Perspectives from ISB

Hermès and LVMH announcing record profits for 2016 suggests the French family businesses are resuscitating the moribund $1.1 trillion global luxury market despite ongoing political and economic uncertainty.

Hermès Group, the French high fashion clothing and accessories manufacturer and retailer started its 180th anniversary in 2017 on a high note. The group’s consolidated revenues for 2016 passed the €5 billion ($5.4 billion) mark to reach €5 billion ($5.9 billion) up 7.5% at current exchange rates and 7.4% at constant exchange rates, the supervisory board heard.

Hermès said growth was driven in Japan (+9%) due to its selective distribution network, despite the strengthening of the Yen, and Asia excluding Japan (+7%) particularly with extensions of the Liat Towers and Takashimaya stores in Singapore and store openings in Macao, at Hong Kong Airport and in Chongqing in China. However, Hong Kong and Macao remained “challenging”.

The United States (+7%) achieved solid growth, in a “contrasting environment”, the group continued. Europe (+8%) posted growth, despite the group vaguely alluding to “the impact of recent events”. The Bocca di Leone store in Rome was performing well and the home territory of France (+5%) displayed “solid growth.”

Hermès created 590 new jobs worldwide, two-thirds in France, taking the global workforce to 12,834 people including 7,881 in France.

After a dispute with LVMH which ended in 2014, the sixth-generation descendants of founder Émile-Maurice Hermès continued to hold a majority stake and agreed not to sell their shares for 20 years, reported Forbes. The magazine ranked fifth-generation patriarch Nicolas Puech at 896th in its 2017 World’s Billionaires List with his net worth pegged at $2.3 billion.

LVMH (Louis Vuitton Moët Hennessy) also looked back at 2016 with satisfaction. The world’s leading luxury products group declared its revenue of €37.6 billion for the year in late January, an increase of 5% over 2015, itself a year of growth. Organic revenue growth was 6%.

The 30-year-old France-based multinational group of 70 resilient brands, including Givenchy, Dom Pérignon and Bulgari, said the American market “remains on a good track as does Europe” while “Asia, excluding Japan, continued its good momentum.”

Profit from recurring operations reached €7 billion in 2016, an increase of 6%, to which all business groups, apart from selective distribution, contributed.

Bernard Arnault, chairman and chief executive, said LVMH achieved an “excellent performance” in 2016 given geopolitical and economic instability.

“Continued innovation, entrepreneurial spirit and the quest for excellence: all Maisons continue to assert these core values while maintaining rigorous execution of their strategies on the ground,” Arnault said.

Beech, James., March 28, 2017;