Podcast Summary
A French luxury brand, Hermes, prioritizes craftsmanship and tradition over manufacturing efficiencies: Hermes, a 187-year-old French luxury brand, values craftsmanship and tradition, growing to a $200 billion company despite producing only 15% of revenue from saddles, and rejecting mergers and conglomerates to maintain independence and authenticity.
Hermes, a handbag company founded in 1837 in Paris, defies industry norms by prioritizing craftsmanship, quality, and independence over manufacturing efficiencies and economies of scale. Despite producing only 15% of their revenue from selling saddles, they have grown to be worth over $200 billion. Their annual reports, known for their beauty and unique illustrations, reflect their commitment to authenticity and tradition. The company, which is still under family control in its sixth generation, has rejected mergers and conglomerates, making it a standout in the luxury industry. This focus on craft and reputation has kept Hermes relevant for nearly two centuries.
From Orphaned Craftsmen to Luxury Brands Founders: Thierry Hermes and Louis Vuitton, despite being orphaned craftsmen, rose to prominence during Europe's transformative period and founded two of the world's most prestigious luxury brands, Hermès and Louis Vuitton, respectively.
The unlikely backgrounds of Thierry Hermes and Louis Vuitton, two orphaned craftsmen from Germany and France respectively, led them to become the founders of two of the most prestigious luxury brands in history. This was during the time when Europe was undergoing significant changes, particularly with the rise of Napoleon Bonaparte, who conquered much of the continent and brought about both opportunities and hardships for the young men. Thierry, an apprentice in Normandy learning the art of harness-making for horse-drawn carriages, eventually moved to Paris and established himself as a master craftsman, catering to the nobility. When Napoleon III came to power in France, he modernized the city and brought about a renewed interest in luxury goods, allowing Thierry's Hermès to flourish. Meanwhile, Louis Vuitton, also an orphan, started his own luggage company in Paris in 1854, focusing on innovative designs that catered to the growing number of travelers. Their humble beginnings and orphan status contrasted sharply with the elite clientele they served, making their success stories even more remarkable.
Paris Transformation Era: A Catalyst for Thierry Hermes and Louis Vuitton's Success: During Paris' transformation from a medieval city to a modern metropolis, Thierry Hermes and Louis Vuitton thrived, thanks to the disruptive idea of shifting class based on wealth and influential clients like Empress Eugenie. Adapting to modern transportation and family tradition played crucial roles in their continued success.
The transformative era under Napoleon III in Paris played a pivotal role in shaping the success stories of Thierry Hermes and Louis Vuitton. Paris was being remodeled from a medieval city into a modern metropolis, making it an ideal platform for showcasing wealth and status. This shift in social stratifications opened up opportunities for business growth, particularly for Thierry Hermes, who was the most exclusive crafter of carriage wear. The modern idea that one could shift their class based on wealth and influence was a disruptive wave that enabled Hermes to create a thriving business. Moreover, both Hermes and Vuitton gained influential clients during this time - Empress Eugenie, who was a client for both their carriage and luggage services. The upcoming world of trains and cars directly influenced Louis Vuitton's luggage and trunks, making them a perfect fit for the modern era. Although Hermes remained deeply rooted in French history with its equestrian themes, it was crucial for the brand to adapt and translate its legacy into the car era to remain relevant. The family tradition of learning the craft from the ground up, which continues to this day with the sixth generation of Hermes family members, Excel and Pierre-Alexi Dumas, further highlights the importance of this era in shaping the future of these iconic brands.
A Family's Interconnected Approach to Business and Creativity at Hermes: Hermes' success is rooted in its family-led approach, with interconnected business and creative sides, as seen in the addition of saddlery and the popularization of the Otakawa bag
At Hermes, the business and creative sides are intertwined, with family members leading both areas. This contrasts with LVMH, where executives and creatives work separately. A key moment in Hermes' history was when Charles Emile O'Neill added saddlery to the business and moved it to the iconic Fauberg location in Paris. His sons, Adolf and Emil, took over in 1902 and expanded the company, introducing the Otakawa bag as an accessory for their equestrian clients. Emil, the younger brother, was particularly ambitious and even traveled to Russia to secure the czar as a customer. Despite the Otakawa bag's original purpose, it eventually became a popular item for non-equestrian customers as well. This family-led, interconnected approach to business and creativity has been a consistent theme at Hermes for generations.
From saddles to handbags: Hermes' transition into the modern era: Hermes' introduction of a large accessory for carrying a whole saddle marked a turning point, positioning the company for the age of the automobile. Both Hermes and JP Morgan's long-term focus and exceptional quality have contributed to their enduring success. Adaptability, innovation, and a long-term perspective are crucial for business success.
