MIAMI, United States — The pristine sidewalks of the
Miami Design District are illuminated by glowing streetlights. Tonight,
a champagne flute-clasping crowd gathers around the front of the
neighbourhood’s brand-new Hermès flagship. The whitewashed building,
wedged on the corner of NE 39th Street and 2nd Avenue, across the street
from Louis Vuitton and around the way from the popular restaurant
Michael's Genuine Food & Drink, is set to open to the public the
next day.
Hermès’ new Miami store is its third flagship in the US, which
emerged from the global financial crisis and ensuing downturn much
faster and stronger than most markets. It is widely seen as a major
opportunity for fashion and luxury businesses, especially as growth
continues to slow in a troubled China. The store is also strategically
positioned to capture spend from wealthy Latin Americans, who come to
Miami to shop. “Miami is cosmopolitan, very American, but also very open
to Latin America. We really wanted to have a store that reflects what
is Hermès in term of a Parisian house, but also in terms of a house that
respects the local culture,” says Axel Dumas,
the sixth generation member of the family that founded the brand, who
became its sole chief executive in 2014 after sharing the title for a
year with Patrick Thomas.
Outside the store, there are velvet ropes keeping top-tier clients,
Miami socialites and press close to the entrance as a parade of flamenco
dancers marches past. It’s about 7pm and the sky is already pitch
black. The interiors of the three-floor, RDAI-designed space beckon them
with promises of exclusive product (and relief from the humidity).
Unlike in most Hermès stores, the company’s home — or maison —
collection sits on the main floor alongside men’s and a Saint-Louis
crystal shop-in-shop, the first of its kind in the United States.
Jewellery and scarves sit on the second floor. For women’s clothing,
shoes and, most importantly, handbags — the company’s largest revenue
driver — one must venture all the way to the third floor. It’s not a
terrible strategy. One of the reasons Hermès chose the location —
trumpeted by local developer Craig Robins — was that it allowed the
company to build a space from the ground up, rather than adapt to
something already in place.
Later in the evening, guests will head to an even grander spectacle
at Soho Studios in the city’s artsy Wynwood neighborhood. The party —
which was inspired by 1950s Havana and featured a salsa band, a pop-up
restaurant, a game room and several interactive stations where guests
could play dress up and have their photo taken — reportedly cost the
company upwards of $1 million, according to sources.
For Hermès, the extravaganza is reflective of the investment the
publicly held, privately controlled French luxury goods purveyor is
making in both Miami and the United States overall. Indeed, in the past
three years, the company has expanded or remodelled eight of its 28
standalone US stores — Beverly Hills in 2013, Atlanta in 2014, and
Seattle, Washington D.C., Houston, Dallas and Miami in 2015 — and opened
a standalone parfumerie in the downtown Manhattan’s new shopping center
Brookfield Place earlier this year. “If you look at the macro business
in the US, it’s a very solid base,” says Hermès’ US chief executive,
Robert Chavez. “The whole idea that less is more is really something
that is catching on in a major way. People want what they’re buying to
last for a very long time. It’s not the throwaway culture that existed
for so many decades.”
But retail expansion in the US is just one piece of the puzzle for
Hermès as the company seeks new sources of growth. “We always try to
have a balanced way of investing,” Dumas explains, sitting in the corner
of the store that houses the saddlery. “I think it can explain a little
bit of the resilience of Hermès in a difficult time.”
To be sure, Hermès has plenty of resilience. As the luxury industry
takes a beating globally — according to a recent report by Bain &
Company, real growth in leather accessories, fashion, hard luxury and
fragrance and cosmetics has slowed to 1 to 2 percent — the company has
managed to maintain business momentum. In the first half of 2015, the
company reported a net turnover of €2.3 billion, a 21 percent increase
at current exchange rates, and a 9 percent increase at constant exchange
rates. Every category — or métier, as they are referred to more
elegantly within the company — saw an increase in sales, except for
watches, which declined by 1 percent. Leather goods and saddlery was up
14 percent. Ready-to-wear and accessories: 8 percent. Silk and textiles:
5 percent. Perfumes: 4 percent. The “other” category, which includes
jewellery, tableware and home, was up 12 percent.
However, as the company prepares to report its third-quarter earnings
on November 12, it’s clear that there are challenges ahead. For
instance, gross margins for the first of half of 2015 were 66.5 percent,
down from 68.1 percent during the same period in 2014. The company has
also projected that its 2015 turnover — at constant exchange rates —
will be up 8 percent for the year, compared to the double-digit growth
it typically reports. Operational profitability is also projected to
decrease from 2014’s 31.5 percent. “Over the past twenty years, Hermès
has achieved both high organic growth and very significant margin
expansion,” wrote analyst Luca Solca in a recent note.
“Going forward, neither of the two is likely to continue, as the
company seems to be set on a course of mid to high single-digit organic
growth and is probably close to peak margins.”
So, where will the growth come from? “When you are so successful, how
do you maintain that?” Dumas asks rhetorically. “I’m happy for Hermès
to have this kind of recognition? Unfortunately, for me, my job is not
to relish this good news, but to see what can be done better.”
