Hermès Q3 Sales Up 15.8% Led by Watch and Jewelry Sales

The cream rises to the top as the best luxury goods brands continue to report robust sales in a difficult economic climate.

Hermès reports that revenue in the third quarter increased 15.8 percent, year-over-year, to 683.2 million euros. Revenue rose by 18.2 percent at constant exchange rates (stripping out the effects exchange rate changes). Sales growth for the Group's own stores was up 19.1 percent at constant exchange rates for the period, despite of a high comparison basis.

The 174-year-old Parisian brand said watch sales rose 22.4 percent (24.9 percent at constant exchange rates) to 37.5 million euros. Under the ready-to-wear & fashion accessories category, which includes jewelry, sales rose 28.9 percent (32.4 percent at constant exchange rates) to 148.1 million euros for the period, ended September 30.

Sales in other product categories are as follows:

* Silk & Textiles, up 21 percent (24.1 percent at constant-exchange rates) to 76 million euros.

* Leathergoods & Saddlery, up 8 percent (10.3 percent at constant-exchange rates) to 319.5 million euros.

* Other Hermes Sectors, up 29.9 percent (32.2 percent at constant-exchange rates) to 25.6 million euros.

* Perfumes, up 11.2 percent (11.6 percent at constant-exchange rates) to 42.7 million euros.

* Tableware, up 15 percent (16.8 percent at constant-exchange rates) to 10.9 million euros.

* Other products (which include John Lobb shoes as well as production activities realized for third parties, such as textile printing, perfumes, tanning), up 22.5 percent (23.3 percent in constant exchange rates) to 22.9 million.

Sales among geographical regions are as follows:

* Americas rose 12.9 percent (21.8 percent at constant exchange rates) to 106.6 million euros.

* France rose 5.4 percent to 111.8 million euros.

* The rest of Europe rose 21.3 percent (20.2 percent at constant exchange rates) to 138.1 million euros.

* Japan rose 4.3 percent (3.2 percent at constant exchange rates) to 115.8 million euros.

* The rest of the Asian Pacific rose 28.9 percent (33.9 percent at constant exchange rates) to 201.9 million euros.

Because of its strong third-quarter showing the company increased its outlook for the year, saying it expects sales growth to be 15 to 16 percent at constant exchange rates.

“Meeting this target will be highly contingent on the business sectors' ability to meet stepped-up demand ahead of the year-end holiday season,” the company said.

China Leads World in Luxury Attitude and Spending

Affluent consumers in the U.S. and much of the world are pulling back on their spending and attitude toward luxury. However, in China, affluent consumers are choosing luxury in every aspect of the lives, according to a seven-country survey of households earning at least $150,000.

About 57 percent of wealthy Chinese shoppers say that the economic environment has prompted them to spend more on luxury in the past year, and 50 percent plan to boost spending in the next 12 months, according to the survey by the Luxury Institute, a New York-based consulting firm. Restraint is more evident in the U.S., where 10 percent of the wealthy stepped up luxury spending in the past year and 6 percent plan to spend more in the next 12 months. U.S. consumers are twice as likely as those in China (32% vs. 16%) to have trimmed luxury spending last year.

Meanwhile, in Europe the currency crisis did not stop 14 percent of wealthy shoppers in France and 17 percent of those in Italy from boosting luxury spending this year, according to the survey, which represents the top 10 percent in household income. However, 38 percent of high-income shoppers in both countries plan to cut back in the coming year.

In Japan, the March earthquake and tsunami dampened enthusiasm for luxury shopping, with 7 percent of wealthy Japanese consumers reporting higher levels of spending and 34 percent cutting back.

The most widespread retrenchment comes in the U.K., where 38 percent of wealthy shoppers have pared back luxury spending, and 41 percent plan reductions in coming months. Germany shows more stability compared to other rich nations: Only 17 percent of wealthy German consumers say that they are spending less on luxury now and 29 percent plan to trim luxuries in the coming year.

Across all seven markets, luxury travel is the category in which most wealthy consumers anticipate stepping up spending, with China far and away showing the strongest appetite, according to the survey.

In China, 58 percent of the wealthy plan to spend more on leisure travel, followed by 28 percent in Italy and 22 percent in Germany who say the same. A total of 16 percent of wealthy consumers in the U.K., and 18 percent in the U.S., Japan, France and Italy, plan to spend more on travel.

Spending plans across the board in each of the 26 luxury categories were substantially higher in China than in Europe and the U.S., with some of the biggest disparities showing in apparel, watches, jewelry and gifts where Chinese consumers were six to seven times more likely to boost spending, according to the survey. Also strong in China are luxury auto sales, with 43 percent of the wealthy planning to spend more on cars, compared to 11 percent in the U.S., U.K. and Japan.

Attitudes towards luxury are far more positive in China than they are in other rich nations, with 78 percent of those surveyed saying that luxury goods and services are more important in today's economy. The reverse is true in the U.S. where 80 percent of wealthy shoppers say that luxury has become less important.

More than 75 percent of Chinese say that luxury expenditures are prudent purchases, while 78 percent of wealthy consumers in the U.S., U.K., and Germany find them to be an extravagance. Similarly, 78 percent of China's wealthy shoppers say that luxury goods and services are an important part of their lifestyle in today's economy, compared to 25 percent in U.S. and Germany and 20 percent in France who agree that luxury remains central in their lives.