The introduction of a large accessory by Hermes in 1902, which resembled the shape and design of their iconic Birkin and Kelly bags but was much larger, marked a significant turning point for the company. This accessory, designed to carry a whole saddle, was a spiritual heritage to the business and perfectly positioned Hermes for the age of the automobile. This transition from focusing on saddles and horses to handbags was not foreseen by the founders at the time but proved to be crucial in moving Hermes into the modern era. Another interesting point from the discussion is the long-term focus and exceptional quality bar of both Hermes and JP Morgan, which have contributed to their enduring success. JP Morgan's payments business, a combination of various capabilities and products from different parts of the firm, has become a one-stop payment shop for businesses of all sizes. Similarly, Hermes' avoidance of e-commerce for their most coveted products and focus on traditional methods is a testament to their commitment to quality and exclusivity. Moreover, the discussion highlighted the importance of technical innovation in both industries, with JP Morgan's embedded banking solutions enabling seamless and secure payments for large retailers like Macy's, and Hermes' accessory transitioning the company into the age of the automobile. Overall, the conversation underscored the significance of adaptability, innovation, and a long-term focus in business success.
Emil Hermes' Inspirational Trip to the US and Discovery of the Zipper: Emil Hermes traveled to the US, learned from Ford's assembly line production, discovered the zipper, and applied these innovations to create the first zippered jacket for the Duke of Windsor, leading to Hermes' transition into the automobile era.
Emil Hermes, a French industrialist, traveled to the United States in the early 1900s and was greatly influenced by what he saw there. He met with Henry Ford and witnessed the assembly line production of the Model T car, which he recognized as a game-changer. He brought back ideas from Ford's production methods and applied them to Hermes, but also discovered the zipper, which he exclusively licensed for use in France. This led to the creation of the first zippered jacket, for the British Duke of Windsor. The car's impact on Hermes caused a rift between Emil and his brothers, leading to Emil buying out his brother's share of the company and transitioning Hermes into the automobile era. This story highlights Emil's innovative mindset and his ability to adapt to new technologies and trends.
Identifying and catering to the needs of the global elite during increased travel: Hermes' success in the 1920s was driven by identifying the need for visually impressive, high-quality accessories for cars and shifting focus from meals to handbags. They targeted travel destinations and collaborated with expert craftspeople to create unique, branded products.
Hermes' success in the 1920s was driven by their ability to identify and cater to the needs of the global elite during a time of increased travel. They shifted their focus from meals to handbags, recognizing the importance of visually impressive, high-quality accessories for cars. Hermes didn't just want to showcase a label; they aimed for raw craftsmanship that would leave a lasting impression. This led to collaborations with expert craftspeople, selling their unique, branded products in stores around the world. Hermes' retail strategy was different from today's standards, as they targeted travel destinations where their clients were going, rather than focusing on local clientele for each store. This adaptability and insight into the desires of the global elite allowed Hermes to establish itself as a luxury brand and expand its reach.
Hermes' Shift from Elite to Accessible Luxury: Hermes, once a brand for French nobility, became accessible luxury by embracing whimsy and craftsmanship under the influence of Robert Dumas, leading to iconic items and a welcoming store atmosphere.
Hermes, a luxury brand known for its craftsmanship and connection to French nobility, evolved in the modern era by appealing to both local upper classes and tourists with its unique, whimsical touch. This shift came with the involvement of the Dumas family, specifically Robert Dumas, who introduced a playful and artistic flair to the brand. This thread is critical to Hermes' identity, creating a warm and welcoming atmosphere in their stores, distinct from the bright and in-your-face luxury shops. Robert Dumas' influence is evident in the redesign of their handbag line and the introduction of iconic items like the sack a dépeche and the Shendankra bracelet. Despite their ties to the old French elite, Hermes manages to exude a sense of humor and imaginative flair in their products, making them accessible and desirable to a wider audience.
The Métier of Hermes: A Focus on Craftsmanship and Artistic Expression: Hermes, a luxury brand known for its craftsmanship and artistic expression, has a rich history rooted in quiet luxury and unique trades, such as the creation of the Shandanka bracelet and the production of iconic silk scarves.
Hermes, a luxury brand known for its high-quality craftsmanship, has a rich history rooted in artistic expression and quiet luxury. The concept of Métier, or craftsmanship, is central to Hermes' identity, with each division representing a unique trade. One such Métier is the creation of the Shandanka bracelet, inspired by boat anchors on a Normandy beach. This era of Hermes was marked by a lack of branding and a focus on producing the finest quality goods, with a single artisan leaving their unique touch on each item. A notable product from this time was the silk scarves, which became a global phenomenon and a symbol of French woman's fashion. The production process for these scarves, which continues today, involves sourcing the finest silk and creating new designs while retiring old ones. This commitment to artistic expression and quality has been a hallmark of Hermes since its inception.
Hermes' intricate production process sets them apart: Hermes' unique hand screen printing method, rich history, and commitment to quality create a luxury brand with a loyal customer base, adaptable to challenges and resilient to economic downturns.
Hermes' unique production process for creating their scarves, which involves hand screen printing each color using individual masks that are also hand etched, results in a high level of craftsmanship and attention to detail that sets them apart from other companies. This intricate process, along with the brand's rich history and commitment to quality, contributes to Hermes' status as a luxury brand with a dedicated and loyal customer base. Additionally, Hermes' ability to adapt to challenges, such as during the Great Depression and World War II, by embracing new circumstances and creating iconic symbols like the orange box, demonstrates their resilience and innovation. Ultimately, Hermes' commitment to preserving their craftsmanship and history has resulted in a luxury brand that is insulated from economic downturns and continues to thrive.