When Dumas thinks about the future of the firm, he often thinks 10,
20, 30 years ahead. He also uses the word “balance” frequently in
conversation. The importance of maintaining a balance, he says, is why
the company has continued to invest in mature markets like the US,
Europe and Japan. “We are not proposing a new country where we invest a
lot and discount the other one,” he says. In Japan, for instance, the
company opened or expanded stores in Kobe, Nagoya, and Tokyo long before
the weak yen brought in an influx of tourists. “There is the groundwork
that has been done, which is to become relevant and very different to
the Japanese clientele. When people weren’t investing, we were there,”
Dumas continues. “We made a statement to the Japanese community. At the
same time, the decrease in the yen has created an opportunity for
tourists in Japan. But even without tourists, we would have some good
growth.” In the first half of the year, the company saw an 20 f percent
increase in the country’s sales.
Wherever Hermès focuses its efforts, it aims to tightly tailor the
product assortment to the local market. Twice a year, store directors
from each boutique visit Paris to buy inventory for their outpost. In
Miami, for instance, there are more exotic skin bags on offer than any
other location in the world, in response to local demand. “It’s
important to be relevant to your local clientele,” Dumas says. “You will
have the tourist flow, but that is dependent on many things you cannot
control.”
This dialogue with the customer extends to overall product
assortment. The idea is to let the customer guide what the brand should
make next. “We don’t have a marketing department. There is this
profusion of offer, and we let the customer decide and then we see where
the traction is coming from. Obviously, we’ve seen a very strong result
in our fashion business. The shoe business has been very strong. We
really believe that maison has a strong potential,” Dumas explains.
“I’ve talked to you about geography, but it’s also one of our
specialties to be balanced in our product offering. Those two pillars —
geographical balance and métier balance — are what is important. Now is
the time for me to invest in each of them, at our own pace. If you take a
20- or 30-year perspective, you don’t know what is going to seduce your
client.”
Dumas is also proud to note that the brand is popular with both
sexes. “Maybe it’s because of our equestrian roots, but we are also
balanced between men and women,” he says. “That’s something we’ve been
enjoying a lot.”
One category that is not performing as well is watches, which saw a 1
percent dip in the first half of the year. Again, Dumas’ strategy is to
invest in the métier, rather than ignore the problem. At Baselworld in
the spring of 2015, the company introduced a new range — the Slim
d'Hermès — which was recently recognised at the prestigious Grand Prix
d’Horlogerie de Geneve. “For us, it’s creation first, so I’m glad that
we won this award,” Dumas says. He also believes the watch industry’s
transition from a primarily wholesale business to a retail business will
play in the company’s favor. “I think that will help propel the watch
category into growth again,” he says.
To be sure, the introduction of the Apple Watch Hermès in September
2015 is also a part of that growth plan. “We had an incredible talk with
Jonathan Ive,
and there was a lot of mutual admiration and common values. From that,
we said, wouldn’t it be nice to have something combining our
craftsmanship, our vision? It was about trying to make a contemporary,
elegant object. It was not a master plan of global domination,” Dumas
says of the drivers behind the partnership. Yet, as Solca recently
wrote: “For Hermès, it attracts attention back to a category with which
the brand has been struggling and offers an easier entry point for
aspirational consumers. It sells a little piece of the brand — a Hermès
leather band — at a very significant premium and, I assume, a
considerable margin.”
Hermès is also making investments in its digital presence. Currently,
the company’s brand website is divorced from its e-commerce platform.
In mid-2016, the company will integrate the two. “E-commerce is
important, but also it’s about communication, telling your value,” Dumas
says. “That’s why we are really thinking hard on re-launching the new
website in 2016. I view digital as a great opportunity and something
that is going to become more and more important.” Indeed, according to
Solca, digital is expected to drive, on average, 40 percent of projected
luxury sales growth from 2013 to 2020. “[E-commerce] is one of very few
ways luxury goods companies can now grow,” he says.
When Dumas was named co-chief executive three years ago, he spent a
lot of time looking at the archives, and quickly drew a correlation
between the international expansion that happened in the 1970s and the
digital expansion that is happening today. “There was a discussion in
the 1970s, should we go international or should we not? People were
saying, you don’t need to go international because everyone is coming to
Paris. Going international will be risky and costly. Fortunately for
us, we took the step to go international. I think it’s the same subject
about digital now.”
There is another lesson learned from the 1970s, Dumas says: brand
control is more important than ever. “If you believe that digital is
strategic, then you should do it yourself,” he says. “In the 1970s, some
did licensing, which was quicker than expanding international by
opening your own stores, which was longer, slower, harder. But then, 15
years later they all tried to buy back their licenses.”
In the end, it’s clear that Dumas believes long-term prosperity will
come from the brand’s belief in creativity. “Part of Hermès is
resistance. It’s about keeping your value alive, protecting yourself in
the future and believing in creativity,” he says. “There is no magical
recipe. When you are a house that is 180 years old, there are good times
and bad times. We have been able to reinvent ourselves many times. If
we were just doing saddle making,” he continues, gesturing over to the
horse-y goods stationed next to him, “that would be the size of the
store.”
Axel Dumas
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