Tracking the Evolution of Hermès

Each year, Hermès sets a creative theme for its design studios, with the aim of sparking conversation and providing some unified direction among its myriad propositions, ranging from entry-level scarves to high-end handbags and custom yacht upholstery for the happy few. This year’s theme, the Odyssey, is about “confronting the world’s uncertainties without losing our identity,” chief executive Axel Dumas said in a July presentation.

It’s an apt metaphor for the French brand to adopt as it navigates the post-Covid fashion market: On the one hand, Hermès’ ultra-classic, stable positioning at the top of luxury’s pyramid has made it one the sector’s largest and most resilient players, with sales bouncing back quickly from coronavirus lows as consumers flocked to its range of timeless, status-conveying items. On the other hand, despite its aura of staid permanence, Hermès’ recent statements suggest a faster pace of change at the company, including adding new product categories and ramping up initiatives linked to sustainability, technology and omni-channel retail to meet the demands of the market.

Sales in the first nine months of this year rose 60 percent year-over-year, and by 43 percent compared to 2019′s pre-pandemic levels, Hermès said Thursday. With full-year sales expected by analysts to exceed €9 billion ($10.5 billion), the house is in striking distance of reclaiming its title as luxury’s third-biggest brand (behind Louis Vuitton and Chanel) from Gucci, which surpassed Hermès in 2017 but has rebounded more slowly from the pandemic.

The 2021 numbers look “as if the pandemic never happened, or even a bit better,” Bernstein analyst Luca Solca said. The brand “remains in a league of their own,” according to Citi analyst Thomas Chauvet.

That Hermès has come out ahead of the pack following the coronavirus crisis is no surprise: The brand has long been luxury’s most defensive player, insulated from market shocks by a deep well of client demand that exceeds supply for its prized Birkin and Kelly bags, despite the company ramping up production by opening new manufacturing sites each year. (The bags have an outsized financial impact for Hermès as fans of the brand are known to court salespeople by loading up on other items and tend to jump at any chance to finally acquire one of the bags — crisis or not.)

What’s perhaps more noteworthy is how much the brand is foregrounding new initiatives and innovations, challenging its reputation for playing it safe.

Tradition and experimentation

Hermès is moving forward with the rollout of its nascent beauty unit, which debuted last year with a line of lipsticks packaged in eye-catching striped enamel tubes. The new division has since added the brand’s first-ever makeup, a range of $77 blushes announced with an influencer marketing campaign that triggered unboxing videos galore. (The campaign was a rare move for Hermès, which has typically avoided the practice of gifting products to influencers.) The new division launched in July in China and is now rolling out a line of nail polishes and hand creams ahead of the holiday season.

The company’s Perfume and Beauty unit still makes up less than 5 percent of sales. But beyond its financial impact, the division is giving the brand new topics to drive the marketing conversation and a chance to play at a lower price point than ever before ($200 neckties and $450 scarves had previously been the group’s entry-level items par excellence).

While the brand doesn’t sign endorsement deals with celebrities, recent efforts to push into the spotlight have paid off on the red carpet as well. The brand managed for the first time in recent memory to cozy up to a star and dress her for the Oscars, outfitting director Chloé Zhao in an Hermès gown as she won both Best Picture and Best Director for “Nomadland.”

And while other brands have dipped in and out of the wearable tech space with one-off partnerships that often felt forced, Hermès pursued the category further this year by launching new items with Apple, building on a partnership that goes back to the launch of the first Apple Watch in 2014. It designed leather cases for the California tech giant’s new line of “AirTag” geo-trackers, as well as revamping the design of its popular Apple Watch wristbands to fit a new-generation model being launched this month.

“When Hermès does something they usually don’t try to make a splash. They don’t come out and say: ‘We’re preparing for the next wave of young clients.’ But they are making changes,” Zuzanna Pusz, luxury analyst at UBS, said.

The brand is also spotlighting efforts related to sustainability, a subject where it typically tries to fly under the radar: In March, the brand — for which prestigious leather goods make up half the business — became the first major luxury name to experiment with mushroom-derived leather substitutes when it used a material called mycelium on a special edition of its Victoria duffle. And in September it opened the first dedicated store for its “Petit h” line of upcycled leather items made from remnant materials.

In its quarterly results presentations this year, the brand has started adding a list of favourable designations in various sustainability and corporate responsibility rankings. “It’s a sign they’ve understood investors care about this,” Bernstein’s Solca said.

Influencer marketing campaigns, red-carpet celebrity placements and touting sustainability wins might all sound like par for the course for a top luxury brand. But the moves each represent a shift for tradition-steeped Hermès.

Further evolution could be on its way.

While the brand doesn’t seem close to giving up controversial exotic skins, like Chanel, in a meeting with analysts Thursday the brand’s management said it was limiting production of items like top-priced crocodile-skin Kelly bags as it worked to increase its control of the supply chain for those materials down to the farm, citing ethical factors as well as a desire to boost quality.

The brand has also said it wants to update its approach to e-commerce. Hermès’ regional e-commerce sites have always been managed as their own stores, managing their own stocks independent of brick-and-mortar boutiques (and with little access to sought-after bags). The gap between the e-commerce and physical store assortment means younger shoppers can’t effectively indulge their proclivity to inform themselves about products and prices online before visiting stores. Now, CEO Axel Dumas is considering a more integrated approach. “It’s very important to think in terms of omni-channel — and let clients decide where they want to buy,” he said.

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