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The allure of Hermes

After I described the rise and fall of the Gucci family business empire (January to February 2021), a reader asked me: “The biggest companies today are in technology, like Amazon and Apple. It’s difficult to survive in fashion, because luxury goods are not necessities in the pandemic. It’s sad to know what happened to the Gucci family, but are there brands that are still under family control and doing well today?”

Yes, such as Hermes. Founded in 1837 in France by Thierry Hermes, the eponymous company started by producing leather harnesses and bridles for the upper class. Thierry’s son Charles-Emile introduced a saddle bag for riders and moved the shop to Rue du Fauborg Saint-Honore in Paris, where it stands to this day.

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Through the decades, sons and sons-in-law who succeeded the patriarch added product lines such as clothing, handbags, watches, scarves, jewelry, perfumes, dining ware. Exemplified by the Kelly and Birkin bags, named after Monaco’s Grace Kelly and English actress Jane Birkin, respectively, company products followed what third-generation Emile-Maurice Hermes said was “a tradition of refined elegance.”

Unlike the Guccis, the Hermes clan never let internal squabbles destroy the business. The best heirs took charge in succession, with company interests in mind.

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In the 1970s, Hermes’ use of pricier natural materials made it lose market share to competitors utilizing synthetic ones. But Jean-Louis Dumas, whose father Robert Dumas became the first in-law to lead the business, took the helm in 1978 and broadened brand appeal to the young. An ad of a denim-clad young lady with a Hermes scarf prompted an observation that the latter “changed from the object of an old person’s nostalgia to the subject of young people’s dreams.”

In 1993, Hermes listed in the Paris stock exchange, generating funds and allowing family members to liquidate shares without arguing about valuations. Family control has always been top of mind for Hermes, and in 2014, sixth-generation Axel Dumas took the lead.

Today, the family still collectively owns more than 65 percent of the business, with more than 75 percent of voting rights.

In 2010, conglomerate LVMH acquired 20 percent of their shares, triggering fears of a takeover. How did the family repel the threat?

“Most of Hermes’ shares belonged to 60 or so descendants, split into various branches,” said The Economist. “Arnault [of LVMH] was publicly rebuked as a corporate raider … [with a] stake built through complex financial products that skirted disclosure rules (LVMH was later fined 8 million euros by the markets regulator). Ultimately, Hermes family members eager to remain in charge created a structure, which pooled just over 50 percent of shares, committing themselves to owning their stakes come what may until 2031. By 2017, Arnault had given up.”

Family solidarity is not enough—Hermes continues its solid tradition of quality and exclusivity, with its signature bags on waiting lists even in the pandemic.

“Because much of what it sells carries through the seasons, Hermes does not need discounts to get it off the shelves,” says The Economist. “That preserves both margins and the brand, a luxury group’s most valuable asset … A Dior dress will last one season, an Hermes product is for life.”

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Unlike its competitors, Hermes is doing well in the pandemic, because it does not depend on Asian tourist demand. Supplier troubles are minimized because Hermes does not outsource its products, preferring to make them in-house.

To thrive in a turbulent world, Hermes partnered with Apple to produce a watch. Recently, it “branch[ed] out into cosmetics, offering aspiring shoppers a cheaper entry point than Birkins … [and] invested in a Chinese venture … that may be useful if consumers in China … start coveting local baubles instead of French ones.”

Queena N. Lee-Chua is with the board of directors of Ateneo’s Family Business Center. Get her book “All in the Family Business” via Lazada and Shopee, or the ebook on Amazon, Google Play, Apple iBooks. Contact the author at [email protected]

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