Embracing the spectrum of orange's presentation: Hermes stays current and engages customers by embracing various orange hues on different leathers, while maintaining a rich brand history that evokes emotions and creates an immersive experience.
Hermes, a luxury brand known for its iconic orange color, refuses to be confined by specific color codes and instead embraces the spectrum of orange's presentation on different leathers. This approach allows them to stay current, evoke the whimsy of their annual themes, and engage customers through the discovery of various orange hues. Additionally, Hermes' history is deeply embedded in its brand identity, from the creation of men's silk ties to the intricate window displays designed by artists with theater backgrounds. These elements, while having no inherent utility, evoke emotions and create an immersive experience for customers, emphasizing the intangible value of luxury.
Luxury brands use art to create intangible value: Luxury brands leverage art to differentiate, create dream-like experiences, and justify higher prices
Luxury brands like Hermes use art as a crucial component in their products to create an intangible, priceless feeling for consumers. This feeling is a key part of the product's value and enables the brand to sell goods for higher prices. The connection to art also helps luxury brands differentiate themselves from competitors and create a dream-like experience for customers. A notable example of this is the Kelly bag, which became iconic after being used by Princess Grace Kelly to hide her pregnancy from the paparazzi. The name of the bag was officially changed to the Kelly bag by Robert Hermes in 1977, solidifying its status as a truly enduring and desirable luxury item.
From product to solution and effective branding: Understanding customer needs, providing a complete solution, and effective branding are crucial for a company's growth and success. A CEO's background and experiences can shape their approach to these elements.
The journey of a company's growth and success often involves evolving from a product-focused business to providing a comprehensive solution for its customers. ServiceNow, under the leadership of Bill McDermott, is a prime example of this transformation. Starting as a 15-year-old business owner of a deli in the 1970s, McDermott discovered that customers weren't just there for the product but the experience. He applied this mindset throughout his career, leading him to become the CEO of SAP and eventually ServiceNow. McDermott's focus on understanding the true needs of his customers and providing a complete solution for their enterprises has resulted in impressive growth and market value. On the other hand, the story of Hermes and the Kelly bag showcases the importance of branding and the impact of celebrity endorsements. The Kelly bag's popularity skyrocketed when it became Princess Grace Kelly's favorite, but its high price point limited its accessibility to a small population. The market wasn't yet ready for the stratified class needed to support the bag's sales. Despite the initial success, Hermes faced challenges in the 1960s and 1970s, leading to a decline in the company's performance. These stories demonstrate the significance of understanding your customers' needs, providing a comprehensive solution, and effective branding in driving a company's growth and success.
Hermes' commitment to brand identity and values: Hermes refused to compromise their brand identity and values, maintaining exclusivity and desirability through unwavering dedication to heritage and authenticity
While Hermes faced challenges in the late 1970s, they refused to compromise their brand identity and values, even when it was suggested they follow the trend of other luxury brands and make their products more accessible and affordable. Hermes' commitment to maintaining the mystique and quality of their brand, which was rooted in leather and horses, set them apart from fashion-forward brands that emerged during that era. The company's steadfast approach to responsible growth and refusal to hire consultants have become enshrined in their luxury strategy. This unwavering dedication to their heritage and authenticity has served as both a strength and a weakness, but ultimately, it has helped Hermes maintain its exclusivity and desirability in the face of competition.
The success of family-owned businesses depends on more than just skills and strategies of direct descendants: Deep understanding and absorption of business traditions, gained from growing up in the business, can lead to successful transformations and crucial decisions in family-owned businesses.
The success of a family-owned business, especially during generational transfers, is not solely dependent on the skills or strategies of the direct descendants. Instead, it's about the deep understanding and absorption of the business traditions and intangibles gained from growing up in the business. This "je ne sais quoi" can lead to the right person being able to transform the company and make crucial decisions. For instance, Hermes' successive generations, who have apprenticed in the business, have a unique ability to understand the marketplace and empower the right people to make changes. This concept, often referred to as nepotism, is complex as it can limit the talent pool but also provide valuable dinner table conversations and hands-on experience. One such example is the saddle stitching technique used by Hermes, which requires muscle memory and expertise that can only be acquired through hands-on training. While it's spiritually true that Hermes still makes some products by hand, it's important to note that not all production is done at the famous address in Paris. Overall, the success of a family business lies in the deep understanding and absorption of the business traditions, which can only be gained through apprenticeship and experience.
Hermès leather goods' durability and quality through saddle stitching: Hermès leather goods' exceptional durability and quality come from saddle stitching, a labor-intensive process passed down through generations, offering a permanent and crafted finish.
The saddle stitching technique used in creating high-end leather goods, such as those produced by Hermès, provides exceptional durability and quality. This interlocking mechanism, which requires individual stitches to be cut to unravel, offers a level of permanence and craftsmanship that is largely absent in mass-produced items. The process of creating these goods is a labor-intensive, multi-year endeavor, with each piece crafted by a single artisan. This savoir faire, or know-how, is passed down through generations, allowing Hermès to maintain its high standards while scaling production to meet demand. The result is a product that is not only functional and long-lasting but also aesthetically pleasing and representative of a bygone era of craftsmanship.