Wealthy Chinese consumers are also highly inclined to place a premium on exclusivity and quality, and discounting turns them off. More than half of wealthy Chinese and 49 percent of Japanese say that brands that discount their merchandise are not truly luxury brands. In the U.S. and Germany, one-third of wealthy consumers share the same dim view of discounting, as do 40 percent of wealthy shoppers in the U.K, Italy and France. Despite the dour attitude towards discounting, 56 percent of wealthy Chinese say that discounting has increased their overall spending on luxury and 50 percent plan to spend more on discounted luxury items in the coming months.

Global Luxury Sales Show Renewed Worldwide Strength

Strength in markets around the world is fueling an increase in luxury sales, which are projected to grow worldwide by 8 percent to €185 billion ($276 billion) in 2011, according to a survey released by a global luxury goods consultancy Tuesday in Milan.

The growth of luxury sales in China has been getting most attention lately, but this current rate of growth is also being buoyed by strong first-quarter momentum in the U.S. and Europe, according to the “Spring 2011 Update: Luxury Goods Worldwide Market Study,” by Bain & Company. In fact, the U.S. remains the world’s largest luxury goods market.

The Bain study also estimates that luxury sales will grow in the next three years to €214 billion ($318 billion) to €221 billion ($329 billion) and that the demographics are changing, in terms of age, technical knowhow and attitude.

The report also notes that despite the improvements in U.S. and Europe, the biggest growth rates in luxury sales remain in emerging markets, such as Russia, Brazil, the Middle East and, of course, China.

After declining by €17 billion ($25.3 billion) over the course of 2008 and 2009, a strong 2010 closed with a 14 percent increase in luxury sales, versus 2009—bringing the luxury goods market to €172 billion ($256.6 billion), surpassing its prior peak of €170 billion ($253.7 billion) in 2007, according to the annual survey.

Bain said in its report that department stores and direct-owned luxury stores saw continued double digit sales increases in February and March versus 2010, selling out on much of their Spring/Summer 2011 inventory. Stores have placed robust orders for the Fall/Winter 2012 seasons and have restocked sold-out inventory levels. Among the high-growth categories are accessories, leather goods, jewelry and watches. Bain said retailers expressed a high level of confidence that consumers will keep making purchases with the same vigor that preceded the global financial crisis.

“Luxury has made a brilliant return to the retail stage, but the script has been re-written,” said Claudia D’Arpizio, a Bain partner in Milan and lead author of the study. “More demanding customers, generational shifts, new loyalty rules, an increasingly integrated offline and digital customer experience and the continued growth of China and other fast-growing markets are transforming the luxury industry.”

Bain forecasts that sales in the Americas for 2011 will grow by 8 percent, to nearly €52 billion ($77.5 billion). China will see 25 percent year-over-year growth this year, putting Greater China (including Hong Kong, Macao and Taiwan) in a strong position to exceed sales in Japan for the first time. Growth in Europe will reach 7 percent in 2011 and Japan will see a decline of 5 percent, due, in part to structural decline and also the impact of the March 11 earthquake and tsunami. However, the study estimates that Japan’s luxury sales will stabilize starting in the third quarter of 2011, as consumption recovers and as reconstruction drives GDP growth. In fact, even as Tokyo stores reopened in the two weeks after the earthquake, brands reported a quick resumption of sales to expected levels, with little impact in southern cities such as Osaka.

The study predicts that growth in emerging markets will remain the focus of luxury manufacturers for the next two to three years. Lifestyle changes have driven a return of luxury goods sales in Russia (5 to 10 percent annual growth). New store openings will fuel growth in the Middle East (10 percent to 12 percent), while Brazil will see heavy investment by international brands (10 percent to 15 percent). China’s fast-growing wealth will fuel both same store sales growth and new store openings.

“The emerging market consumer continues to create the most exciting challenges for our industry,” said Santo Versace, chairman of Fondazione Altagamma, an Italian luxury goods industry trade association, which provided much of the data for the study. “Even as we adjust to the maturing of the North American and European markets, consumers in countries like China are becoming more demanding and more sophisticated in their luxury tastes.”

In its report, Bain mentions three ways that those in luxury industry can better take advantage of the growing and changing luxury market:

* Deep focus on emerging markets—penetration; route-to-market; a tailored value proposition

* Adaptation to the continuing generational shift—baby-boomers retiring; Generation Z (always connected)

* Continuous enhancement of the customer experience—increase loyalty and satisfaction; integrated online and offline experiences; unrelenting service

“Emerging markets are doing more than generating revenues,” said Bain’s D’Arpizio. “New consumers are also forcing luxury brands to become much more nimble in the merchandise selection and customer experience they offer to increasingly diverse consumers.”

LVMH Now Owns 20% of Hermes

Bernard Arnault

If there are any doubts that Bernard Arnault is interested in a majority stake in Hermes, they have been settled. In a one-sentence statement through his company, LVMH Moët Hennessy Louis Vuitton, the billionaire businessman says he now owns 21,338,675 Hermes shares, just over 20 percent of the family-owned, Parisian luxury goods company.

Paris-based LVMH enraged Hermes family members in October when it revealed it had taken a 17.1 percent stake in the company. Arnault, said at the time LVMH would continue to buy more shares but did not intend to take control, to make a public offer for the company nor to seek seats on the board.

The family shareholders of Hermes called for Arnault to withdraw his Hermes' capital.

AFP reports that LVMH is now the single largest shareholder in Hermes but it is controlled by the descendents of founder Thierry Hermes who between them hold 73.4 percent of the capital.

LVMH, the world's leading luxury group, controls brands such as Louis Vuitton, Givenchy, Dom Perignon and Dior. 

I was first alerted to this story through the Lorre White, The Guru of Luxury, website, so special thanks to Lorre.