LVMH, Hermès, Kering: US–China Headwinds, Pricing Reset, and Margin Protection

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Yes, and in many markets. From everything I've seen and heard, the Chinese consumer and market are becoming more sophisticated and educated about brands and products. This is a natural advancement of the luxury market there. If we discuss specific brand performance, LVMH has seen some downward earnings revisions, while other high-end brands like Hermès have held up quite well in comparison. How do you feel about the outlook for Hermès in the current environment?

Hermès is a fantastic brand because they have managed to maintain an image of exclusivity and artificial scarcity for many years. They are best in class in that execution. All credit to them for being a fantastic brand. I don't think they are completely immune to what's happening, but in today's environment, people with money to spend will choose safer bets. Hermès now has an investment value component. In Paris, for instance, auction houses display two Kelly, one Birkin, and maybe a Vuitton. They might display a Vuitton trunk, but for smaller leather goods or handbags, it's Hermès, Hermès, Hermès, with one Vuitton, one Chanel, and one Dior. Hermès dominates about 80%. For those who need to justify their purchases, Hermès has a status of its own. The real credit goes to them for building and maintaining this status over the years. Despite being a widespread product, especially in small leather goods, Hermès has not reached that status in apparel. The contribution of smaller goods to their EBIT is significant, probably around 85 to 90%. Hermès has a golden goose with golden eggs, and they have managed not to kill it, thankfully.

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