Comprehensive Analysis of Hermès: A Business Strategy Report

This report provides a comprehensive analysis of the Hermès company, tracing its history from its origins as a harness workshop in 1837 to its current status as a global luxury brand. It delves into the company's vision and mission, emphasizing its entrepreneurial spirit, commitment to craftsmanship, and humanist values. The report examines the external environment, highlighting Hermès's focus on sustainable and responsible growth, its commitment to social value creation, and its efforts to minimize its environmental footprint. The strategy formulation and implementation section outlines Hermès's core values, including creativity, craftsmanship, and independence, and details its strategic pillars of creative freedom, high craftsmanship standards, and an exclusive distribution network. The report further analyzes Hermès's unique craftsmanship model, its vertical integration, and its commitment to long-term excellence, providing a detailed overview of the company's approach to creating lasting, high-quality products and maintaining its brand identity.

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BACKGROUND OF HERMES
Thierry Hermès founded the company in 1837 as a harness workshop in Paris.
Originally, his intent was to serve the needs of European noblemen by providing
saddles, bridles and other leather riding gear. In the early 20th century, Thierry ’s son
Charles-Émile Hermès moved the company ’ s shop to 24 Rue Du Faubourg
Saint-Honore in Paris, where it remains to this very day and is the company ’s global
headquarters.
Gradually, the company ’ s product offerings expanded through generations. Between
1880 and 1900, it started selling saddlery and introduced its product in retail stores. In
1900, the company started selling the “Haut à Courroies ” bag, which was meant for
riders to carry their saddles in it. In 1918, Hermès introduced the first leather golf jacket
with zipper, made for the then Prince of Wales. In the 1920s, accessories and clothing
were introduced into the portfolio. In 1922, the first leather handbags entered the
product line. The brand ’s travel bags introduced in 1925 were a global success. In the
1930s, Hermès introduced products that have now entered the annals of fashion as
icons – the leather Sac à dépêches (renamed as the “Kelly bag” after Grace Kelly) in
1935 and the Hermès carrés (scarves) in 1937. In 1949, the first Hermès silk tie and the
first perfume ‘Eau d’ Hermès’ were introduced.
In the 1930s, the company entered the United States with an initial tie-up with the
Neiman Marcus department store in New York.
The company ’s iconic duc-carriage-with-horse logo and signature orange boxes were
introduced in the 1950s. In the 1970s, the company established a watch subsidiary La
Montre Hermès in Bienne, Switzerland. The company acquired tableware
manufacturers like Puiforcat, Saint Louis and Perigord in the 1980s and consolidated its
position in these segments of the luxury market.
The eye of the ultra-premium luxury segment, the “ Birkin bag ” was introduced in
1984, after a chance conversation between the then CEO Jean-Louis Dumas and actress
and singer Jane Birkin on a flight from Paris to London, who articulated to Dumas that
she needed a medium-sized bag. Each Birkin costs between USD 12,000 to USD
300,000 and is the exquisite handiwork of a single craftsman, who takes between 18 to
25 hours to complete the job via hand, more if the hide is a delicate crocodile skin. In
2014, an extremely rare Himalayan Nilo crocodile Birkin bag sold for USD 185,000,
becoming the second most expensive bag to be sold at auction. Hermès is infamously
known to burn imperfect Birkins, showcasing its dedication to the finest quality.

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In 1993, the company went public on the Paris Bourse, which for various reasons was
considered a strategic move with its own set of weaknesses. Throughout the late 1990s,
Hermès extensively followed a strategy of reducing franchise stores, by buying them
up, closing quite a significant many and by opening more company-operated stores. As
of 2019, Hermès operates 311 stores globally, out of which 223 were directly owned and
operated by the company.
In 1976, Hermès entered into an arrangement with British luxury shoemaker John Lobb,
wherein it was allowed to use its name in return for extending the distribution reach of
the brand. In 1999, in one of its first non-brand moves, Hermès bought a 35 percent
stake in the Jean-Paul Gaultier fashion house.

