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Hermes Study9


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Hermes Study9

  1. 1. STRATEGY CASE March 23th, 2009 Professor : Dorel PARASCHIV 1
  2. 2. A FAMILY COMPANY History and timeline of diversification and Brand spirit building Founded in 1837, Hermès, was a company of harness and saddler, today his principal activity is in piece of luggage and leather goods. Context Diversification Location Image- art - creation 1837 After 5 generations… Thierry Hermès comes to Paris to offer his family expertise of saddlery makers. 1878 Charles-Émile Hermès first bag (model precursor of the Kelly) « Haut à Courroies» 24 rue du Fbg-Saint-Honoré 1880 24 faubourg St Honoré: Opening the first famous POS. Ssupplier of the European Royal Families 1902 Hermes frère High international clients: Kings of Romania, of Spain, conquer international 70 à 80 ouvriers Emperors of Japan, Russia, Presidents of France, Perou, markets: Germany, Belgium, cosmopolite prestige Philippines, names in finance, in Industry, in politic. Poland, Russia (Nicolas II) 1914- First war Emile Maurice pieces of luggage and leather goods purshasse of the leither in style: the “cousus 18 went to USA beginning of because anticipate the development of car industry USA and CAnada sellier” the automobile industry development in USA and Canada Take over the big English saddlers installed in Paris 1918 The start of the spirit: Emile Hermes, Mr “Vif Argent” opens new horizon : the world in mouvment 1919- For new way of life: inedited accessories for travel, sport, car Metamorphose of the familial beginning of link with art 26 Exclusivity on design innovation=>first patent and first firm in a store with a wide private collection, introduction in France the sliding faster: Hermes exclusivity corner window inspirate designers 1929- Economy slump Diversification an rebound on crisis: cult pieces until now, Close new York store Cult pieces 38 the Kelly and others : “sac de dépêches” economies of Some years leater new stores: means : the cult leather “agenda” make with scrap. Way of life Cannes, Deauville and luggage design for : Elegance on liner travel ; Trend of Biarritz. yachting ; Car comfort Renew of use of precious and historical material: The cult “Carré Hermès” made of the silk used for the jockey‘s blouse 1939- The Hermes Family is A humour spirit within difficult period: inspire square name 5 workshop dedicated to the visual identity is 45 refugee in Cannes “Le Retour à la terre”, “À la gloire de la cuisine française.” sewing (dressmaking) building Occupation Ingenuity face to shortage of colouring and rarity of silk: And Liberation rediscover linen, wool, raffia… the leather stay orange, color adopted on boxes associate with the bolduc. + logo « duc attelé» . Follows the evolution of the way of life : women close for bicycle : divided skirt, shoulder strap bag. 1950 Diversification of products: Robert Dumas and Jean-René Guérand (genders of Emile) 1950- Robert Dumas-Hermès Diversification: The Hermès Tie Shop’s window attract the R.Dumas the illustrator of 60 Jean-René Guérand An attractive place for celebrity : Grace Kelly, le Duc et la celebrity were meting with silk square, A.Beaumel (genders) Duchesse de Windsor, Ingrid Bergman, Jacky Kennedy “Set in scene” decorator of window 1978 a world-wide distribution network conducted by Jean-Louis Dumas (5th and 6th generation of Hermès Family) 1993 Introduction on the Stock Market: but still 73% ownership by Hermès Family. 2003 Crisis Plan investments: distribution and production capacity of International distribution the leather+ Innovation logistic network 2006 Patrick Thomas New CEO continuity of the strategy with a re introduction of design and creativity A unique family company’s project Organization chart & Ownership Economic strength, Profitability as guaranty of the Supervisory Board independence, Visionary strength found on know- -Patrick Thomas and Emile Hermès SARL how of exception and on the creativity and the (represented by Bertrand Puech) diversification Executive Committee « The structure of the company allows the -Patrick Thomas (gérant) family to keep the perfect control of the -Christian Blanckaert Managing Director, Int’l Affairs brand, in privileging its positioning on the -Patrick Albaladejo Associate Managing Director, Strategic long-term, even they have to forecast a slow Development and Corporate branding down in the short-term » Clémence Bounaix, -Guillaume de Seynes Associate Managing Director Richelieu Finance. -Mireille Maury Managing Director, Finance & Administration -Pierre-Alexis Dumas Artistic Director The advantage is the long-term vision support by the 6 members working at a decision level on 40 family shareholder members. 2
