Buying into the brand

When LVMH quietly bought 20.2 per cent of Hermès shares, it sent shockwaves through the luxury industry. Lucia van der Post talks to both parties about what’s at stake and the implications for consumers.

Pierre-Alexis Dumas, artistic director of Hermès (left), with CEO Patrick Thomas at the Emile Hermès Collection in Paris.
Pierre-Alexis Dumas, artistic director of Hermès (left), with CEO Patrick Thomas at the Emile Hermès Collection in Paris. | Image: Cristian Barnett

For a company whose mantra is quiet discretion, Hermès has been at the centre of something of a rumpus in the hot-house world of plush handbags and silken scarves. Not that this commotion is of its own devising; rather, it’s the doing of one of the world’s most successful operators, Bernard Arnault, founder, chairman and CEO of the vast luxury conglomerate LVMH, who has quietly built up a stake of (at the time of writing) 20.2 per cent in the French-based family-run Hermès. This does not make Hermès happy and word has reached M Arnault that Hermès is not happy. He has also got wind of the fact that I’m interested in the story and wishes to explain his thinking in person. So here I am at his Paris headquarters where he concedes that “Patrick Thomas [Hermès CEO] in particular is not very happy but we are very peaceful … we would like to talk to them but they do not wish to talk to us.”

“Well,” I say, “try to think of it from Hermès’ point of view – how would you feel if one of the most powerful men in France had taken a 20.2 per cent stake in your company?” “Eh, bien…” he gives a shrug, his beautifully tailored suit (Dior Homme?) scarcely rumples, but he insists that he has nothing but the best interests of Hermès in mind. “We think it is good luck for them to have a peaceful shareholder to back their strategy and protect them, to preserve their ‘Frenchness’.”

Hermès, not surprisingly, thinks it has no need of LVMH’s assistance to preserve its Frenchness and is quite capable of doing that all on its own. Patrick Thomas had already told me that in his view, for LVMH “to acquire so many shares through the use of obscure derivatives is not exactly friendly”. He also pointed out that “if you look at the performance since Hermès listed on the stock exchange in 1993, the average annual growth of LVMH’s net income has been 7.6 per cent, whilst that of Hermès was on average 14.7 per cent and that whilst LVMH shares have multiplied by six those of Hermès have multiplied by 35.”

Bertrand Puech – a great-great-grandson of Hermès founder Thierry Hermès, and the executive chairman of Emile Hermès SARL which represents the family shareholders – in a statement to the press went further and called Arnault “an intruder in our garden – if his intentions are friendly then we would like him to sell [his shareholding] and depart in a friendly manner”.

Nobody doubts that Arnault is a formidable operator. What he wants he almost always gets. Gucci, which he badly wanted and which after a long tussle eventually went to François Pinault’s PPR, was one of his rare defeats. Those with long memories know that Arnault, dubbed “the wolf in cashmere” by the French press, has made apparently friendly overtures before. They remember the mistake that Henry Racamier of the Louis Vuitton family made back in 1988 when he turned to Arnault for help over his problems with the Moët-Hennessy clan. It wasn’t long before Arnault had a majority stake in LVMH and Racamier was ousted from the family company he’d hoped Arnault would help him protect.

Hermès’ Shang Xia boutique in Shanghai is devoted entirely to things made and designed in China.
Hermès’ Shang Xia boutique in Shanghai is devoted entirely to things made and designed in China. | Image: Likai

They remember, too, Arnault’s many and various takeovers of family-owned companies ranging from Guerlain to Château d’Yquem, some of which would very much rather have been left to their own devices. Arnault is also a man who knows how to play the long game and the general view is that he will bide his time and hope that the next generation of family members will be tempted by offers for their shares. Certainly in terms of size, LVMH, with a market capitalisation of some €56.07bn, could be considered the vast whale that looms over the minnow Hermès, with its market capitalisation of around €16.68bn.

