STRATEGY CASE
March 23th, 2009
Professor : Dorel PARASCHIV
1

A FAMILY COMPANY
History and timeline of diversification and Brand spirit building
Founded in 1837, Hermès, was a company of harness and saddler, today his principal activity
is in piece of luggage and leather goods.
Context Diversification Location Image- art - creation
1837 After 5 generations… Thierry Hermès comes to Paris to offer his family expertise of saddlery makers.
1878 Charles-Émile Hermès first bag (model precursor of the Kelly) « Haut à Courroies» 24 rue du Fbg-Saint-Honoré
1880 24 faubourg St Honoré: Opening the first famous POS. Ssupplier of the European Royal Families
1902 Hermes frère High international clients: Kings of Romania, of Spain, conquer international
70 à 80 ouvriers Emperors of Japan, Russia, Presidents of France, Perou, markets: Germany, Belgium,
cosmopolite prestige Philippines, names in finance, in Industry, in politic. Poland, Russia (Nicolas II)
1914- First war Emile Maurice pieces of luggage and leather goods purshasse of the leither in style: the “cousus
18 went to USA beginning of because anticipate the development of car industry USA and CAnada sellier”
the automobile industry development in USA and Canada Take over the big English
saddlers installed in Paris
1918 The start of the spirit: Emile Hermes, Mr “Vif Argent” opens new horizon : the world in mouvment
1919- For new way of life: inedited accessories for travel, sport, car Metamorphose of the familial beginning of link with art
26 Exclusivity on design innovation=>first patent and first firm in a store with a wide private collection,
introduction in France the sliding faster: Hermes exclusivity corner window inspirate designers
1929- Economy slump Diversification an rebound on crisis: cult pieces until now, Close new York store Cult pieces
38 the Kelly and others : “sac de dépêches” economies of Some years leater new stores:
means : the cult leather “agenda” make with scrap. Way of life Cannes, Deauville and
luggage design for : Elegance on liner travel ; Trend of Biarritz.
yachting ; Car comfort
Renew of use of precious and historical material: The cult
“Carré Hermès” made of the silk used for the jockey‘s blouse
1939- The Hermes Family is A humour spirit within difficult period: inspire square name 5 workshop dedicated to the visual identity is
45 refugee in Cannes “Le Retour à la terre”, “À la gloire de la cuisine française.” sewing (dressmaking) building
Occupation Ingenuity face to shortage of colouring and rarity of silk:
And Liberation rediscover linen, wool, raffia… the leather stay orange, color
adopted on boxes associate with the bolduc. + logo « duc
attelé» . Follows the evolution of the way of life : women
close for bicycle : divided skirt, shoulder strap bag.
1950 Diversification of products: Robert Dumas and Jean-René Guérand (genders of Emile)
1950- Robert Dumas-Hermès Diversification: The Hermès Tie Shop’s window attract the R.Dumas the illustrator of
60 Jean-René Guérand An attractive place for celebrity : Grace Kelly, le Duc et la celebrity were meting with silk square, A.Beaumel
(genders) Duchesse de Windsor, Ingrid Bergman, Jacky Kennedy “Set in scene” decorator of window
1978 a world-wide distribution network conducted by Jean-Louis Dumas (5th and 6th generation of Hermès Family)
1993 Introduction on the Stock Market: but still 73% ownership by Hermès Family.
2003 Crisis Plan investments: distribution and production capacity of International distribution
the leather+ Innovation logistic network
2006 Patrick Thomas New CEO continuity of the strategy with a re introduction of design and creativity
A unique family company’s project Organization chart & Ownership
Economic strength, Profitability as guaranty of the Supervisory Board
independence, Visionary strength found on know- -Patrick Thomas and Emile Hermès SARL
how of exception and on the creativity and the (represented by Bertrand Puech)
diversification
Executive Committee
« The structure of the company allows the -Patrick Thomas (gérant)
family to keep the perfect control of the -Christian Blanckaert Managing Director, Int’l Affairs
brand, in privileging its positioning on the -Patrick Albaladejo Associate Managing Director, Strategic
long-term, even they have to forecast a slow Development and Corporate branding
down in the short-term » Clémence Bounaix, -Guillaume de Seynes Associate Managing Director
Richelieu Finance. -Mireille Maury Managing Director, Finance & Administration
-Pierre-Alexis Dumas Artistic Director
The advantage is the long-term vision
support by the 6 members working at a decision
level on 40 family shareholder members.
2