  3. 3. ORGANIZATION Holding around 30 companies (Production, Hermès International owns (in%, 2007) : distribution, real estate...) - Leather goods - saddlery: Hermès Sellier; Avril- Gordon-Choisy 100 exotic tannery Morio & Patte; Maroquinerie de Sayat; Ganterie de Soficuir International 99,99 on which Tanneries des cuirs Saint-Junien; Gordon-Choisy; La Manufacture de Seloncourt; La Maroquinerie Nontronnaise; Manufacture d'Indochine et de Madagascar de Haute maroquinerie; Maroquinerie de Belley; Maroquinerie Thierry 47,79 Maroquinerie des Ardennes; Nehel - Textile: Holding Textile Hermès HTH Perrin & Fils 39,5 - Watch: La Montre Hermès Jean-Paul Gaultier 35 - Perfumes: Comptoir Nouveau de Parfumerie - Table Wear: Castille Investissement Vaucher Manufacture Fleurier 21,5 - Shoes: John Lobb, JL & Co BRAND VALUES AND CORE BUSINESS The core competences Conception, manufacture and distribution of prestigious luxurious products. Almost 200 hundred years “Expert in noble material and know-how”: The ton is given to the creation within the company’s activities with an annual theme. - Union of traditions and design - Association of know-how and exceptional materials An historical and long-term strategy of value 2005-2008: “Strive towards a strategy based on the creativity, the quality of the product and the reinforcement of the know-how and the art carft spirit in each of his activities.” 2009: “A long-term strategy, based on the mastery of the know-how and the control of the distributor’s network (applied despite the recession)” Annual report LUXURY MARKET OVERVIEW 3 criteria of positioning in the luxury Market Competitors? There is no universal definition of the luxury on the point of view of the consumer. “The competitors? Material value: quality of the product, rarity, performances, finish… It’s not a topic. Immaterial values: image reinforces positioning Hermes is not Consumer distance: not accessible for all, by his price, his selective distributor’s network positioned regarding the The Kelly bag is an icon object of high range product: very high material value, high others because we immaterial value, high consumer distance broach the product creation, in each 9 attributes fundamental to the business of luxury know-how, with Beauty – Creativity – Uniqueness - Truth – Bravery – Responsibility - Attention to detail - our own meaning Simplicity - Playfulness and with our history.” Pascale Mussard (art director in 2006) 3
  4. 4. The luxury market is in a competitive system of specialization The intrinsic characteristics of luxury product are their customization Groups: The fundamental values of each brand are the way of customer loyalty and the differentiation LVMH: is mandatory. Vuitton, Givenchy, Luxury brands are more sensitive to reputation damage, because a greater proportion of their Kenzo, Lacroix, brand value is derived from empathy and trust. Celine ou Gucci… The competition was emphases in the 90s Gucci Group: The means needy to face to the competition (communication or distribution costs) have lead to Gucci, Yves Saint a concentration of those brands in big group who dominate the market. Laurent, Stella Mac 40 brands with international reputation are competing with a large range of product (variety). Cartney, Alexander… Groupe Prada : Extension in Asia Prada, Helmut Lang, In Tokyo, 94% of women in there twenties own Louis Vuitton bags. Jil Sander, Miu Miu Hong Kong hosts more Gucci and Hermès stores than New York or Paris. China’s luxury market is set to become the world’s largest within just six years. Mono-brand company: Hermes Global strategy trend of the luxury Chanel, Versace, An important part of the role of luxury products was to confer on their owners an air of success Armani… : a strategy of democratisation with an « access luxury » opposite to the Hermes strategy of « prestige luxury » Market positioning Turn over 2006 The leader, LVMH Domestic market International market Domestic market Hermès is highly exposed to the international market 4
  5. 5. The luxury face to the crisis: some data The sale in own shop are quietly maintained The sales in the indirect distributor: 79% of the market falls of 15% Certain product categories suffer more: “arts de la table” or watches. The most exclusive products should better resist Luxury as industry is young (20 years): Marge of progression can be expected on long-term LVMH a high distance leader PEST : Bad trends for luxury market Change risk gets higher China: engine for luxury goods Activity fall down New trend in society’s value emphasis with the crisis Source Marival 2009 “as markets mature, they will become more discriminating” and people will want more “true luxury” rather than “pseudo luxury” Michael Burke, chief executive of Fendi To continue to thrive in maturing new markets, luxury brands will need to offer deeper luxury, with social and environmental excellence built in. A new tend of the definition of success is becoming. Successful people want to show that they care about environmental and social issues. Asian luxury gurus Radha Chadha and Paul Husband describe how tastes are maturing towards interest in luxury lifestyles. Western existentialism “In a world that seems to worship speed, going a little faster is not a luxury,” “Being able to go a lot slower is the luxury.” futurist Charles Leadbeater. “only the brands that show deeper meanings and foster simplicity in creativity will thrive… need a concrete and morally right ‘background story’ to endorse a brand” industry consultant Uche Okonkwo. «In a period of financial crisis, revive for all things an instinctive desire of authenticity whom bring back at its just value an amusing showy stuff” Paul Iribe in Défense du luxe 1932. We used this quotation to show how the value survive with time and so how what the sustainable trend ask for deep and authentic value is a normal variation of time write in the genetic of Hermes 5
