Hermès: Two Centuries of Craftsmanship and Excellence

Dive into the illustrious journey of Hermès, a testament to two centuries of unmatched craftsmanship and excellence in the luxury world. Originating as a small leather store, Hermès has ascended to become the world's second-largest luxury company, trailing only behind LVMH. This narrative unveils the creation of the iconic Birkin bag, a symbol of the pinnacle of luxury, and delves into the strategic maneuvers that protected the brand from potential takeovers by its biggest rival, LVMH. Join us as we explore the enduring legacy of Hermès and the Dumas family, whose steadfast dedication to craftsmanship and quality has preserved the essence of Hermès, positioning it as possibly the most prestigious luxury brand worldwide.

• Foundational history: Hermès was founded in 1837 by Thierry Hermès as a maker of saddles and leather goods for European royals.

• Iconic brand and products: Assuming leadership in 1978, Jean-Louis Dumas transformed Hermès into a global luxury brand. He reintroduced the Kelly bag and created the iconic Birkin bag, named after Jane Birkin.

• Preserving family control: The Dumas family successfully avoided LVMH's takeover attempt by pooling their shares in 2011, ensuring family control for the foreseeable future.

• Continued success: Under the leadership of Axel Dumas, a sixth-generation family member, Hermès has upheld its reputation for quality and craftsmanship spanning nearly two centuries. As of 2024, it stands as the world's second-largest luxury company by market capitalization.

The story began in 1837 when Thierry Hermès founded the family business. In those early days, long before the company would earn its fame for scarves and highly sought-after Birkin bags, Hermès served as a skilled maker of saddles and leather goods, primarily catering to European royal households.

Fast forward to his grandson, Emile-Maurice, who became president of Hermès in 1902. The turn of the century was marked by the arrival of the automobile age, a development that began to replace horses, one of the core business areas for Hermès at the time. Brands like Rolls Royce and BMW suddenly emerged as competitors.

However, Emile-Maurice's visionary spirit and dedication led him to collaborate with his friends Louis Renault and Ettore Bugatti (founders of the renowned car brands Renault and Bugatti), resulting in the successful creation of automobile trunks. He further diversified the business into furniture, belts, and exclusive fashion, establishing a wide and formidable presence within several product areas.

Emile-Maurice had three daughters, all of whom married into other influential families, creating the Guerrand, Puech, and Dumas branches. This is why the family no longer carries the Hermès surname today. Robert Dumas married one of Emile-Maurice's daughters and expanded the company's range to include scarves and neckties in the late 1930s. Taking the helm in 1950, he led the company for three decades before passing the reins to his son, Jean-Louis, who assumed the roles of CEO and creative director in 1978. Together with his cousins Patrick Guerrand and Bertrand Puech, Jean-Louis elevated the 150-year-old family business to new heights.

Interestingly, every heir of Hermès begins their career as an apprentice in production, dedicating at least a decade to crafting some of the world's finest handmade accessories before assuming executive positions. This strong family tradition, upheld by the Hermès-Dumas family since its inception, is quite remarkable. This is also very unique; in comparison, the Arnault children, heirs of LVMH, have assumed executive positions in their 20s without any first-hand experience from the production floor.

Under Jean-Louis's leadership (1978 – 2006), Hermès soared to unprecedented heights of luxury. He successfully reintroduced the iconic Kelly handbag, infusing it with a vibrant array of colors. Arguably, the single most important decision he made was crafting a bag to the exact specifications of Jane Birkin, the 'it girl' of the time, and forever naming it after her. The Kelly and Birkin bags remain unparalleled in their success to this day, standing not just as Hermès' triumphant masterpieces, but as two of the most lucrative handbags ever created in worldwide business history.

The genesis of the iconic Birkin bag can be traced back to an encounter between Jean-Louis Dumas and Jane Birkin on a routine flight from Paris to London in 1983. This fateful meeting inspired Dumas to craft a bag that expressed Birkin's unique attributes: a blend of elegance and utility that could transition seamlessly from day to night.

Jean-Louis noted that Jane struggled to carry her belongings, recognizing a challenge that many women were likely facing at the time. He then took this opportunity to create something both stylish and practical, using Jane Birkin as a symbol for the bag. He extended an invitation to Jane to co-create a unique design together with Hermès. The legendary Birkin bag emerged from their collaboration and was introduced the year after in 1984 – marking a milestone in fashion history.

