Acquired · Feb 19Hermès
Grew into a $200 billion company by scaling handmade craft with workshops of 250 to 300 artisans, 7% yearly capacity growth, and about 120,000 Birkin and Kelly bags a year. It spends 4.5% of revenue on marketing, repairs 120,000 pieces a year, and had a 71% gross margin and 44% operating margin.
Tips
- Axel Dumas's Hermès scaled handcrafting by training artisans itself instead of outsourcing or building factories▶ 46:40Artisans grew from about 250 when Axel started to 7,000, with 31 workshops, average age 30 and 80% women.
- The Hermès family locked up 50.2% of the company for 20 years to defeat Bernard Arnault▶ 34:30The family kept control, a French court later fined LVMH about 105 million euros, and Hermès's market cap went up roughly 16x from 2010.
- Hermès never lets demand set its output: craft constraints cap supply and scarcity is the result▶ 53:00About 120,000 Birkin and Kelly bags a year, roughly 25 to 30% of revenue, with waitlists and resale above retail.
- Jean-Louis Dumas ignored consultants who said to outsource and cheapen, and kept the craft in 1978▶ 1:19:20Revenue went from well under $100 million to about $2 billion by his 2006 retirement, roughly 40x in under 30 years.
- Jean-Louis Dumas made Hermès relevant to young women without changing the products▶ 1:41:40Revenue rose about 40x over his tenure while the core products stayed the same.
- Hermès sells a bundle of exclusivity, service, craft, experience and brand that rivals cannot assemble▶ 2:57:00Hosts rate branding as the main power, with cornered resource (the artisans) and some counter-positioning against luxury groups that must serve far more customers.
- Axel Dumas treats strategy as picking fights and accepting trade-offs▶ 2:57:00
- Hermès pairs art with function so buyers cannot judge price on features▶ 1:05:00
- Hermès reinvented itself three times by moving the craft to where the wealthy were▶ 33:20Émile also won the Tsar as a client and licensed the zipper, which was called the 'Hermès fastener' in France for years.
- Émile Hermès bought out his brother and moved the company from horses to cars in 1919▶ 34:00A Model T was rolling off Ford's line every three minutes, about half a million cars a year.
- Hermès has no marketing department and spends little on media, using events and word of mouth▶ 3:23:20Sales and marketing together are 23% of revenue at Hermès versus 33% at LVMH.
- Hermès's board cheered when management destroyed a $150 beach bag that sold too well in Japan▶ 2:15:00Shang Xia, launched 2009, was later sold to the Agnelli family.
- Hermès bought other brands and built Shang Xia, diluting focus until it pulled back▶ 2:26:40It divested Leica and later sold Shang Xia to the Agnelli family.
- Hermès prices below the market-clearing level and raises prices only about 7% a year to protect the brand▶ 1:58:20A Birkin launched near $2,000 in 1984 and is roughly twice that in inflation-adjusted terms today.
- Hermès lets store managers choose their own stock with a pull model▶ 3:36:00Company-owned retail grew from 56% of locations in 2003 to 74% today.
- Hermès retains artisans for over 20 years and promises to repair everything it makes▶ 4:00:00Only 4.5% of the workforce leaves voluntarily each year.
- Hermès's Apple Watch band deal may breach the brand promise it was built on▶ 2:55:0070% of online buyers are new to Hermès, and the group splits net income roughly into thirds: dividend, capex and cash.