  6. 6. FINANCIAL HIGHLIGHT Growth Hermès: Luxury Market: 1764 Millions € turneover (2008) 110 Billions € Turnover (2008) 1st quarter growth : 0.8 % Expected growth 2009 : 0 –5% Expected growth 10% 14 SBA. 7,455 employees. Growth 1Year 3 Years 5 Years Sales % 7.27 6.87 5.52 EPS % 8.20 11.75 6.84 Dividend % 5.26 14.47 12.70 Income statement (3rd quarter 2008) In Millions of 2007 2007 2006 2006 2005 (except for 31/12/2007 30/06/2007 31/12/2006 30/06/2006 31/12/2005 per share items) Period Length Period Length Period Length Period Lengt Period Leng Constant growth of 6 Months 6 Months 6 Months 6 Months 6 Months revenue : Revenue 721.1 814.4 700.5 778.3 2006 -- 7.8% 2007 -- 18.3% -- -- -- -- 2008 -- 10.2% Total Revenue 721.1 814.4 700.5 778.3 Cost of 318.6 252.0 244.4 271.9 Gross Profit 585.4 469.1 533.9 456.1 506.4 Operating 237.9 185.8 216.5 184.6 212.3 This Growth is Net Income 243.4 192.6 227.3 187.6 210.1 sustained by Operating revenue (sales = cash) 79.3 64.5 72.5 63.7 73.2 Net Income 164.1 128.1 154.8 123.9 136.9 (2.9) (2.9) (2.4) (2.0) (2.3) Equity In (1.3) 2.9 (1.5) (4.4) 3.3 Sce: Reuters/Hermes International/income statement Financial stand point : Regarding a constant growth both in sales (activities) and in dividend, today Hermès is the 2nd biggest Luxury company in terms of capitalization. Thanks to 25.5% operating margin and maintaining stability of change rate. 6
  7. 7. Shareholders highlight: Exceptional shareholders administration The capital of the society is locked by the founder family which detained 73 % of share stock (Share buyback Program of 50M€ in 2008 ) Analysts estimate Hermes share as a Price of shares: 82€ defensive value meaning an excellent Number of shares: 106125524 dividend and limited variation of quotation. Ownership: A strength : for a family run business. Face to the speculation Hermes asserts its independency. A weakness: that deprives partly the title of speculative attraction PORTFOLIO - ACTIVITIES Hermes activities turnover Growth Box for focus comments 2007 2008 Growth on constant Silk & Textile 192,7 173,5 11,1 % 16,1 % Leather goods & saddlery 675,0 663,7 1,7 % 7,7 % Clothes & accessories 315,2 293,7 7,3 % 13,1 % Others 85,6 77,1 10,9 % 16,2 % Distribution: Hermes Shops 1.268,5 1.208,0 part% Sandrine’s 5,0 10,8 % Perfumes 113,9 100,7 18,1 % 19,8 % Watches 104,7 110,1 (4,9 %) 0,7 % Tableware 50,7 44,5 13,9 % 17,0 % Box for focus comments Distribution: specialized shops 274,3 255,3 7,5 % 11,1 % Others 82,3 51,6 59,5 % 61,5 % TOTAL 1.625,1 1.514,9 7,3 % 12,5 % Box for comments 7
  8. 8. Hermes portfolio BCG Matrix CEO Patrick Thomas long-term Q S vision at 15 years Market Growth u t P Growth er “Our strategy will be a eOthers a strategy of value, not a strategy of volume, we s r are not in the mass D C T luxury. » a Leather goods o a & « We want to avoid the W Silk saddlery s g at Clothes & banality, in Accessories maintaining the s h financial growth. We preferred extend the Market Share territories of the brand, in table wear, in watches for a most of possible diversified offer and make the client surprised with. » Patrick Thomas, CEO Hermès International – juin 1988 40.000 new ref. by year (most in leather goods) ; Portfolio management: long-term strategy from dog to star Kelly bag: 1.800 ref. 2000 Hermès ask the pertinence of keeping a perfumes unit. 7 years later at the moment of the launching of the « Kelly Calèche » perfume, this division is star in the portfolio. Opposite to the big competitor groups where the perfumer are usually solicited Hermes works with its own perfumer since 2004. And the success is building by following the values of Hermes: use thematic, follow the identity and past of the Brand, limited the number of launching to perpetuate the product range. “Others” is hiring a galaxy of stars born with the product innovation, diversification and customization This dynamic is boosted by the strategy who have reintroduce the marriage of creation and design with the tradition. And it’s support by a constant production investment allow high variety, constant product innovation and diversification until customization like special punctual order is star in the portfolio. New CEO Patrick Thomas vision in 2006 “Boost the creativity in keeping the positioning of a prestige luxury” Until 2006: 1% in pure innovation, 3% in creative process (lifting of the portfolio). - Boost the creativity of quot;the housequot;, in keeping the positioning of a prestige luxury - Intensify the presence in Asia (apart Japan) and in United States. - Support the growth of the demand by an increase of the production capacities - Contribute to the emergence of the follower familial managers 8