For the moment it is perhaps more interesting to look at what it is that makes Hermès so special that it has become the target of somebody who some might think already owns more than enough of the world’s most wonderful brands (Marc Jacobs, Dior, Fendi, Givenchy, Céline, to name just a few of the 60 or so brands that come under the LVMH umbrella). Arnault is, after all, the richest man in France and seventh richest in the world. Admittedly, there are very few companies in the world of haute luxury that are as hotly desirable as Hermès, and of those that are, the other two most lusted after, Chanel and Armani, are entirely family owned and so are impregnable even to Arnault’s clever strategies. Of the three, only Hermès is listed and clearly the temptation of the floating shares was, as Arnault himself agrees, more than he could resist.

As he told me in his beautiful airy office high above the Avenue Montaigne: “It was obvious that sooner or later somebody would buy them [the shares not owned by the family], that something would happen, and I could not sit by and allow a competitor or another investor to take a stake in Hermès. The fact that we did it, shows just how possible it was to do. We could today be in the position of seeing somebody else as a large shareholder.”

He insists that he has nothing but friendly intentions. “We like the brand, we respect it and we are there for the long term. We are not asking to control anything, not asking for a seat on the board, but for us, knowing that in the sixth generation there are over 80 family members, it was obvious that at some point in the future some of them might like to sell their shares. If they do, we would not wish to change the spirit of the company in any way.”

Hermès has had a staggeringly successful year (“It looks to be our best ever,” says Patrick Thomas). It opened 13 new shops, four of them in China, and 10 more are scheduled to open this year. Revenue rose 25.4 per cent to €2.4bn, up 18.9 per cent, while fourth-quarter 2010 sales rose 25.3 per cent to €736m. To put that in context, most of the best luxury goods companies staged an astonishing revival last year with LVMH’s revenues rising by 19 per cent to €20.3bn and its operating profits rising by 29 per cent to €4.3bn.


But it’s probably not the thought of the profits alone that motivates M Arnault. Hermès has something that some consider infinitely more precious – a status, an allure that makes it a pearl in the world of luxury goods. Its refusal to deviate from its high standards for greater commercial gain has meant that it has retained an image of integrity that many other brands have lost. It’s why there are long waiting lists for some of its most sought-after bags, why if you speak to the most sophisticated of international shoppers it is the brand they most want to acquire, it’s why those iconic orange boxes always but always make the heart lift. Arnault himself says of it: “The company is one of the few names left that has worldwide recognition and makes very high-quality products.” On top of that there are the other jewel-like brands that Hermès owns – Puirforcat, the fine French silverware company, St Louis, which does beautiful crystalware, and John Lobb, which makes some of the best footwear in the world.

But Patrick Thomas, who succeeded the late much-loved Jean-Louis Dumas as CEO, is quite clear that Hermès is a company whose culture is utterly different from that of LVMH. He wanted me to understand that Hermès “does not consider itself to be a luxury-goods company”. He described Hermès as a company of “creative craftsmen. Our philosophy is focused on creativity and craftsmanship. Of course, Hermès likes to make a profit but first comes our desire to make the best object that we can and then profit is the reward for a job well done.” (Though for a company that purports not to be overly concerned with profits, it’s noteworthy quite how staggering they are.)

For Hermès, how and where things are made still matters greatly. Patrick Thomas points out, “We are not just Hermès, we are Hermès Paris, and some 85 per cent of our products are still made in France in our own workshops. But we make wherever we find the best workmen and skills. Watches we make in Switzerland in our own factory, because that is where the best expertise is to be found. Women’s fashion is made in France, men’s in Italy.” Every Hermès bag is made by a single craftsperson who sees it through from beginning to end. Nobody denies that Louis Vuitton makes high-quality, deliciously desirable bags but they are not made in the same way; it is telling that last year Louis Vuitton was forced to withdraw advertisements in the UK that implied that all its handbags and purses were made by hand.