Almost everyone associates Hermès with its fashion and leather products, which is perfectly reasonable. After all, the 'Leather Goods and Saddlery' and 'Ready-to-Wear and Accessories' segments together accounted for over 70% of the total sales as of Q3 2023. These categories also include highly visible products that receive a lot of attention, such as the Birkin and Kelly bags, providing more color to why people associate these sectors with Hermès.

However, it's not commonly known that just three decades ago, 'Silk and Textiles' constituted 55% of sales, while leather goods contributed less than 10%. In other words, for the vast majority of Hermès' history, fashion and leather products were not the primary focus.

Interestingly, Axel Dumas, the current CEO of Hermès, mentioned in an interview that during his first internship at Hermès in 1988, Silk and Textiles made up 55% of sales, with leather goods at only 9%. Since then, the situation has completely reversed, showcasing a significant shift in the company's product focus and the overall consumer behavior.

Illustrating Hermès' growth by sector since 2003

Illustrating Hermès' growth by sector since 2003

Similarly, France accounted for nearly 100% of the business until the 1980s, a figure that is striking considering that by 2006, its share of sales had dropped to 19%. By that time, Japan was the largest revenue contributor, accounting for 27% of sales. Today, France's share has further declined to only 10%. Meanwhile, the Asia Pacific region (excluding Japan), which accounted for only 17% of sales in 2006, has seen its share surge to 56% today.

Hermès' growth by geographical region visualized

Hermès' growth by geographical region visualized

It is interesting to note that leather goods and ready-to-wear have also been significant contributors to the growth of other luxury giants, such as LVMH, during the same time period. This trend likely stems from two key factors: 1) The expanding middle class, primarily in the Asia Pacific region, which enables more people to afford these products, and 2) The rise of social media, which has enabled a platform for individuals worldwide to showcase their style, status, and looks to a broader audience in an efficient manner.

Visualizing Hermès' year-over-year growth rates 2003 – 2023

Visualizing Hermès' year-over-year growth rates 2003 – 2023

Besides reintroducing the Kelly bag and creating the Birkin bag, one of Jean-Louis's most pivotal contributions to Hermès emerged from observing Bernard Arnault's boardroom clash with the LVMH family in the late 1980s as they competed for control of LVMH. Jean-Louis consequently implemented two crucial measures to safeguard Hermès from potential takeovers. He founded Émile Hermès SARL in 1989, a business entity representing the family shareholders which was responsible for hiring managers and making strategic decisions. Jean-Louis also listed 4% of Hermès on the French stock exchange in 1993, providing future generations a way to liquidate some of their ownership in Hermès while ensuring that family control remained intact.

Additionally, Jean-Louis kept diversifying Hermès's product lines, expanding into ready-to-wear clothing for men and furnishings. The company's revenues had soared to an impressive $1.9 billion by 2006, marking a fourfold increase since 1989. Recognizing the rapid growth, Bernard Arnault placed Hermès into his wish list portfolio of luxury enterprises, much like he had done earlier with Dior and Fendi.

Further reading: The 13 Largest Luxury Companies in the World

Despite the preservation initiatives from the Dumas family, Arnault began silently acquiring Hermès shares in 2001. However, it was not until nearly a decade later that LVMH would attempt a complete takeover. The revelation of LVMH's 17% ownership stake in 2010 sent shockwaves through the industry, as a takeover seemed imminent. Yet, the Dumas family had other plans. In 2011, over 50 descendants of Thierry Hermès pooled their individual holdings, collectively contributing 52% of the total shares to a holding company and agreed not to sell any shares for the next two decades. This move ensured that control of Hermès would remain within the Dumas family and outside the hands of Bernard Arnault.

Descendants of Thierry Hermès continue to lead the company, now under the stewardship of the fifth and sixth generations. Axel Dumas, a member of the sixth generation, has served as the CEO of Hermès since early 2014.

The continued success of Hermès can largely be attributed to the enduring and increasing demand for its exquisite leather goods as well as the careful control and treatment of this now 187-year-old brand. With prices starting at $8,450 for a Kelly handbag and $8,850 for a Birkin, these highly sought-after items are in greater demand than ever. A fun fact on this topic: Victoria Beckham is rumored to have a collection of over 100 Birkin bags, valued at more than $2 million.

The company's steadfast and relentless commitment to quality and craftsmanship has solidified its status as one of the world's most prestigious luxury brands, if not the most prestigious. In fact, Hermès has by 2024 surpassed €200 billion in market value and currently holds the position as the world’s second largest luxury company by market capitalization, second only to LVMH.