  9. 9. THE 4 P’s PRICE PRODUCT - Vertical integration from conception, - Core business: based on saddlery makers extended manufacturing and distribution to the theme of Transportation & Travel (leather: 42% of the turn-over, cloth & accessories: 19 %, silk: - Production cost: cost is not the reference point : 12 %...) Mastering the cost of raw material (acquisition of suppliers) - Expert of noble material = possibility to create and enlarge the product portfolio = less dependant on 1 - Selling price: uniformity of price in the various category of product demand. geographical zones - SBA: silk, leather, art of living. - Price = Value - long life product cycle - Operating margin: 25 % PROMOTION PLACE - Low volume of product advertising - Distribution network: 78 % of turnover generated communication through Hermes fully owned shops (79% for non private circuit for competitors). - Higher effort of Corporate Communication through rich content events and Hermès - 267 exclusive shops: Foundation. - 41% in Euro-zone, 24% in Japan and 15 % in the U.S - Launch of Corporate e-commerce web-site in for main markets 2007 COMMUNICATION AND PRODUCT Communication: singularity and focus on product and renew without touching the fundamentals « We are not in fashion, but in a house, where we cultivate the respect for the client, the sharing and the sensibility » Philippe Chanet 2007 “Focus on product, singularity in being worldly understandable, same message of making the people discover a singular universe and never imitate any one, same creative axe to tell simple stories, poetical, to give the desire of entering in the Hermes universe, always use the brand codes, play with them.” Philippe Chanet 2007 Communication budget doubled in 4 years to 105 millions Euros, will rich 6 % of the turnover in 2009 with an objective to 7 % (Starbucks who focus on the product and services quality have a 1% budget) Marketing specificity 9
  10. 10. « The marketing didn’t really exist in Hermes: “Be born art craft man, it’s know to stay to the service of his client » Emile Hermes «Opposite to LVMH or to PPR, who stake a lot on the marketing, Hermès aim at only the excellence of the product. Their production cost doesn’t matter » Bernard Malek, du cabinet de conseil en stratégie Roland Berger. Operation of patronage for the contemporary art quot;A manner of create a bridge between creation in art and creation in art craft design » Hermes Art Director Fin 2007 quot;H Boxquot; of Hermes, an itinerant module within the World museums to present video Art + exhibits his commissions in a network of galleries Operation: linked innovation, design and know-how First Emile Hermès Prize: 700 designers professional, student and self-taught compete to allow Hermes to discover new design talents. Preservation of the now-how capital, active formation Policies “The notions of transmission, education and creation are the art of the Hermès identity» 2008 Yamini Kumar, Hermes communication director - Exclusive partnership with two professional secondary school (since 1999) liked each with a specific workplace for developing the specific need of Hermes in know how in fine leather craft. - Workforce: a strong integration of know how, a reinforcement in production and sale 2000-2004: 1000 hiring with formation actions ; 2004: 5 871 (new 277) ; 1990-2006: 1050 new artcraft men (14 know—how); 2006 : 6 825 (new 675) 2008 7 894 (new 439 on witch 263 in France); 2009 forecast: new 200 - Punctual collaboration with masters of the creation 2008 Le sac Yohji d'Hermès: sketch by Yohji and made by Hermes, a cross style of both 2008 one time supply Inglass: glass support for the Hermes Watch « La Montre Hermès » 2009 leather worplace designing by the architect Patrick Berger, « Equerre d’argent 2005 » and « Grand prix national d’architecture en 2000 » Operation design For the 60 years of the 2CV in the world salon of cars 2008:, the mythical car of the common people, the symbol of the democratisation was made by Hermès a custom interior design on one unique model of 1969. Image strategy expressed in distribution: innovation art design history 2007 quartier résidentiel de Séoul, 3000m2 sont dédiés au magasin et « l'Atelier Hermès » L'union de la tradition et du design pour ancrer une forte identité dans un univers ultra moderne, une approche hyper luxueuse du concept store à la française. En plus de la boutique et du siège social, réunit un musée (exposition de Daniel Buren intitulée quot;Filtres colorésquot; un travail sur la lumière naturelle et la transparence + des troncs, dans des vitrines écrins, objets, photos et films retracent l'histoire du sellier : Le patrimoine ), un café de lecture, une bibliothèque (250 books on horse),. En chine sur le territoire des musées d'art avec ses foulards « Une exposition d'art permet de montrer les valeurs de notre marque mieux qu'une 10
