Why Hermès Is Growing While LVMH And Gucci Decline

Business-specific summary (Hermès growth vs. LVMH/Gucci slowdown)

Hermès has sustained stronger performance in a luxury industry correction by doubling down on a scarcity-and-desirability strategy. This includes limiting supply, maintaining exclusivity, and investing less in advertising/celebrity-style promotion—while leveraging craftsmanship, brand history, and a controlled customer access model.

Core strategy & operating model

• Scarcity as a demand engine

  • Build/make less than demand to keep desirability high.
  • Fewer physical stores and fewer handbags online than the market would otherwise buy.
  • Limited annual releases with style-level quotas.

• High-status, controlled customer access

  • Customers often need an “in” with sales associates.
  • Relationship-building purchases are required to become eligible for flagship items (e.g., Birkin/Kelly).
  • Example purchase constraint: max ~2 Birkin and Kelly purses per year per client (as described).

• Vertical integration + family control

  • Vertically integrated; still run by the founding family.
  • Limited public transparency/low executive interview frequency.

• Craft + heritage + lifestyle alignment

  • Emphasis on quality inputs (leathers, stitching) plus deep understanding of wealthy customer preferences.
  • Brand storytelling through iconic product histories (e.g., Kelly/Birkin origin stories).

Marketing/brand approach (how they create demand)

• Less reliance on brand ambassadors

  • Spends considerably less on advertising for notable products than competitors (as referenced in the subtitles).

• Timeless product strategy

  • Maintains classic designs with incremental updates (e.g., new materials/new looks to traditional lines) rather than “massive innovation.”
  • Goal: keep products evergreen to protect premium pricing power.

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Frameworks / playbooks implied (scarcity + tiering)

• Scarcity & allocation playbook

  • Limit inventory and releases to preserve desirability and sustain pricing power.

• Customer access / tiering model

  • Eligibility via relationship + spend history (treating purchase history as a gate to scarce SKUs).

• Portfolio/category discipline

  • Avoid cross-subsidization risk by keeping growth anchored in core categories.
  • Discussion includes potential expansion to watches but with caution.

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Key examples / concrete tactics mentioned

• Flagship handbags as central revenue driver

  • Birkin/Kelly demand is positioned as the brand’s economic engine.
  • Subtitles claim handbags (Birkin/Kelly) account for ~1/4 of total revenue.
  • Secondary market value cited: $100,000+ resale for certain bags.

• Product availability mechanics

  • Quotas and limited releases per year; controlled “tiers” of products.

• Legal/copycat defense

  • Counterfeits are described as a major threat.
  • Hermès spends millions on legal fees to fight fakes.

• Legal/regulatory controversy example

  • March 2024 (California) class action alleging customers are forced to spend thousands before purchasing a Birkin (antitrust claim).
  • Suit reportedly revised Oct 14, 2024 after a judge requested more proof.

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Metrics & KPIs / targets & timelines cited

Growth, margins, and performance indicators

• Revenue growth

  • Double-digit revenue growth in “2020 Q3” (subtitles appear to mix time references; key point is double-digit growth).

• Pricing power

  • Luxury prices up 30%+ (period not fully specified in subtitles).
  • Cost of Hermès’ popular model ~16% higher (over the past few years, per subtitles).

• Industry relative performance

  • Hermès growth contrasted with declines at:
    • LVMH and Gucci/Kering (described as “sharper than expected” sales declines).

• Share price / market valuation signals

  • Hermès share price: up ~10% since start of 2024
  • LVMH: down ~13%
  • Kering: down ~40%
  • Market cap cited: >$233 billion (as of the mentioned date).

• Valuation

  • P/E ratio noted as more than double that of rivals (in a cited 2020 timeframe).

Customer demand and transaction behavior (Q3 2024)

• Hermès faced lower sales growth across regions vs. the prior year.
• However, earnings-call commentary indicates:
  • Lower customer traffic
  • Customers spending more per transaction

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Operational/strategic recommendations implied (what others could learn)

• Maintain desirability via controlled supply

  • Use allocations/quotas and limit store/online availability to prevent brand dilution during slowdowns.

• Use customer access rules to protect premium positioning

  • Build relationship-based “eligibility” for scarce SKUs (with note: this creates reputational/legal risk).

• Lean into pricing discipline rather than heavy promotional spend

  • Focus on premium pricing and product timelessness to offset demand softness (e.g., during “aspirational” customer contraction).

• Invest continuously in IP/anti-counterfeit enforcement

  • Counterfeits threaten both revenue and brand equity; legal defense is part of the operating system.

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Risks and constraints highlighted

• Legal/antitrust exposure

  • Class action alleging enforced high spend to qualify for Birkin access.

• Counterfeit and reputational risk

  • Fakes described as an enormous market; ongoing litigation required.

• Sustainability and supply chain

  • Concerns tied to wild animal skins.
  • Climate change could affect materials (e.g., Brazilian silk, European leather).

• Exclusivity can backfire

  • Exclusivity fuels demand, but can also trigger customer backlash/regulatory scrutiny.

• Growth sustainability

  • Potential slowing mentioned over the next year, especially depending on China, North America, and Europe.

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Presenters / sources mentioned

• CNBC (Hermès declined CNBC’s request for interviews)
• Bernard Arnault (LVMH CEO; referenced for stake-building and legal battle)
• Thierry Hermès / Hermès founding (1837) (historical source within the narration)
• LVMH
• Kering (Gucci owner referenced)
• Chanel (pricing contribution referenced)