Hermes' Commitment to Craftsmanship and Repair: Luxury goods company Hermes preserves traditional craftsmanship, repairs every item sold, and stands out for its dedication to maintaining the 'soul' of their products, attracting loyal customers and employees.
Hermes, a $200 billion luxury goods company, stands out for its commitment to preserving traditional craftsmanship and repairing every item they sell, regardless of age. This dedication to maintaining the "soul" of their products sets them apart from competitors, who had largely abandoned such practices in the late 80s and 90s. Beatrice Amblard, a former Hermes employee, described the company as the "greatest" place to work in the industry during that time due to its unwavering commitment to handcrafted goods and centuries-old techniques. Today, Hermes operates 15 repair shops worldwide, mending over 120,000 pieces annually. Beatrice, a worldwide master artisan, left Hermes to start her own boutique and leather school in San Francisco. Despite being a legend and the CEO of Hermes, Jean-Louis Dumas remained deeply connected to his employees and was genuinely surprised when Beatrice left to pursue her entrepreneurial endeavors. The individual craftsmen Hermes employs offer a non-competitive value proposition to customers, as their products and services cater to a different market segment.
Jean-Louis Dumas saves Hermes by adapting to changing market: Understanding market trends and staying true to core values led Hermes to adapt successfully, remaining desirable to customers despite new fashion trends.
Jean-Louis Dumas, the former CEO of Hermes, saved the luxury brand from consultants by understanding the changing market and keeping the brand's traditions and craftsmanship while making it relevant to a younger audience. This was achieved through innovative advertising campaigns, such as young women wearing Hermes scarves with jeans, and embracing the digital era with apps that suggest different ways to wear scarves. By adapting without compromising the brand's core values, Hermes continued to exist alongside new fashion trends and remained desirable to customers. The story also highlights the importance of understanding the market and being open to change while staying true to one's roots.
Expanding Hermes' Reach: Balancing Trend and Tradition: CEO Jean-Louis Dumas expanded Hermes' reach by embracing trends while respecting its classic heritage, creating a symbol of balance with the iconic Birkin bag.
Jean-Louis Dumas, the CEO of Hermes in the 1980s, successfully expanded the brand's reach by embracing trends while respecting its classic heritage. He recognized the growing global wealthy class and positioned Hermes as a connector to French and European nobility, offering a unique and universally revered fashion heritage. This was exemplified by the creation of the Birkin bag in 1984, named after the British-French actress Jane Birkin. The Birkin bag, with its high status and exclusivity, became a symbol of Hermes' ability to balance trend and tradition. Jean-Louis' approach allowed Hermes to maintain its defensibility and appeal to customers around the world, regardless of cultural background.
Jane Birkin's flight struggle inspires creation of Hermès Birkin bag: A chance encounter, functional design, and exclusivity led to the iconic Hermès Birkin bag's popularity and enduring desirability
The chance encounter between Jane Birkin and Jean-Louis Dumas on a flight in the late 1970s led to the creation of the iconic Hermès Birkin bag. Jane, a French cultural icon and mother, struggled with her wicker basket on the flight, inspiring Jean-Louis, the CEO of Hermès, to design a larger, more functional bag. The Birkin, which debuted in 1984, was initially not a commercial success but gained popularity in the 1980s when people were looking for flashier, more luxurious items. Its function-focused design, larger size, and limited availability contributed to its allure and desirability. The slow burn of its success and the exclusivity surrounding it created a sense of exclusivity and desirability that continues to this day.
The Hermes Birkin Bag: More Than Just a Luxury Item: The Hermes Birkin bag is an investment, a symbol of craftsmanship, and a potential full-circle moment for the artisan. Buying one involves exceptional customer service and can lead to resale profits, but Hermes discourages this practice.
The Hermes Birkin bag, known for its high price tag and exclusivity, is not just a luxury item, but an investment and a symbol of craftsmanship. The experience of buying one goes beyond the financial aspect, often involving exceptional customer service and forming a connection with the sales associate. Once owned, a Birkin bag can be resold for a profit, but Hermes discourages this practice as they value customers who appreciate the product for its intrinsic worth. Each Birkin bag is uniquely identified by a blind stamp, making it a potential full-circle moment for the craftsperson who made it. These high-end handbags are considered Veblen goods, defying traditional economic principles.
Hermes' Pricing Strategy: Creating Scarcity and Elevating Status: Hermes intentionally keeps prices low to create scarcity, elevate status, and maintain exclusivity, despite high demand and immense profitability.
Hermes, a luxury brand known for its Birkin and Kelly bags, intentionally maintains low prices below market value despite high demand. This strategy creates scarcity and elevates the status of the brand, driving demand for both the bags and other Hermes products. The price increase restraint is not due to a cash grab, but rather an investment in the brand's image as exclusive and not accessible to everyone. The supply demand mismatch also reflects Hermes' obsession with conservatism and maintaining the bags' cultural touchstone status. The bags, which were originally priced at around $2,000 in 1984, have only doubled in price inflation-adjusted, despite the brand's immense profitability. The question remains, why doesn't Hermes raise prices further, given the demand and potential profit? The answer lies in the brand's commitment to exclusivity and the long-term benefits of maintaining an aura of scarcity.