Pierre-Alexis Dumas, the general artistic director of Hermès and son of Jean-Louis Dumas, was also keen to explain to me the cultural differences between the two companies. “We are not in the business of selling large numbers of the same product at a high price. Our business model is focused on the quality of each object, not on the quantity. The problem is that this model is not compatible with the expectations of a large financial conglomerate. Our time frame is completely different. We are innovative artisans, constantly evolving to meet modern needs, but nevertheless we stick to the founding family’s principles of wanting to make the day-to-day objects that our customers use as beautifully and perfectly as we can. But to do this we need to do things much more slowly.” And here he echoes the words of Patrick Thomas: “We do want to be profitable, but profit is not the driving force. It is the reward.”

He’s also quite clear on what he thinks constitutes true luxury. “There are two forms of luxury – there is one that it is hard to relate to personally, that shines on the surface, often the result of heavy marketing but where there is no light inside. True luxury comes from inside so that when we use it or live with it we find that it has light inside it, that the object has a form of soul, has a presence and that it gives us great companionship.” This, of course, is the luxury with which Hermès identifies.

The new Hermès Left Bank store.
The new Hermès Left Bank store. | Image: Michel Denance

But something else might have caught Arnault’s attentive eye: things are clearly stirring at Hermès. There’s a sudden flurry of creative activity. First off, there’s a wonderful project in China, called Shang Xia, which translates as an encounter between past and future. While most Western companies tend to use China as a cheap manufacturer of their own designs, Hermès has taken a different route. “We take the Hermès vision,” says Patrick Thomas, “and put it in a different country. It has a Chinese designer and Chinese craftsmen, is almost entirely made in China and, though it’s based on our values – on quality, on craftsmanship – the aesthetic is entirely Chinese.”

They’ve had the idea for some while, but finding the right people took time. The result is a series of what you might almost call cultural products, all carrying the code of a long aesthetic heritage but updated and reinterpreted for a modern age. Most are quite simply stunning. For the moment they are sold in a gem of a little store designed by the Japanese architect Kengo Kuma in Shanghai’s Hong Kong Plaza where they’re displayed on bamboo shelves.

There are exquisite porcelain bowls (around £1,720) and tea sets (from £57), scarves with a clearly Eastern aura (think calligraphy instead of horses and saddles; from £172), furniture of an exquisitely fine and elegant nature, some of it lacquered red (around £1,150), some made from centuries-old precious zitan wood (around £21,500), clear aesthetic descendants of Ming dynasty pieces. The clothing, too, has distinctly Eastern shapes, quite sculptural, almost minimalist, but made from finest, softest cashmere, sometimes embellished with silk.

It’s a subtle, understated but very beautiful collection, completely at odds with the conventional Western view that the Chinese are only interested in bling. But there’s also a deeper motive, embedded in Hermès’ DNA: the making of these products helps keep alive – and in some cases resurrects – China’s craft skills, which in the rush for modernisation were being lost at an alarming rate.

Meanwhile, in Paris there’s a hugely expanded homewares line, given a vast airy showing in a building (on the Rue de Sèvres) converted from an old swimming pool which is Hermès’ first venture on the Left Bank. “About six years ago,” says Pierre-Alexis Dumas, “it occurred to me that we needed a store that, like a house, expressed generosity, that made its customers smile and gave them a good time, but it took us a long time to find the right place. I wanted it to be on the Left Bank because in Paris many people live in their quartiers, which are almost like villages, and not everybody crosses from the Left Bank to the Right Bank [where the flagship store is]. The new store is an expression of my dream, which is that people shouldn’t just come to buy, they should be able to have a coffee, browse through some books, smell some lovely flowers. I wanted to change the retail experience to make sure we don’t lose our humanity in the big cities.

Pieces from the Hermès Petit H collection.
Pieces from the Hermès Petit H collection.