  11. 11. campagne d'affichage publicitaire» en ligne avec la stratégie d’ouverture à l’art et la création. Mars 1988 Exposition « The Tale of Silk » au Today's Art Museum de Pékin: un mix étonnant, parfois détonnant, entre industrie du luxe et art contemporain, entre influences occidentales et traditions chinoises, entre histoire du luxe et avenir de l'art avec des installations, danse, peinture, vidéo… mêlant artiste contemporain américain et noms de la scène artistique chinoise Operation: sustainable design against aids 2008 quot;Life in a pocketquot; tie with a condom pocket to encourage people protect themselves Communication operation: sustainable « there is a trend in a charity for just golden his image with Hermès it’s not a question of image. The Brand is positioning in back on profit of the actions. … Give a festive dimension festive at this project, far from the discourse of mortification and culpability who are killing the dynamic of a charitable action. » 2008 Yamini Kumar, Hermes communication director « Fête de la Couleur » UNICEFpartnership for the 19th anniversary of the « Journée Internationale des Droits de l’Enfant » by ONU: collect fund for school in poor countries. Animation: children have made drawing (within pictured by Bettina Rheims) and exposed in the Museum of l’Orangerie . An operation is hiding another: from prestige to sustainable A communication operation based on authentic action who support brand prestigious and authentic values. This elegant discretion of the communication serve the brand value but we recommended to increase quietly democratically the communication 1 - to allow people in crisis time to see a way to access to the dream 2 - to educate people against counterfeiting 3 - to give an alternative solution to the e- bay system who encourage counterfeiting. 4 – to make better know the sustainability of Hermes 2007, special creation of an only Kelly bag with a serigraphy of Grace Kelly in 1954 for the exhibition « Les Années Grace Kelly » to Grimaldi Forum Jun 2008 the only Kelly bag with a serigraphy of Grace Kelly was sale in auction at the quot;Hermès vintagequot; for 52 000 euros goes to help « Fight Aids Monaco » association to build a « Maison de Vie » in Provence (Princesse Stéphanie de Monaco’s association) “Hermes Vintage”: bidding for an “accessible” dream Organized by Artcurial for 12 years. This is an inescapable appointment for collectors and Hermes lovers in the World. More accessible prices from the square of silk at 60 € to the bag at 4 000 € Cristie’s bidding : the vintage prestige Dec 2008 Pour sa vente aux enchères annuelle la prestigieuse maison Christie's propose une collection de 23 sacs vintage Hermes e-commerce deployment strategy « … I don’t know why we shoul rush on what is moderne, is trendy… We don’t want to be demagogue and say anywhat on Internet. We have to keep part of the mystery” Christian Blanckaert, VP Hermes Internationnal 2008 « Put ourself at the client side provide a fair service, plutôt rather than create a new source of business» Charles-Henri Leroy, Director of Client Relation Hermès International, 2008 11
  12. 12. - a supplementatry service in the processus of the client purshases ; a stong care to the usability of the site and to the logistic, a special attention to the packaging and delivery (3 h in Paris), a custom offer (initials on leather agenda…). - complementarity offline /online - local product line PRICE AND PLACE Management of the devise effect compensated by productivity and price rising : 6 % in United States and 8 % in Japan. But they don’t want to go too far because the « Birkin » bag is selling 1 million of yens, (6.500 euros). VERTICAL INTEGRATION : Strategy of organic growth and innovation The organic growth is a long-term strategy essential to Hermes finance its investments Distribution channel development Strengthen the commercial presence on the overseas markets Innovation : Increase in Develop the the capacity of activities under producing represented in the Hermès International Increase sales and portfolio of the Strategy answer the group increase of the Organic Growth demand As part of its strategy of welcome in the group Masters of know-how of exception to consolidate its expertise or secure supplying, perpetuation subcontractor, control the quality on vertical: Acquisition of emblematic brands, artistic know how, innovative technique or small long-term suppliers, raw material suppliers Invest mainly in the reinforcement of its distribution network and it’s production capacity 2008 : Investment 150 millions € en 2008, 70 millions € in network of direct distribution (focus is in China) and the other main part for capacity of leather goods production Operational strategy: optimisation of logistic 2003 investment IT solution for the logistic allows: 25 000 items perd ay and 1000 sendings Operational strategy combining logistic performance and preserving company values. 12