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VISION & MISSION
An entrepreneurial spirit at the heart of Hermès
Combining creative freedom, innovation and the preservation and transmission of
exceptional know-how, Hermès ’ vision of entrepreneurial spirit shapes a unique
artisanal and independent house.
Since 1837, an entrepreneurial spirit has guided Hermès in all aspects of its
development. Embodying the humanist values of craftsmanship, it is demonstrated in
its freedom and abundance of creation and constant capacity for innovation, combined
with exceptional know-how, new manufactures and store openings, in synergy with
local cultures.
In 2020, the group launched a new métier – Beauty – with its first chapter, Rouge
Hermès. Beauty is consistent with the house ’ s values, and combines high standards,
ethics and aesthetics with a sustainable approach, choosing noble materials to create a
refillable object.
In close proximity to their customers, store directors also actively demonstrate this
entrepreneurial spirit, exercising the freedom they are given to compose the selection
of objects offered in their store. This approach enables the specific requirements of
customers in each area to be met with a distinct purchasing experience. The offer is
extended to the hermes.com online store, which is being rolled out worldwide.
This entrepreneurial spirit is also embodied in the house ’ s fundamentals explored in
the Hermès Héritage cycle of exhibitions that was inaugurated in 2017. Harnessing the
Roots offered an overview of the house ’ s equestrian roots, Rouges Hermès explored
the multiple and emblematic expression of the colour red, and finally In Motion
offered an experience dedicated to the art of movement.

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EXTERNAL ENYIRONMENT
Virtuous and responsible growth underpined by humanist values
The majority of Hermès ’ production takes place in France, at 51 production sites
grouped to create regional clusters. Hermès ’ strategy is to pursue this sustainable,
responsible and social value-based growth model, with commitment to regions where
there is a high level of manufacturing savoir-faire to create high-quality jobs.
Hermès is a humanist company, deeply respectful of all those who, with their
commitment, savoir-faire and passion, are working to make the House a success. In
response to the crisis, Hermès employees acted with solidarity and commitment to
overcome obstacles and move forward.
Through cooperation with the local government and communities where the
production base is located, Hermes has contributed to the revitalization of the area and
provided nearby and stable working conditions for employment. Thanks to the Hermès
Enterprise Foundation, Hermès expands public welfare activities through artistic
creation, education and communication, unification and protection of biodiversity, to
promote public welfare. Faced with the crisis, Hermès, as an economic participant, has
made commitments to its ecosystem and stakeholders, especially by supporting
partners and departments, such as maintaining and adjusting orders, and sharing best
practices in health measures. The partners work together to help them restart their
business and solve climate and biodiversity issues.
As a company that respects and inspires nature, Hermès ensures the protection of its
resources and their impact on the natural environment and local ecosystems.
Hermès' process model leaves a cautious environmental footprint. Within the scope of
its direct influence, especially in the construction of its production base, it
systematically considers biodiversity. In the indirect area, the group has a positive
impact on its supply chain by protecting its own ecosystem and participating in global
initiatives. The company's high standards are confirmed and guaranteed in its
subsidiaries and their goals to combat global warming. The goal is to reduce the
absolute value of Scope 1 and Scope 2 carbon emissions by 50% and reduce Scope 3
carbon intensity emissions. By 2030.

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As regards sustainable development, Hermès is determined to leave a positive global
footprint, by paying the utmost attention to the performance of corporate social
responsibility, in keeping with the House’s DNA and its craftsmanship model. Hermès ’
objects are created, designed and made to last, using the most beautiful and robust
natural materials and the best craftsmanship savoir-faire. A Hermès object acquires a
beautiful patina over time and frequently improves with age. Craftsmanship of
excellence means a piece that can be repaired. The House has therefore always had
craftpeople dedicated to this activity, in France as well as abroad. Offering long-lasting,
repairable objects that are made to be handed down is also a way to reduce the impacts
of over-consumption and the wasting of resources, one of the principles to which
Maison Hermès is particularly attached. There is a strong commitment to the creation
of social value, both collectively through job creation in communities, and individually
through free share awards, profit-sharing and an incentive scheme for employees. This
is testimony to the Group’s desire to share the fruits of its growth with those who make
it happen on a daily basis. Hermès ’ commitment also implies strong signals from
management.