“I used to talk a lot to the late Joseph Ettedgui, who was my mentor. We talked so much about stores, what makes them special, and he was very much in my mind when I was thinking about our new one. Also I admired Stanley Marcus who, in his great book Minding the Store, wrote that ‘a store is a living organism, like a garden, you have to create magic but magic does not come by chance, it comes by careful planning’.”

The store does indeed have a much more informal air than its Right Bank cousin. It appears much less forbidding and on the day I visited, a dank wintry day just after New Year, it was filled with visitors, some who had come to admire, others who had come to shop. And there are exciting new things to buy – re-editions of furniture by Jean-Michel Frank, in particular some exquisitely simple low tables covered in parchment or shagreen (from €25,000) but also his distinctive chairs (€2,000-€5,000) and a wonderful large oak dining table with the famous X-shaped legs (€8,500), as well as rugs (from €13,000), wallpaper (€130), glass (vases, €165) and accessories. The aim is gradually to expand these lines.

“What you will see in the next couple of years,” says Pierre-Alexis, “is an expansion of this area, but I don’t want to rush it. Whether it is furniture, textiles or decorative objects, each one must stand on its own, it must be absolutely ‘Hermès’.”

Petit H, the brainchild of Pierre-Alexis’s cousin Pascale Mussard, is another interesting venture that chimes with our eco-conscious times. It’s a collection of enchanting one-off objects, all made out of discarded Hermès materials. Fine designers were asked to come up with ideas for using scrap leather, silk, towelling, crystal. So desirable were the results that they sold out of the flagship Faubourg Saint-Honoré store in three weeks flat. This is eco-luxury done with panache – coat hangers with the hooks formed from discarded teapot spouts (€2,900), a chest of drawers with the fronts lined with beach towels (€40,150).

The tricky economic times have caused many to rethink their strategy, but at Hermès it is steady as she goes, coupled – and this is key – with a new creative energy. “We are trying to achieve beauty, quality, that does not change,” says Patrick Thomas, “but we have to adapt as the world changes. There are more and more rich people in the world looking for quality. Many of them are not consuming more, but they are consuming better. What we aim to do is to make the things we all use every day – a watch, a tie, a scarf, a cup – as beautifully as we know how so that the more they are used, the more beautiful they seem to become.”


So although the corporate imbroglio surrounding Hermès might seem to some a lot of fuss about a collection of fancily priced silk scarves and crocodile handbags, actually there’s much more than that at stake. At root there’s a battle being waged over how to do business in our modern age. While endless growth may be possible, the more important question is: is it in the interests of society as a whole? Can a company be too powerful, too far-reaching for society’s good? Is there no longer to be room for family-owned firms committed to doing their own thing in their own way? Is the dwindling number of little and not-so-little jewels destined to be devoured by more powerful entities?

And then there is the question: where does true luxury lie? Luxury goods companies are confronting the dilemma of how to go on selling more and more of their lines to more and more people, and yet still retain the cachet of being a luxury brand. As Patrick Thomas says: “What Bernard Arnault did with LVMH has been a huge financial success, but we are not in that world – this is not a financial fight, it is a cultural one.” To which Arnault has a riposte of his own: “Yes, Hermès does have a different culture, which is just what we like about it. Just as one can enjoy the different literary styles of, say, Proust and Stendhal, respecting each for their qualities, so it is with the companies within LVMH. We respect all their different cultures and do our best to nurture them.”

Here he points to Dior, where John Galliano was, until his recent dismissal, supported and allowed a very free hand, to Château d’Yquem where the famous sauternes are still being made. Arnault is clearly mightily pleased with his 20.2 per cent, is playing a long game, and most of the bets are on him winning in the long term. “The beauty of it all,” he tells me, “is now my wife can buy a Kelly handbag.”

Since Lucia van der Post wrote this article, Hermès has announced a 44 per cent rise in full-year profits to 668m.

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