  13. 13. - Optimize the preparation of the ordered: multiply by 3 the storage capacity, reorganize flux - Manage the quality: reorganizing the logistic process 2003 Accelerate investments: +57,5 % and + 11 % of supplementary production capacity 2003 New logistic and quality control platform Infolog in Paris area to serve the entire world and prepare his international development 2003 extension of leather workplace 2003 building 2 leather workplaces (300 hiring in total) 2003 hiring/formation in leather within 2/3 years: 200 people 2003 acquisition of tanner 2003 interests reinforced in leather companies Quality, reactivity and flexibility of the production capacity « face to the competition of emergent countries… we have to increase the flexibility who allows us to switch quickly from a motif to one anoter, from a taffeta to a satin». Olivier Fournier, directeur général 2005 « This acquisitions have been made in the aim of perpetuate our suppliers and with a voluntary policies of commercial development. » Olivier Fournier, directeur général. 2006 owner 25% of high horlogy Vaucher Manufacture 2006 acquisition textile photoengraver Marcel Gandit, subcontractor since end of 40s for HTH 2006 acquisition printing on silk square : studio Gandit de Bourgoin-Jallieu This acquisition will enable to meet robust demand for leathers goods products, particularly in crocodile skin. And will rich 73 millions d'euros turnover on this erea 2007 Acquisition of Soficuir International in witch « Tanneries des Cuirs d´Indochine et de Madagascar », already held a 49.6% supply and tanning precious leathers, primarily crocodile skin. 2007 fusion tanning of exotic leathers Soficuir and Gordon-Choisy (alwrady subsidiary) 2008 owner 45% of fashion designer Jean-Paul Gaultier (35% since 2003) « These investments more affective than rational maintain the myth » 2007 acquisition Shoes: John Lobb 2007 acquisition Silversmith: Puiforcat 2007 acquisition Crystal: Saint-Louis 2007 acquisition Weaving: Perrin & fils. 2009 vertical integration and creation working together for a strategy apply until the production facilities Project of innovating new leather workplace allowing to operate a complete cycle : reception of the tanned skin, processing, transforming by hand. For the « La maroquinerie des Ardennes », third local subsidiary in Hermes. The building of 5.000 m2 is designing by the architect Patrick Berger, « Equerre d’argent 2005 » and « Grand prix national d’architecture en 2000 » Sustainable policies in production 2002 to 2006, decrease of 41 % of water consumption in context of continuing growth (used in silk square printing) 2007 creation of a network of environmental managers by activity: leather, textile, perfumes and logistic. 13
  14. 14. 2007 Discharge of gas effect divided by 20 favour by the Soficuir’ know-how « Our ambition is never more transport the raw skin of alligator » Francis Chauveau, directeur général in charge of the industrial issues Hermès. Tan in original place (USA) they weigh 10 times less , are less bulky and don’t need to be cool, then they transportation are less polluting. Network of distribution and internationals redeployment 2006: 206 exclusive stores (38 indirect distribution) 2007: 267 stores (new 15) 2008: United States and Asia, focus in China (forecast 40 in the 3 or 4 years) OPPORTUNITIES AND THREATS Porter’s 5 forces Analysis Threat of new entry •Luxury market is a mature market •Concentration in few groups •Distribution channel is locked Supplier power Buyer power •Vertical Integration •No bargaining •No bargaining power power Competitive Rivalry Growth on core business •Low volume •Internal growth •High income target Economy of scale •Supplying Risk of change •High brand values discrepancies Advertising level Threat of substitution •low propensity to substitute •Know-how --- core competencies •Distinctive image of Hermes brand Opportunity: rapid growth in leather industry Growth turnover 6 %. 7,4 millions bags made in France 2008 Hermès and Louis Vuitton dominate the sector with 10 workplaces each in France, making work a lot of important subcontractors. 14
  15. 15. Opportunity in the emergent markets The emergent countries represent less than 20% of the world market: $175 billions 2008 After the crisis we can expected a growth with two figures due to the growth of people with high revenues, the access of the woman to the work, development of the luxury product for men and economic growth on long-term. Marc-André Kamel, associate to Bain & Co According to these following recommendations we see that Hermes was for a long time in this strategy policies - Focalize on understanding the clients segments for a better targeted offer emphasis the differentiation (niche market strategy) - Concentrate on the organic growth by consolidating the direct distribution, emphasis the formation policies to improve the quality of the services. - Work and the cost management, a long-term suppliers relationships… how luxury market face to the decrease in Japan : combination monetary crisis, economic crisis Until 2006 Hermes had a growth of 15 % with the strong decrease of the Yen in 2006 the turnover as growth only of 2% and at that time 27% of the turnover of Hermes has done in Japan. Hermes model allows them to resist with a growth of 5 %, during that the most other brands are decreasing. In Japan the specificity is to have middle clients compare to USA where they are wealthier. And the population will decrease. All the luxury try a strategy of delocalizing investment to China and reinforce the direct retrail (Hermes to Ginza, Gucci to Tokyo and Vuitton to Nagoya) Again with a differentiating strategy Hermes is trying a series of actions and thing that this could be made them consider this market like a laboratory. Opportunities of improving social and environmental performance as part of deepening their luxury offering “over consumption is no longer a signal of success” and that it is being replaced by “conspicuous abstention”. WWF-UK’s Sustainable Business and Markets team 1. Operational efficiency gains. 