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STRATEGY FORMULUTION & IMPLEMENTATION
The Hermès strategy revolves around our values: spirit of conquest, creativity,
craftsmanship, quality, authenticity and independence. It is based on three pillars:
freedom of creation, the high standards of craftsmanship savoir-faire and the balance
of the exclusive distribution network.
Creation at the core of Hermès's strategy
In this singular context, creation is at the heart of the model. It is the best response to
the crisis, with unique objects that last and arouse desire beyond fashions and
circumstances.
Hermès creates and manufactures quality objects designed to last, to be passed on from
one generation to the next, to be repaired. This approach, as well as the search for
excellence, particularly in materials, requires consideration of the challenges of
sustainability and quality at every stage from design to sales.
Hermès ’ strategy is based on creative freedom, driven by its creators and Artistic
Directors around the theme, which inspires the House ’s creative activities. With pride
in its craftsmanship model, in 2020 Hermès paid tribute to the extraordinary tool that is
the human hand, as well as to the ingenuity that drives every one of the House ’ s
craftpeople and women. For it is this combination that characterises the innovative
spirit of Hermès, the Saddler's spirit.
High standards in design and manufacturing encourage the creation of objects that aim
to surprise and amaze customers. This creativity, revolving around traditional
savoir-faire, is coupled with innovative processes to revisit timeless models and create
exceptional pieces, without departing from Hermès ’ trademark humour and
imaginative flair. This is true of the House’s 16 métiers as well as its other products and
brands, in particular, the bootmaker John Lobb, Cristalleries Saint-Louis and the
silversmith Puiforcat. The unbridled creativity flourishes in each métier, as reflected in
the numerous scarf designs printed every year. It is then expressed through over 50,000
references, developed around a unique identity and a style blending exceptional quality,
innovation, surprise, elegance and simplicity. In 2020, it was expressed through the
successful launch of the Beauty métier, with a first collection of lipsticks.
Hermès’ mission is to create unique and original objects to elegantly satisfy the needs
and desires of its customers. Its goal is the pursuit of excellence, in each of its métiers
and services, with craftsmanship at the heart of its model.

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Uniqueness and performance of the craftmanship model
Hermès leverages its craftsmanship division, the second pillar of its strategy, with
nearly 5,600 craftpeople and women in France. A House of over 180 years, backed by a
rich history shaped by six generations of craftpeople, Hermès draws from its past
through its savoir-faire, and is geared to the future through values that address the
concerns of our modern societies. Hermès moves with the times, but always respecting
tradition, transmission and innovation. The quest for excellence and quality, the search
for precision and elegance are the values that guide its action. It is over this long period
of time that the House has forged its savoir-faire and its values, and that the Hermès
strategic vision has developed.
The craftsmanship model is one of the pillars of Maison Hermès, and ensuring that it
lasts is key to its strategy. The House thus works alongside those who master, preserve
and transmit craftsmanship savoir-faire through their knowledge of materials and their
exceptional techniques. Each new leather goods workshop is an architectural project in
its own right and creates around 250 jobs, promoting a pleasant working environment
on a human scale.
Hermès continued its investments in production capacity in 2020, demonstrating the
Group’s confidence in the future and in the strength of its craftsmanship model, despite
the uncertainties of the crisis.
Strength of vertical integration
In order to ensure the long-term excellence of this process model, the brand pays
special attention to ensuring its material supply. Vertical integration through
partnerships and acquisitions supports development strategies in materials, technology,
and processes. More than 60% of production is integrated and 80% is located in France.
This vertical integration exists in the entire production chain from supply to
distribution network. Rooted in France, based on the mastery and excellence of skills,
this is a skill rather than a task, which enables the group to remain agile in the face of
crisis. Therefore, Hermès has been able to adjust its production and reallocate its orders
to certain regions in order to achieve the best inventory management. Its artisans are
mobilized to ensure the continuity of production, thereby limiting the interruption of
delivery.

