal the show?
What’s the latest news?
On Friday, – maker of the iconic Birkin bag – released its sales figures for the second quarter, boasting a 7% increase and making an impressive $1.7 billion in revenue. Yet Hermès shares, which had already climbed 20% this year, simply shrugged.
How did we get to those figures?
Chinese shoppers make up about a third of all luxury goods bought globally, so it’s impossible to talk about one of the industry’s darlings without mentioning the Asian behemoth. Despite the recent sharp falls in the China’s stock market – thanks to slower economic growth and real estate prices, making the Chinese consumer feel somewhat less wealthy – it appears they’re still happy to treat themselves with some luxury accessories, be it the odd belt, handbag or bracelet.
What’s the financial angle here?
Hermès commands an enviable product desirability. Their loyal following is prepared to wait years for a Birkin bag. This means the company is more insulated than other luxury firms from any sudden reduction in demand.
The big picture
While it might be easy to assume luxury companies can charge customers whatever they want for access to their fancy clobber, Hermès is actually facing a similar issue to more modestly priced consumer companies – raising prices.
After China cut tariffs on imports in July, Hermès could’ve kept current prices and increased their margin, which is to say, made more profit. Instead it chose to trim its prices by 4%. Investors will hope to have a clearer understanding of this strategy in the coming weeks. Is Hermès simply giving back to its customers or is there more to this? (owner of the Louis Vuitton and Givenchy brands) has just released its 2018 first-half results, with