2. Enhanced employee relations, making for easier recruitment, more motivated and loyal staff, better customer service, enhanced learning and innovation, and higher productivity. 3. More welcoming and accommodating local communities. 4. Enhanced brand reputation and trust. 5. Connections with voluntary associations and networks that generate new market intelligence and enable access to new markets. 6. A more secure and sustained supply of raw materials, provided by more motivated suppliers. 7. Improved relations with the financial sector, including responsible investors and lenders. “Emphasis by consumers on ethics is an enduring trend…More sustainable luxury to be pursued by luxury brands as part of their core commercial strategy” R. Michman and E. Mazze. This eco-awareness sweeping the urban middle classes across Asia, Africa, Latin America and eastern with significant implications for business. Even they are concerned by immediate preoccupations such as the need to escape from poverty and ill health. The luxury industry is calling to bring to life a new definition of luxury, with deeper values expressed through social and environmental excellence. Their performance and progress on environmental, social and governance issues should be comprehensively measured and reported. 15
  16. 16. Opportunity for deep value in China Testimonial Across Asia – in 2007 report by WWF-UK’s Sustainable Business and Markets team Environmental responsibility confers social status on individuals, celebrity endorsements of green, long tradition of ecological awareness from its religious beliefs such as Taoism and Buddhism, fortune building on the success of his solar power company In China: 76% of the more ostentatious nouveau riche segment said they “would pay more to buy natural healthy foods” In China: luxury products “are not conducive to harmony” mayor of Beijing Luxury be more socially acceptable in societies of high inequality by generating more value for everyone involved in (or affected by) its manufacture and supply; by preventing irreparable damage to the beauty and biodiversity of the global commons; and by developing processes, techniques and materials that are consistent with the demands of sustainable development. Change Of Strategy To Combat Counterfeiting A well planned education campaign might be a more effective riposte to counterfeiters? 2007 - Hermes has sued online auction site eBay in the Tribunal. This marks a policy departure for the luxury group in its ongoing battle to snuff out counterfeiting. Up until know, Hermes' policy has been to join suits brought by eBay's disgruntled customers relating to counterfeit Hermes products. It also brings them in line with the policies of other luxury groups such as Tiffany's and cosmetic giant L'Oreal both of whom have sued eBay directly. The problem is that many of the Birkin bags listed on eBay are indeed counterfeit but that not all eBay clients are aware of this fact. New Business Unit: Intérieur & Design This re-opening to design, follower to the horses, car, boat design until the beginning was very effective in 2008: - For the « Smart » car’s 10 years anniversary: a limited series with a luxurious interior design sewed “point sellier”: 38.000 € (10 430 € 1er prix) United States: $48.500 - For the Bugatti Veyron the exclusive car became inaccessible 1.853.800 €. - For Eurocopter « An industrial cooperation, not a simple communication operation: to enhance the status of it’s conceptual, artistically and art craft know-how». A fuse style technology in landmark design. Partnership 5 millions € was bought by an Emirats Arabes Unis company: Falcon Aviation Services With the crisis the car industry is not in good wealth but Hermes can follow: -a strategy of niche with the very high level (ex: Bugatti) -a strategy of deployment (slow: like Hermes know to do) of entering in the Middele Est ( helocoptere) - a strategy of sustainability in working on the new trend of sustainable small electric car for the city (a sustainable smart could be perfect) Opportunity in mobile and accessories for mobile quot;ABI Research forecasts that revenues from luxury branded handsets will exceed $11 billion next year, increasing to more than $43 billion in 2013” août 2008 ABI research The luxury brands could rich multi-billion dollars in turnover on the mobile market and his accessories (clutch) in the logic of the consumption luxury as social distinction. (in 2008 Vuitton has launch a range of clutch and screen for iphone, Ralph Lauren launch software for it, Tag Heuer create completely a mobile Karl Lagerfeld conceived an iPod case once for Fendi, and an handcrafted custom trunk from Louis Vuitton (contained 20 iPods, one charger (what just one?), JBL iPod speakers and a subwoofer), to make from four to six months and run upwards of $10,000. 16
