Hermès: Beyond Fashion

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No, I have not.

But Hermès is a world apart. Part of the reason is Hermès doesn't really use celebrities. The product and brand are the celebrities. Dior and Chanel use celebrities, which can be powerful but also fleeting. Hermès consistently walks the walk, and their margins reflect that. Chanel's margins are opaque since it's not a public company, and Dior's are difficult to see. Hermès, however, is the most profitable, with an EBIT margin of 40% or more. Their cash reserves are amazing, and they treat their employees well. The big difference is that while Hermès has a fashion point of view, they are not fashion. Their style is simple, of incredible quality, and well-made. You either like it or you don't; you don't need a celebrity endorsement. Their supply and demand management is perfect, always having more demand than supply.

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Yes, I agree. I've spoken to a couple of people who used to work there in design-related departments, working closely with the artisans. They mentioned that if a new product was to be launched, they would determine the cost first, and then the margin is added on top. If it costs €10 more to produce, that's just the cost. It's probably run a bit differently than some of their competitors.

Chanel faced backlash this year for dramatically raising prices without a corresponding increase in quality, which may have deteriorated. In terms of desirability, they don't have Karl creating fantasies for us to dive into. We dive into it by wearing Chanel No. 5, buying sunglasses, or a handbag. Fashion hasn't created the desirability you would want, especially since they lost their designer about five months ago. Fashion is important for creating desirability. At Hermès, it's about the artistry; the enamel bracelets, the scarves, the silk, and the handbags. Many people who cherish Hermès are in the top 1% or the 1/10 of 1% globally, not just high-income earners or millionaires.

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