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The vertical integration and sustainable relationship with its partners ensure the strict
traceability of its supply chain, strict control of its supply, and strengthen the brand's
responsible development strategy in terms of materials, technology and
craftsmanship.The House attaches great importance to the continuous improvement of
its craftpeople ’ s skills and savoir-faire, as evidenced through its École du cuir. The
craftsmanship model is at the heart of all the métiers of Maison Hermès, drawing on
exceptional materials.
The extraordinary stability of Hermès is the result of this strategy, which is based on
high standards, inheriting unique skills, local anchoring and strong vertical integration.
It consolidates the choices made in the past and encourages the group to show initiative
and innovation to create tomorrow's success.
This strategy is the result of the high standards of the brand based on craftsmanship
and independence, and is driven by its excellent craftsmanship to provide services for
unfettered creativity. It relies on the exquisite craftsmanship of history, while
maintaining a firm forward-looking outlook through accelerated transformation,
creativity and innovation, and the ability to understand and predict the wishes of today’
s customers.
The crisis experienced has witnessed the affirmation of the commitment to social and
environmental responsibility, the digitization of use, and the positive market dynamics
in Asia. With these profound and lasting changes in mind, we can maintain confidence
in the future.
For Hermès, craftsmanship is a sustainable human adventure in a constantly changing
world.

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Hermes’ family business strategy
As one of most prolific family businesses in the luxury sector, it is no easy feat for
Hermès to have reined successful across 6 generations since 1837:
●First generation owner and founder Thierry Hermès built a strong reputation for the
company as a high-quality saddlery maker using the functional and decorative “saddle
stitch”
●Second generation owner: In the 1870s, Thierry passed on the business to his son
Emile-Charles Hermès, who moved the business to the rue du Faubourg St. Honoré
●Third generation owner: In 1922, Emile-Charles sold his stake to his son,
Emile-Maurice Hermès, who began to diversify into travel- and sport-related leather
goods and launched ready-to-wear clothing, watches and gloves
●Fourth generation owner: In the 1930s, Emile-Maurice passed the family business on
to his son-in-law, Robert Dumas, who produced the first Hermès scarf
●Fifth generation owner: In 1978, the company was succeeded by Robert Dumas ’
fourth son Jean-Louis Dumas after his death. With experience working as a buyer for
competitors, Jean-Louis Dumas transformed the business into an international luxury
retailer, making the company public in 1993 and turning annual revenues from USD 82
million to USD 2 billion
●Sixth generation owner: In 2010, Jean-Louis Dumas handed over the reins to his son
and current Creative Director Pierre-Alexis Dumas, after his death. Jean-Louis Dumas’
nephew, Axel Dumas was appointed as CEO in 2014.

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CONCULSION
The Hermès brand is and will continue to be ultra-luxury
Hermès is an ultra-luxury success story, without any doubt. With limited distribution,
exclusivity and controlled marketing, the overall company and many of its product
categories have regularly registered double-digit growth rates year-on-year. This is a
true reflection of the Hermès brand strength among the highly affluent segments of the
global population. The company has successfully kept alive and strengthened a brand
differentiated through strong history, exquisite craftsmanship and superior quality. The
fact that it is considered to be the most innovative among all the luxury fashion houses
is a testament to the company ’ s commitment to constantly manufacture and launch
ultra-luxury products that are unique, have a strong sense of allure and have a distinct
mark of superior craftsmanship.
The company’s future looks secure in the hands of a committed and disciplined group
of family scions, but it needs to constantly evolve and differentiate to maintain its
superior position in the ultra-luxury segment of the market through leveraging the
power of its family brand as an icon of legacy, authenticity and prestige.
REFERENCE
MartinRoll Business & Brand Leadership, Dec2020
https://martinroll.com/resources/articles/strategy/hermes-the-strategy-behind-the-global-luxury-suc
cess/
Hermes USA
https://www.hermes.com/us/en/story/271229-an-entrepreneurial-spirit/