A revealing encounter with the head of global luxury brand Hermès
▶ Hermès CEO Axel Dumas talks exclusively to Selina Denman about the future of one of the world’s leading brands
“We have success and sometimes we have failure. And sometimes if I see no failure, I wonder if we didn’t push it enough,” Axel Dumas, the chief executive of luxury goods manufacturer Hermès, tells me.
Positioned as it is at the very pinnacle of the luxury industry, Hermès, maker of the iconic Birkin and Kelly bags, is not a name that you readily associate with failure. A few days after I met Mr Dumas in his office in Paris, the brand reported net profit increasing 11 per cent to €1.2 billion in 2017, while consolidated revenues rose 9 per cent to €5.5bn. The company employs almost 13,500 people in 49 countries. All of this in a business landscape that Mr Dumas himself calls “ambiguous, or paradoxical”.
“What I really believe is, since the 21st century arrived, we are in a much more volatile environment,” he says. “Every two years, you have a major unexpected event; we had September 11 in the US; we had the Sars [virus]; we had the financial crisis in 2008; there have been terrorist attacks in Paris, London and Madrid, and you had Fukushima in Japan.
“In this volatile environment, what do you need? You need to have a balanced portfolio – of products but also in terms of geographical areas,” he adds. “You need to be prepared that something is going to happen, although you cannot foresee what that is. I believe you need to be courageous.”
Throughout 2017, Paris-based Hermès focused on improving its distribution network, renovating and extending about 20 of its stores around the world. In a continuation of this drive, it unveiled a new Dubai Mall store this week, amid much fanfare. At 976 square metres, this new flagship for the Middle East is a symbol of the brand’s commitment to the region, but is also designed to display the breadth of the Hermès portfolio.
Lest anyone imagine that this luxury powerhouse creates only colourful scarves and Birkin bags, the multistorey retail space presents products from the brand’s various “métiers”, which include leather goods and saddlery, men’s and women’s ready-to-wear and accessories, silk and textiles, perfumes, watches, jewellery and Art of Living, which has its own dedicated space in the new store.
“We’ve been in the Middle East market for a long time; we started in Dubai 14 years ago,” Mr Dumas says. “I really believe that we are seeing more and more world capitals: London, New York, Shanghai and definitely Dubai, for the Middle East… So we really wanted to have a flagship. It’s a statement. It’s about our optimism for the future, but also being thankful for the past; it’s because of our loyal clients that we are able to build such a store.”
Notably, the brand experienced growth in all geographical areas last year. Revenues recorded in Europe and America were both up by 8 per cent, while Asia (excluding Japan) achieved an 11 per cent increase – although this shouldn’t be seen as a rebound, per se, Mr Dumas points out. “We were one of the lucky brands that never saw a downfall in China,” he says. “There was an anti-corruption campaign that impacted some brands, but we always had strong growth. The markets that were much more impacted in China were spirits and watches. Watches is still small for us. There is no rebound in China for us, because we have seen continuous growth.”
He attributes this, in part, to a growing appreciation of quality among Chinese consumers. “I think there has been a real change in the Chinese client who understands very quickly what is craftsmanship and quality. We saw a lot of Chinese clients switch from very logoed products to products with more craftsmanship.”
Craftsmanship has been at the heart of the Hermès brand since it was established in 1837 by Thierry Hermès to create harnesses for horses. The business was essentially built on the strength of the saddle stitch, which can only be performed by hand and is still a major feature of the brand’s leather goods.
“No one else is making a bag with
15 hours of hand-stitching,” Mr Dumas says. “We have craftsmen who have been working at the company for three generations, so they pass on their own secrets.”
Nothing is ever created in direct response to market needs – which is why Mr Dumas quite purposefully doesn’t have a marketing department. He echoes Apple’s late chief executive Steve Jobs’ famous quote when he says: “If you’ve got a marketing brief, you know the desire of the market. Our role is to invent the desire of tomorrow that [people] don’t even know that they have today.” Similarly, he pays little heed to what his competitors are doing, he says.
If craftsmanship is one pillar of the brand’s success, another is the unsurpassed quality of the materials that it uses. But Mr Dumas admits that sourcing leather of the required grade is becoming increasingly difficult as the world of farming becomes more and more standardised and industrialised. Mr Dumas offers an anecdote to highlight how quality reigns supreme at the French maison. “During the financial crisis in 2008, the price of gold went up considerably. It happened that on the closures of our bags, we use much more gold than anyone. So that was really impacting our costs. We had a meeting and I asked one of our craftsmen to attend. We asked him: ‘Why do we use so much?’ And he said: ‘We can use as much as the others. No one will see the difference at the quality control. No sales associate is going to see the difference when they show the product, and no client is going to see the difference when they buy the bag. But, in eight years, we will have the better patina.’ And this is why we kept the same amount of gold. The fact that we are thinking what will happen to our product in eight or 10 years is very important. It’s part of our history and part of our values.”
The ability to maintain those values is greatly aided by the fact that Hermès is still a family-run business. Mr Dumas is the sixth generation of his clan to be at the helm (his great-grandfather, Emile Hermès, the visionary who is credited with setting the company on its current course, had three daughters, so the family name was not continued).
Mr Dumas has been fiercely protective of the brand’s independence and has eliminated the possibility of potential takeover bids by enlisting family members to place their shares in a holding company called H51 (which owns 51 per cent of the company) for a period of 20 years.
“For me, it is very important that Hermès remain independent, not for the family, but to be the custodian of the values of Hermès and also for the decisions that we are making,” Mr Dumas says.
In this, and many other things, Hermès is swimming against the tide, as the luxury industry is now almost completely dominated by a couple of conglomerates that own the majority of luxury brands. Is this detrimental to creativity and consumer choice?
Mr Dumas is measured in his response. “It’s difficult to see if it’s the chicken or the egg,” he suggests. “I will say that there is a very strong consolidation of the industry between big players. Are we responsible for that or is it because of other factors – for example, because real estate is so expensive that now only big groups can buy; or the fact that retailers, who were buying wholesale, are doing less now, so you need to have your own distribution, which can only be made by big brands? It’s confusing to see who is the culprit there.
“What is different now than before, is in the 2000s, our industry was quite homogenous. The average was [annual growth of] plus six, the best was doing plus eight, the worse was doing plus four and everyone was going together. What is new in the last two to three years is polarisation. Within that average of plus six, you have real winners and those that are really not doing well.”
As a result, luxury brands can no longer expect to be automatically supported by the market, which ultimately works in Hermès’s favour. Mr Dumas is a firm believer that no company – not even his – can ever afford to be complacent.
“I am always worried – are we good enough, are we doing enough, should we push it more? You should never think you are above the fray.”
The fact that we are thinking what will happen to our product in eight or ten years is very important. It’s part of our history and part of our values