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Why Hermès's Business Model is so successful?

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Hermès’s Company Overview


Hermès International S.A., or simply Hermès, is a world-renowned luxury goods manufacturer based in Paris, France. Founded in 1837 by Thierry Hermès, the company initially started as a harness workshop serving European noblemen. Today, Hermès has diversified into several sectors including leather goods and saddlery, men’s and women’s ready-to-wear fashion, perfumes, watches, and home furnishings, among others. Known for its craftsmanship, quality, and exclusivity, Hermès products are often seen as status symbols globally. The company operates in more than 50 countries with over 300 exclusive Hermès boutiques.

Hermès' business model is based on maintaining control over every aspect of its products, from design to manufacturing, and distribution. This vertical integration allows Hermès to ensure the quality and authenticity of its products, while also creating an aura of exclusivity. The company's products are often made in limited quantities, which drives demand and allows Hermès to charge premium prices. Additionally, Hermès is known for its iconic products like the Birkin bag and the Kelly bag, which have a long waiting list, further enhancing the brand's desirability and exclusivity.

In terms of revenue model, Hermès primarily generates income from the sale of its luxury goods through its retail stores, which account for the majority of the company's sales. It also earns revenue through its website, which has become a significant sales channel, especially during the COVID-19 pandemic. In addition, Hermès licenses its brand to select manufacturers to produce and distribute Hermès perfumes and watches, providing another source of income. The company's strategy of maintaining high prices for its products, combined with its control over production and distribution, enables Hermès to maintain high profit margins.

https://www.hermes.com/

Headquater: Paris, France, EU

Foundations date: 1837

Company Type: Private

Sector: Consumer Goods

Category: Retail

Digital Maturity: Fashionista


Hermès’s Related Competitors



Hermès’s Business Model Canvas


Hermès’s Key Partners
  • LVMH
  • Suppliers
  • Premium luxury boutiques and department stores
  • Hermès has a number of high-profile fashion collaborations with some of the world's most respected designers including Rei Kawakubo
  • Christophe Lemaire (2009 – July 4, 2011)
  • Lacoste (1929–1935)
  • Saint Louis Crystal
  • Puiforcat
  • La Montre Hermès
  • Louvre
  • The society of the Equestrian Arts of La Garde Républicaine
  • The Cup became a symbol of the company
  • Hermès now produces over 50 different saddle designs
Hermès’s Key Activities
  • Design
  • Production
  • Distribution network
  • Sales
  • Marketing
  • Retail & Distribution
  • Public Relations
  • Heritage
  • Intellectual Property
  • Customer Service
  • Collaborations
  • Communication
Hermès’s Key Resources
  • It is a family-owned business
  • 16% of the company's shares are held by Émile Hermès 40% by other family members
  • 23.4% by the public as well as a staff share scheme
  • Over 300 stores worldwide
  • High quality materials
  • Employees
  • Designers
  • Know how
  • Tradition
  • Generation and transmission of the living heritage
  • Masters of arts
Hermès’s Value Propositions
  • Heritage - all about hand-made
  • Creativity and Manufacturing Expertise
  • The House of Hermès manufactures leather goods
  • Ready-to-wear
  • Lifestyle accessories
  • Perfumes
  • Luxury goods
Hermès’s Customer Relationships
  • High quality
  • Tradition
  • Trendy
  • Style advice
  • Tips
  • Ideas
  • Timelessness
  • Luxury
  • High-end cosmetics
  • Personalization
  • Brand-loyalty
  • Customer Service
  • Recommendations
Hermès’s Customer Segments
  • Ploutos
  • Referents
  • Upper class
  • Celebrities
Hermès’s Channels
  • Advertizing
  • Accessories
  • PR fashion shows
  • Physical stores
  • Internet
  • Social networks
  • News
  • Catalogs
  • Magazine
  • App for high-end watches
Hermès’s Cost Structure
  • Materials
  • Production
  • R&D
  • Manufacturing
  • Logistics and delivery
  • Employees
  • Design
  • Advertising
  • Promotion
  • Partnerships
  • Events
  • Sponsorship
  • Taxes
Hermès’s Revenue Streams
  • Selling high-quality products (leather goods
  • Jewelry
  • Timepieces
  • Home furnishings
  • Perfumery
  • Footwear
  • Apparel)
  • Licensing and royalties

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Hermès’s Revenue Model


Hermès makes money by combining different business models. Below, you will find the list of the different monetization strategies identified for this company:

  • Direct selling
  • Licensing
  • Ultimate luxury
  • Best in class services
  • Sponsorship
  • Experience
  • Experience selling
  • Ingredient branding
  • Culture is brand
  • Integrator
  • Layer player
  • eCommerce
  • Fashion sense
  • Fast fashion
  • Orchestrator
  • Niche retail
  • One-off experience
  • Online marketplace
  • Spectrum retail
Analytics


Market Overview
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  • Sectors
  • Categories
  • Companies
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Hermès’s Case Study


Hermès's Case Study

Our journey through the luxury goods market would be incomplete without delving deeply into the remarkable narrative of Hermès. Founded in 1837 by Thierry Hermès as a harness workshop for European noblemen, Hermès has morphed into a paragon of luxury and craftsmanship. From leather goods and saddlery to ready-to-wear fashion, perfumes, watches, and home furnishings, Hermès prominently stands out in the luxe universe. Through this case study, we aim to explore Hermès's unique business model, dissect the strategies that have contributed to its meteoric success, and glean insights that other enterprises might find beneficial.

