China snaps up Hermes handbags in spite of tough economy
Chinese shoppers snapped up Hermes International’s pricey scarves and Handbags during its quarter-end sales surge. As a result, the top performers of the luxury industry in the global economy were expected to continue to grow in spite of economic headwinds.
Paris-based Hermes announced Friday that revenue increased 23 percent at constant exchange rates in the first three months of the year. Shares have risen more than a third in 2023, climbing as much as 2 percent in early trading.
Chief financial officer Eric du Halgouet told reporters Friday that traffic in China was robust after a very successful fourth quarter. As a result of Chinese New Year, the company reported a very positive sales performance.
In a day following LVMH’s news of a double-digit rise in sales following the COVID restrictions being lifted, the world’s largest luxury conglomerate posted double-digit sales growth. Even big technology companies are experiencing slow growth at a time when LVMH and Hermes remain strong.
Bloomberg Billionaires Index ranks LVMH as Europe’s most valuable company, and its chairman Bernard Arnault as world’s richest. For the first time, Hermes’ valuation exceeded €200 billion last week.
A resurgent Chinese economy is expected to benefit Hermes and LVMH, but weaker luxury players such as Kering are less likely to benefit.
The first three months of Hermes’ fiscal year showed a 22.5% rise in sales in Asia Pacific excluding Japan. Amid concerns about a slowdown in the US, the luxury label known for its silk care scarves also recorded 19pc growth in the Americas.
According to Mr. Du Hangout, the trends for China and the US for the first half of this month are similar to those in the first quarter, saying Hermes is experiencing a “nice dynamic” in China and has not seen any slowdown in the US.
Hermes offered “best-in-class sector fundamentals” in a note Friday by Stifel analyst Rogerio Fujimori. “Growth for all regions and categories came in materially ahead of consensus,” Fujimori wrote.
In spite of stellar growth in Asia excluding Japan, LVMH reported slower growth in the US during the quarter.
Chinese tourists will not return in droves until the fourth quarter, according to Mr. Du Halogen. Hong Kong and Macau had “very nice” performances in Hermes’ first quarter, with travel flows returning inside Asia. Due to last year’s lockdowns, the company should have easy comparisons in the second quarter.
The strongest growth was seen in Hermes’ ready-to-wear division, which grew by more than a third. Despite growing 25pc in the quarter, the company’s watch unit is not experiencing a trend reversal. A slowdown is already being detected by some Swiss watch executives.
When it comes to pricing power, Hermes may be in a class by itself. Many bags have higher resale values, and demand for their handbags usually exceeds production capacity.
When Hermes opened a new facility in Louvers, Normandy, last week, its executive chairman Axel Dumas said that the company aims to open one new leather manufacturing facility per year in its home country. As a result of this opening, it now has 21 leather factories in France. Kelly bags costing €7,700 in France will be produced more cheaply with the new facility.