Jean-Louis Dumas' Leadership Transformed Hermes into a Global Luxury Brand: Jean-Louis Dumas repositioned Hermes as a global luxury brand, leading to significant growth and a $2 billion annual revenue. Family members sought liquidity, resulting in a public listing, but retained control.
Jean-Louis Dumas' leadership at Hermes transformed the family business into a global luxury brand with an estimated $2 billion annual revenue and high margins. He achieved this through repositioning the brand and international expansion, which led to significant growth from the late 1980s to 2006. As the business became more valuable, family members sought liquidity, leading to a public listing in 1993, where they sold 19% of the company while retaining 81% ownership. Despite owning a large stake, the family's control over the business remained strong. Meanwhile, Vanta, a trust management platform, has seen remarkable growth, now serving over 7,000 customers just five years after launch, focusing on automating security reviews and compliance efforts.
Managing Compliance and Security with Vanta and Bernard Arnault's Investment in Hermes: Vanta simplifies compliance and security management for companies through API integrations, automation, and real-time monitoring. Bernard Arnault's investment in Hermes, using equity swaps, demonstrates exceptional foresight and profitability.
Companies need to prioritize compliance and trust with their vendors and customers, which can significantly contribute to revenue growth. However, managing compliance and security can be time-consuming and complex. Vanta, a software solution, simplifies this process by integrating with various services via APIs, automating security reviews, and enabling real-time monitoring. This allows companies to save time and resources while ensuring continuous compliance. Meanwhile, in the world of business acquisitions, Bernard Arnault, CEO of LVMH, is known for his exceptional investment skills. After missing out on Gucci, he identified Hermes as a potential crown jewel in the luxury industry. Starting in the early 2000s, Bernard quietly bought a stake in Hermes using equity swap derivatives, which went unnoticed by the Hermes family. Hermes' market cap was significantly lower at the time, making Bernard's investment a highly profitable one. Bernard saw value in Hermes beyond its current worth and understood the potential for growth. He was not only an investor but also an operator, and he identified two opportunities: the impending generational transfer at Hermes and the need for separation of artistic direction and CEO roles. These insights set the stage for Bernard's successful acquisition of Hermes, further expanding LVMH's luxury empire.
Hermes's Transition into a Public Company and the Separation of Roles: The Hermes family's lack of understanding about public company transitions led to external pressures and the destruction of a popular product despite strong sales, revealing cracks in the brand's operations as it grew.
The Hermes luxury brand, which was once run by a single person managing both the creative and business sides, began to experience growing pains as it transitioned into a public company. This led to a separation of roles, with Jean-Louis Demole, the artistic heir, and Jean-Louis Campeau, an expert in corporate structure and the luxury market, taking on CEO roles in the artistic and business sides, respectively. However, the family's naivete about public company transitions left them vulnerable to external pressures, as demonstrated by their decision to destroy a popular canvas beach bag despite its strong sales. This incident, while not publicly acknowledged by the family, highlights the cracks beginning to show in Hermes's operations as it scaled up.
Hermes' Unexpected Challenge with a Canvas Tote Bag in Japan: Companies must carefully consider expansion and acquisition strategies to maintain brand identity and consumer expectations
Hermes, a renowned luxury brand known for its meticulous craftsmanship and strategic brand stewardship, faced an unexpected challenge with the production and marketing of a $150 canvas tote bag in Japan. This event, which went against the company's usual high standards and successful brand image, raised questions about creative leadership and strategic decision-making. Hermes, towards the end of Jean-Louis' tenure, began investing in other companies, some of which were questionable acquisitions, such as a significant stake in a German camera company, Leica. These acquisitions, while perhaps having some strategic value, ultimately did not align with Hermes' core luxury brand identity and resulted in a failed investment. The lesson here is that companies, even those with a strong brand reputation, must be cautious in their expansion and acquisition strategies to ensure they align with their core brand values and consumer expectations.
Hermes family defies LVMH takeover attempt, preserves unique identity: The Hermes family's successful resistance to LVMH's acquisition attempt underscores the importance of preserving a strong brand and intangible assets.
The Hermes family held onto their company's unique identity and heritage despite external pressures to sell, demonstrating the importance of preserving intangible assets. In 2010, LVMH attempted to acquire a significant stake in Hermes, leading to a public battle between the two companies. The Hermes family, led by Patrick Thomas, refused the offer and managed to maintain control, despite LVMH increasing its stake to 22.6%. This resulted in a skyrocketing stock price due to the decreasing float of publicly traded shares. The family, who already held 73% of the company, were offered large sums of money for their shares, leading to a potential delisting of Hermes from the stock exchange. The incident highlights the value of a strong brand and the lengths companies and families will go to protect it.
Hermès family's commitment to long-term control: The Hermès family formed H-51 to lock up their equity for 20 years, ensuring collective control and preventing potential takeovers.
The Hermès family's decision to form H-51 and lock up their equity for at least 20 years was a bold move to protect the company from external pressures to sell. With the ownership divided among multiple family members and external forces pushing for a sale, the psychological pressure to avoid being the last one out was strong. By creating H-51 and agreeing to keep their equity locked up, the family members collectively ensured that they would maintain control of the company and prevent a potential takeover. This decision demonstrated their commitment to the long-term success of Hermès and their belief in its potential for continued growth. Additionally, the family's agreement to give H-51 a right of first refusal on the shares of those who did not contribute further strengthened their position and kept a significant portion of the company within the family's control. Overall, the Hermès family's actions showcased their strong unity and strategic thinking in the face of external pressures.