The Power of Heritage and Craftsmanship

One of Hermès’s key differentiators lies in its rich heritage and unrivaled craftsmanship. The company’s dedication to high-quality handcrafted products dates back to its inception. Today, Hermès retains a laser focus on maintaining this tradition. Every Birkin or Kelly bag, which has become an iconic symbol of affluence and exclusivity, is meticulously crafted by a single artisan, ensuring a level of quality and uniqueness that is practically unparalleled in the industry. This dedication to craftsmanship does more than just create value; it infuses each product with a story, an aura of exclusivity that lures high-end consumers. It’s not just a handbag; it’s a piece of art, it’s an heirloom. This emotional resonance aligns perfectly with customer needs that value design, aesthetics, badge value, and attractiveness. According to a report by Bain & Company, emotional and experiential aspects are crucial for enticing luxury consumers, much like the Hermès model adeptly captures (Bain & Company, 2022).

Vertical Integration and Quality Assurance

Hermès's business model epitomizes vertical integration, a key aspect of their strategy that ensures exceptional product quality and authenticity across all their offerings. From conception to manufacturing to distribution, Hermès retains full control, effectively preserving its brand prestige. By owning its production facilities, Hermès eliminates the variable quality levels tied to outsourcing, hence ensuring consistency. Moreover, their factories in France employ trained artisans who spend years mastering their craft. The brand operates more than 300 exclusive boutiques worldwide, ensuring the brand experience epitomizes their high standards. This degree of control has allowed Hermès to maintain their high profit margins and exclusive brand image, even when global luxury markets faced a downturn. In a study by Deloitte, it is noted that companies practicing vertical integration, like Hermès, not only maintain higher control over their end products but also foster closer relationships with their suppliers (Deloitte, 2021).

Limited Supply, High Demand

The tactic of scarcity significantly fuels the allure of Hermès. The company's products are made in limited quantities, creating a heightened sense of demand and urgency. This scarcity tactic is most evident in its iconic products such as the Birkin and Kelly bags, which often come with long waiting lists. This approach does more than create demand; it enforces a high perceived value, justifying the premium prices customers are willing to pay. This strategy is well-supported by data. According to a market analysis by McKinsey & Company, creating an air of exclusivity and limited availability can escalate brand desirability and consumer willingness to pay premium prices (McKinsey & Company, 2019).

Revenue Streams and Digital Pivot

The financial model of Hermès reveals several compelling dimensions. The primary source of revenue for Hermès comes from the direct sale of its luxury goods through its retail stores. However, the company has also progressively embraced digital channels. Especially notable during the COVID-19 pandemic, Hermès saw a significant surge in online sales, revealing the necessity and efficacy of an omnichannel strategy. Hermès’s revenue from e-commerce surged by nearly 100% in 2020, underscoring the potential of online platforms in luxury retail (source: company financial statements). Despite this digital pivot, the brand ensures its online experience mirrors the sophistication and quality of its physical stores. Furthermore, Hermès has intelligently leveraged licensing to expand its portfolio. By licensing its brand to select manufacturers for perfumes and watches, they generate additional revenue streams while maintaining brand control and quality.

Collaborations and Cultural Capital

Over the years, Hermès has collaborated with high-profile designers and brands, including Rei Kawakubo and Christophe Lemaire. These collaborations not only introduce fresh creative inputs but also harness the cultural capital and fan base of these designers. According to Harvard Business School, collaborations in the fashion industry can often result in a 20-30% uplift in sales for the brands involved (Harvard Business School, 2020). Additionally, Hermès engages in curated experiences, expanding beyond product offerings into lifestyle and culture. Their participation in equestrian sports, fashion shows, and bespoke events all broaden the brand’s allure, engaging consumers on an emotional level.

The Ultimate Luxury Model

Hermès’s strategic focus on ultimate luxury and best-in-class services differentiates it from other luxury brands. This business pattern of niche retail and one-off experiences creates a long-lasting consumer relationship based on loyalty and emotional investment. A report by Altagamma Worldwide Luxury Market Observatory highlights this, noting that 68% of luxury consumers prefer brands that offer personalized experiences and maintain an aura of exclusivity (Altagamma, 2020). With its attention to quality and brand story, Hermès captures this preference effortlessly.

Conclusion

As we analyze Hermès's business model and strategy, it’s evident that the brand’s approach to luxury is deeply rooted in heritage, craftsmanship, and controlled exclusivity. Their vertical integration, which ensures quality, coupled with strategies driving demand through limited supply, digital growth, and strategic collaborations contribute to a robust high-performing business model. For brands aiming to carve their niche in the luxury market, Hermès stands as a quintessential exemplar of how heritage, exclusivity, and quality can sculpt a timeless and unmatched brand narrative.


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