  17. 17. Even we can find leither clutch hermes for iphone, Hermes is not involved in this erea. A strong reason could be the lake of perfectly high quality (even Iphone are not), but for a certain part it enter perfectly in the tradition of voyage or “mobility” could be the word. But behind this there is the future development of the “Internet of object”, where there is more place for the quality control because it’s not an wearing of a technology but the technology inside the object. Opportunity of cosmestile: innovation cosmetic design Holding Textile Hermès HTH: department « Care and Textile » growth of 21% at the end 2007 « Intelligent textile » of witch « cosmestile»: bioactive textile . Hermès, Guerlain et Dior, Lolita Lempicka, Yves-Saint-Laurent Beauté, Lancaster, Paco Rabanne, Nina Ricci … are working with the 130 companies of the Cosmetic Valley (turnover 2007: 2,5 Md€) This area where Hermes is already involved could be used to work on a way where design, sustainability and luxury could be imagine to build object with technology or used the intelligent textile STRENGHTS WEAKNESSES -Strong name value Replenishment of raw material High exposure to Japanese and American Market -Very strong internal cultural company Change rate sensivity -Large portfolio of products (less vulnerable to the demand of a certain OPPORTUNITIES type of products) Distribution network -Products are not seasonable Promotion possibilities New market: helicopter and design…. -Well balanced distribution on a world- wide basis Not fully present on Asian market Internet -Control and quality of the distribution circuit (156 owned shops out of 300) -Suppliers: Long-term relationship and protection of some critical “know how”. Some include some participation THREATS of Hermès Group to secure this (ex: Luxury market tougher and tougher Vaucher Manufacture Fleurie, watches Holding of luxury group -Supply Chain: Iso 9001 and new SWOT New Luxury trend ( Internet ) implementation of processes in 2007. Analysis New demand from emerging countries 17
  18. 18. OUR STRATEGY Focus strategy: continuity and sustainability I - Production: ”A long-term strategy, based -Vertical integration by suppliers acquisitions (raw materials) in on the mastery of the know- order to avoid break in supply chain (leather…) how and the control of the distributor’s network (applied II - Expansion of the distribution network despite the recession)” Annual report A/Middle East: high GDP per capita, market trends (long relationship with horses) B/Emerging countries “Boost the creativity in C/Internet: expand eCommerce: specific selection of products and keeping the positioning of a distribution. Introduction of second-hand sales on prestige luxury” III - New sources of innovation “Strategy based on value and Outsourcing of Design talents: enlarge creative sources on an not on volume” CEO Patrick international cultural heritage and reduce creativity cost in Euro-zone. Thomas IV - Communication Extend visibility of the brand and know-how (only 3 % of the budget in 2004)… V – Sustainable market Use transversality of Hermes core business to enter RESEARCH and PRODUCTION in new key environment business area (housing, textile,…) extend Hermes Design Laureate on an int’l basis and especially on emerging markets. SOURCES : Stratégie Hermès HERMES INTERNATIONAL Hermès intègre les partenaires de la Fondation de la Haute Horlogerie - Actualités - News - Fondation de la Haute Horlogerie Boutiques Worldwide: Hermès Ginza (Japon) =4&gl=fr&client=firefox-a Hermès confiant pour 2008 malgré le Japon 3037.asp%3F1%3D1+hermes+japon+2009&hl=fr&ct=clnk&cd=1&gl=fr&client=firefox-a Hermès poursuit ses investissements dans son pôle industriel textile – Archives Proverbio : du carré Hermès aux implants chirurgicaux - Textiles : le tissu file vers l'avenir (Montredon - Hermes) Hermès lance la H Box, cinéma quot;nomadequot;, bientôt au Japon japon-2384.asp%3F1%3D1+hermes+japon+2009&hl=fr&ct=clnk&cd=2&gl=fr&client=firefox-a WORLDTEMPUS.COM: La Manufacture Vaucher: Un partenariat favorable aux deux parties Les soyeux Perrin se portent bien – Archives SLI.htm+soyeux+perrin+hermes&hl=fr&ct=clnk&cd=1&gl=fr&client=firefox-a Perrin & Fils: la plus belle soie du monde Perrin & Fils: la plus belle soie du monde Luxe : Hermès pourrait racheter Jean-Paul Gaultier,1501.html Hermès International : un rachat de la maison Jean-Paul Gaultier n'est pas à l'ordre du jour Hermes International : Une double stratégie pour une valeur à surveiller (Finance Actualités) Nouvelles rumeurs de vente d'Hermès Hermès sur l'olympe malgré les turbulences Hermès voit une baisse des marges en 2009 - Luxe - 18