Bernard Arnault's strategic share swap deal boosts LVMH ownership and value: Bernard Arnault engineered a tax-free deal to increase LVMH ownership, unlocking billions in value through share swaps with Hermes for a stake in Christian Dior
Bernard Arnault, the CEO of LVMH, creatively engineered a way to increase his ownership in LVMH and take full control of Christian Dior, all through share swaps that resulted in significant value creation and no tax liability. This maneuver, which involved swapping Hermes shares for a stake in Dior, allowed Arnault to boost his LVMH ownership from 36% to 46%, while unlocking billions of dollars in value. The entire transaction was tax-free due to the share swaps. The result? A massive increase in LVMH's market cap, which had grown 16x since 2010. This success story underscores Arnault's strategic acumen and ability to navigate complex corporate structures to create value for himself and his shareholders. Hermes, the luxury brand at the heart of this transaction, emerged as a winner as well, thanks to its exceptional business performance and unassailable position in the industry.
Scaling luxury production while preserving craftsmanship: Hermes scales production by employing thousands of artisans, preserving traditional craftsmanship, and investing in training the next generation.
Hermes, a luxury brand known for its iconic Birkin and Kelly bags, has found a solution to the paradox of desirability and accessibility in the luxury industry by scaling production while preserving the traditional craftsmanship. This is achieved by employing thousands of mastercrafts people and artisans, many of whom are women and young, in small workshops throughout France. Hermes has also taken it upon itself to train the next generation of artisans through the building of schools and training centers. By doing so, Hermes ensures the continuation of this traditional craft and the growth of its fine export from France. This horizontal scaling approach, similar to cloud computing, allows Hermes to increase production capacity while maintaining the artisanal touch in every product.
Constraints Shape Brands: NVIDIA and Hermes as Examples: Constraints can create scarcity, drive research focus, and shape brand image, as seen in NVIDIA's tech conferences and Hermes' craftsmanship approach.
Constraints can drive a business's brand and posture. NVIDIA and Hermes are two vastly different companies, but they both illustrate this concept. NVIDIA's annual conference, GTC, is a testament to the importance of AI and research, attracting thousands of attendees and industry leaders. Hermes, on the other hand, is a luxury brand that believes in the craftsmanship of its products, with only a limited number of craftsmen able to create each item by hand. This constraint results in scarcity and high prices, appealing to a specific customer base. While some may argue that the craftsmanship narrative exists solely to justify pricing and scarcity, both elements work together to create the desired brand image. Similarly, Amazon's flywheel operates in the opposite way, maximizing cycles, while Hermes' intentionally limits production. Both methods have their merits and are not starting or ending points but rather work in harmony.
Apple's modern fusion of tech and luxury with Hermes: Apple's collaboration with Hermes creates a contemporary, elegant Apple Watch, blending technology and luxury, despite concerns over high price points and technology's impact on Hermes' future.
The partnership between Apple and Hermes represents a contemporary and elegant fusion of technology and luxury. Apple, in its pursuit of creating a beautiful and functional object, sought out a luxury brand that was not deeply entrenched in the traditional Swiss watch industry and had a reputation for making the most fully realized versions of their products. Hermes, with its unassailable reputation and commitment to craftsmanship, was an ideal partner. The result is the Hermes Apple Watch, a contemporary elegant object that is an integral part of the wearer's modern life. However, this partnership also raises concerns, such as the high price point of the Hermes Apple Watch bands and the potential implications for Hermes' future as a luxury brand in the face of advancing technology.
Apple-Hermès partnership: A complex situation for luxury brand: Apple-Hermès collaboration brings financial success but raises concerns over brand dilution and identity
The partnership between Apple and Hermès for the production of Apple Watch bands presents a complex situation for the luxury brand. While the collaboration has led to significant financial success, some argue that it compromises Hermès' commitment to handmade, high-end products and risks diluting the brand's exclusivity. Despite the controversy, Hermès has continued to thrive, maintaining its reputation as a luxury powerhouse while expanding its reach through strategic partnerships. However, the potential long-term impact on the brand's identity and customer base remains an open question. Additionally, Hermès faces constraints in reinvesting profits due to a high dividend payout and limited ability to train craftspeople and saturate the market.
Hermes navigates growth beyond luxury boundaries: Luxury brand Hermes explores new product lines to attract younger demographic and expand reach, while maintaining exclusivity and brand identity
Hermes, a luxury brand known for its craftsmanship and exclusivity, is facing the challenge of growing beyond its current boundaries. With a significant portion of its sales coming from Asia, particularly China, the company is exploring new product offerings like the Apple Watch and perfume lines to attract a younger demographic and expand its reach. Despite having a large cash reserve and recently increasing dividends, Hermes still views certain elements of its business as scarce resources. The company's leather goods segment remains its largest revenue generator, but its participation in the fashion world through ready-to-wear and accessories feels antithetical to its brand image. As Hermes navigates this new era of abundance, it will be interesting to see how the company balances growth opportunities with maintaining its exclusive and pure brand identity.
Hermes' Iconic Bags Drive Sales, Especially in Japan: Hermes, a luxury brand, generates significant revenue from its exclusive Birkin and Kelly bags, with Japan buying twice as much per capita as China. The brand focuses on younger demographic and French roots in China, controls entire production process, and repurposes materials through Petite H initiative, shielding it from luxury market cooling.
Hermes, a luxury brand known for its exclusivity and high-quality products, derives a significant portion of its revenue from two iconic bags, the Birkin and Kelly, which are not displayed in stores and cannot be bought directly. Despite China being the largest market for luxury goods, accounting for 48% of Hermes' sales, Japan buys twice as much per capita. Hermes has managed to grow in China, even during tough economic times, by focusing on the younger demographic and staying true to its French roots. The brand controls the entire production process, from design to retail, and even repurposes leftover materials into unique, whimsical items through its Petite H initiative. While the luxury market may be cooling, Hermes' exclusive brand image and commitment to quality are likely to shield it from the impact felt by other brands.
Hermes' Strategic Approach to Responsible Growth and Exclusivity: Hermes maintains a consistent pricing strategy, limits production, and offers customized and exclusive products to reinforce brand value and sustain competitive advantage.
Hermes's strategic approach to responsible growth, limiting production, and slower price appreciation contributes to the desirability and durability of their luxury goods. By maintaining a consistent pricing strategy and ensuring the intrinsic value of their products, Hermes has positioned itself differently from other luxury brands and has been able to sustain a competitive advantage. This strategy, which can be seen as a form of branding power, also extends to their Hermes Horizons division, where they offer customized and exclusive products to clients. The ability to provide unique and personalized offerings, combined with their commitment to quality and exclusivity, further sets Hermes apart from competitors and reinforces their brand value.
Hermes' Unique Factors Contributing to their Premium Prices: Hermes' premium prices result from their unique craftsmen, focus on individual, handcrafted items, exclusive business model, and the popularity of handbags as a luxury product.
Hermes' brand power is a significant factor in the premium prices they command. This is not just due to the brand recognition, but also the scarcity of their unique craftsmen and their focus on individual, handcrafted items, setting them apart from competitors. Additionally, Hermes' business model is not reliant on high volume sales like other luxury brands, and their focus on quiet luxury contributes to the exclusivity and allure of their brand. Another key factor is the popularity of handbags as a luxury product due to their ease of sale, high profit margins, and consumer demand. However, Hermes does not follow this model, instead opting for a more exclusive approach. These unique factors combine to create the powerful brand that Hermes is today.
Hermes vs Louis Vuitton: Different Business Models: Hermes sets itself apart from Louis Vuitton through unique marketing strategies, including events and personalized experiences, while Louis Vuitton invests heavily in advertising and celebrity endorsements.
Hermes and Louis Vuitton, despite their shared focus on luxury handbags, have constructed vastly different business models. While both brands sell goods at high margins, Hermes sets itself apart through its unique approach to marketing and sales. Unlike Louis Vuitton, which spends a significant portion of its revenue on marketing and advertising, Hermes relies more heavily on events and personalized experiences for customers. Additionally, Hermes does not engage in celebrity endorsements, maintaining control over its image. These strategies contribute to Hermes's exclusivity and allure, making the brand a desirable and coveted luxury experience for consumers.
Creating an aura of exclusivity and desirability: Hermes builds a large fanbase by reinforcing authenticity and status through celebrities, exclusivity, and diverse offerings based on local demand.
Hermes' unique approach to branding and marketing sets it apart from other luxury brands. By creating an aura of exclusivity and desirability around their products, Hermes has built a large and diverse community of fans who aspire to own their items. The brand's authenticity and status are reinforced through celebrities and influencers who choose to purchase Hermes products themselves. Hermes also operates on a pull model for merchandising, allowing store managers to stock items based on local demand, resulting in a diverse range of offerings and no two stores being identical. Overall, Hermes' focus on dominating the client through exclusivity, desirability, and authenticity has led to a successful and sustainable luxury brand.
Hermes' unique approach to e-commerce and airport stores: Hermes' low employee turnover and focus on craftsmanship contribute to their exclusivity and luxury image while expanding reach with e-commerce and airport stores
Hermes' e-commerce strategy and airport stores cater to a new audience and provide an approachable buying experience, while their exceptional employee retention and control over production contribute to the brand's unique identity and craftsmanship. With a 6% annual turnover rate and a 20-year average tenure, Hermes' workforce is a significant asset, and their focus on creation, craftsmanship, and exclusive distribution network sets them apart from competitors like LVMH. This strategic approach allows Hermes to maintain its exclusivity and luxury image while expanding its reach to a wider audience.
Hermes' Unique Value Proposition: Exclusivity, Service, Craftsmanship, Shopping Experience, and Great Brand: Hermes offers a unique luxury experience through exclusivity, personalized service, craftsmanship, shopping experience, and a strong brand. Their emphasis on quality and tradition sets them apart, but ethical concerns around their sourcing practices persist.
Hermes' unique value proposition lies in its ability to offer a complete bundle of exclusivity, service, craftsmanship, shopping experience, and a great brand, which cannot be replicated by competitors. While individual elements of this bundle can be found elsewhere, the Hermes experience is a distinct product that cannot be assembled from separate components. This old-fashioned approach to luxury, which emphasizes craftsmanship and quality, has allowed Hermes to capture significant value in the market. However, it's important to note that Hermes' practices, such as using exotic leathers, have raised ethical concerns. The company has responded by improving animal welfare standards and implementing sustainable farming practices, but the debate around the ethical implications of luxury goods remains.
Hermes's dedication to craftsmanship and heritage: Despite criticisms, Hermes's personal connection to its history and enjoyment of the creative process keeps it thriving in the luxury industry
Hermes's commitment to its brand and craftsmanship, spanning six generations, is a key factor in its continued success and dedication to the luxury industry. Despite criticisms, such as the destruction of imperfect products and the use of exotic leathers, the company's personal connection to its heritage and enjoyment of the creative process keep it thriving. This perspective was gained through an in-depth exploration of Hermes during the production of the Acquired podcast episode, which consumed the creators' focus for over a month. The episode began with the LVMH episode over a year ago and evolved through extensive research and writing. Ultimately, the personal resonance of the story for the creators and the company's unwavering commitment to its craft make Hermes an enduring player in the luxury goods market.
Understanding unique business models and priorities: Exploring Hermes' fun-focused approach and studying businesses operating under scarcity can provide valuable insights for running a successful business, even in different industries.
Even companies in the same industry can have vastly different business models and cultures. The discussion about Hermes highlights how the company prioritizes fun and staying true to its identity over maximizing short-term profits, despite having the potential to increase sales and profitability significantly. This approach sets Hermes apart from competitors and creates a mutually exclusive brand for many consumers. Another key point is the importance of understanding the unique puzzle pieces that make up a business. Hermes and Louis Vuitton, while selling similar products, have different business models and priorities. This idea can be applied to various industries and businesses, reminding us that we don't have to compete with our competitors in the same way or build similar businesses. Lastly, the discussion emphasizes the value of studying businesses that operate under scarcity, like Hermes and Acquired. Understanding their strategies and approaches can provide valuable insights for running a successful business, even if your industry or product category is different. The Anker Prime Charger (model A2343) was mentioned as a product recommendation. It's a compact, high-power charger with gallium nitride GAN technology, making it ideal for travel and offering fast charging capabilities for multiple devices.
Tools for Enhanced Research: Matter and Perplexity AI: Matter app and Perplexity AI significantly enhance research process by offering text-to-speech functionality and reliable information, saving time and boosting productivity.
Technology tools Matter app and Perplexity AI have significantly enhanced the research process for the speaker. Matter, an app that offers text-to-speech functionality for various content types including emails, newsletters, websites, and PDFs, has been a game-changer for the speaker who prefers listening over reading. Perplexity AI, on the other hand, is a reliable and trustworthy source of information that saves time and instills confidence. The speaker was impressed by its ability to provide accurate information and admit when an answer is unknown on the internet. Both tools have exceeded the speaker's expectations and have become essential for their work. Despite feeling like they've become a middle-of-the-bell-curve technology adopter, the speaker is excited about the potential of these tools and the impact they have on their productivity and effectiveness. Bill Walsh's book "The Score Takes Care of Itself" serves as a fitting carve out for this episode, as it relates to the theme of acquired knowledge, leadership, and the importance of focusing on the process rather than the outcome.
Leaders adapt with a clear strategy and open mind: Successful leaders plan, prepare, and collaborate with a clear strategy, while remaining open to new opportunities and understanding their market and audience.
Successful leaders, like Bill Walsh in football and Taylor Swift in music, plan and prepare with a clear strategy but also have the flexibility to adapt when necessary. Walsh's innovation of scripting plays in football and Swift's strategic collaborations demonstrate the importance of having a solid foundation while remaining open to new opportunities. Another key takeaway is the power of understanding your market and audience, as both the NFL and Swift have fully saturated their fan bases and can reach new audiences by collaborating. Lastly, the importance of education and knowledge was emphasized through discussions with experts on Parisian luxury, Hermes, and the fashion industry. By learning from the past and staying informed, one can make more informed decisions and strategies for the future.
Discussion with JP Morgan Payments, ServiceNow, and Vanta: Learn about innovative solutions in payments, IT service management, and cybersecurity compliance from JP Morgan Payments, ServiceNow, and Vanta. Join the community for engagement and guessing games, subscribe to ACQ2, and purchase merchandise at acquired.fm.
The episode featured a discussion with JP Morgan Payments, ServiceNow, and Vanta. These companies offer innovative solutions in their respective fields of payments, IT service management, and cybersecurity compliance. To learn more about them, listeners can check out the show notes or sign up for email notifications at acquired.fm. The community on Acquired.fm Slack also provides opportunities for engagement and guessing games about upcoming episodes. Listeners are encouraged to subscribe to ACQ2 and other podcasts on any podcast player. After finishing the episode, listeners can purchase Acquired merchandise, including a Hermes collaboration, at acquired.fm/store. The next episode promises to bring more insightful conversations. Stay tuned!