ORGANIZATION
Holding around 30 companies (Production, Hermès International owns (in%, 2007) :
distribution, real estate...)
- Leather goods - saddlery: Hermès Sellier; Avril- Gordon-Choisy 100 exotic tannery
Morio & Patte; Maroquinerie de Sayat; Ganterie de
Soficuir International 99,99 on which Tanneries des cuirs
Saint-Junien; Gordon-Choisy; La Manufacture de
Seloncourt; La Maroquinerie Nontronnaise; Manufacture d'Indochine et de Madagascar
de Haute maroquinerie; Maroquinerie de Belley;
Maroquinerie Thierry 47,79
Maroquinerie des Ardennes; Nehel
- Textile: Holding Textile Hermès HTH Perrin & Fils 39,5
- Watch: La Montre Hermès
Jean-Paul Gaultier 35
- Perfumes: Comptoir Nouveau de Parfumerie
- Table Wear: Castille Investissement Vaucher Manufacture Fleurier 21,5
- Shoes: John Lobb, JL & Co
BRAND VALUES AND CORE BUSINESS
The core competences
Conception, manufacture and distribution of prestigious luxurious products.
Almost 200 hundred years “Expert in noble material and know-how”:
The ton is given to the creation within the company’s activities with an annual theme.
- Union of traditions and design
- Association of know-how and exceptional materials
An historical and long-term strategy of value
2005-2008: “Strive towards a strategy based on the creativity, the quality of the
product and the reinforcement of the know-how and the art carft spirit in each
of his activities.”
2009: “A long-term strategy, based on the mastery of the know-how and the
control of the distributor’s network (applied despite the recession)” Annual report
LUXURY MARKET OVERVIEW
3 criteria of positioning in the luxury Market Competitors?
There is no universal definition of the luxury on the point of view of the consumer. “The competitors?
Material value: quality of the product, rarity, performances, finish… It’s not a topic.
Immaterial values: image reinforces positioning Hermes is not
Consumer distance: not accessible for all, by his price, his selective distributor’s network positioned
regarding the
The Kelly bag is an icon object of high range product: very high material value, high others because we
immaterial value, high consumer distance broach the product
creation, in each
9 attributes fundamental to the business of luxury know-how, with
Beauty – Creativity – Uniqueness - Truth – Bravery – Responsibility - Attention to detail - our own meaning
Simplicity - Playfulness and with our
history.” Pascale Mussard
(art director in 2006)
3

The luxury market is in a competitive system of specialization
The intrinsic characteristics of luxury product are their customization Groups:
The fundamental values of each brand are the way of customer loyalty and the differentiation LVMH:
is mandatory. Vuitton, Givenchy,
Luxury brands are more sensitive to reputation damage, because a greater proportion of their Kenzo, Lacroix,
brand value is derived from empathy and trust. Celine ou Gucci…
The competition was emphases in the 90s Gucci Group:
The means needy to face to the competition (communication or distribution costs) have lead to Gucci, Yves Saint
a concentration of those brands in big group who dominate the market. Laurent, Stella Mac
40 brands with international reputation are competing with a large range of product (variety). Cartney, Alexander…
Groupe Prada :
Extension in Asia Prada, Helmut Lang,
In Tokyo, 94% of women in there twenties own Louis Vuitton bags. Jil Sander, Miu Miu
Hong Kong hosts more Gucci and Hermès stores than New York or Paris.
China’s luxury market is set to become the world’s largest within just six years. Mono-brand
company: Hermes
Global strategy trend of the luxury Chanel, Versace,
An important part of the role of luxury products was to confer on their owners an air of success Armani…
: a strategy of democratisation with an « access luxury » opposite to the Hermes strategy
of « prestige luxury »
Market positioning
Turn over 2006
The leader, LVMH
Domestic market International market
Domestic market
Hermès is highly
exposed to the
international
market
4

The luxury face to the crisis: some data
The sale in own shop are quietly maintained
The sales in the indirect distributor: 79% of the market falls of 15%
Certain product categories suffer more: “arts de la table” or watches.
The most exclusive products should better resist
Luxury as industry is young (20 years): Marge of progression can be expected on long-term
LVMH a high distance leader
PEST : Bad trends for luxury market
Change risk gets higher
China: engine for luxury goods
Activity fall down
New trend in society’s value emphasis with the crisis
Source Marival 2009
“as markets mature, they will become more discriminating” and people will
want more “true luxury” rather than “pseudo luxury” Michael Burke, chief executive of
Fendi
To continue to thrive in maturing new markets, luxury brands will need to offer deeper
luxury, with social and environmental excellence built in.
A new tend of the definition of success is becoming. Successful people want to show that
they care about environmental and social issues. Asian luxury gurus Radha Chadha and Paul Husband
describe how tastes are maturing towards interest in luxury lifestyles.
Western existentialism “In a world that seems to worship speed, going a little
faster is not a luxury,” “Being able to go a lot slower is the luxury.” futurist Charles
Leadbeater.
“only the brands that show deeper meanings and foster simplicity in
creativity will thrive… need a concrete and morally right ‘background story’ to
endorse a brand” industry consultant Uche Okonkwo.
«In a period of financial crisis, revive for all things an instinctive desire of
authenticity whom bring back at its just value an amusing showy stuff” Paul
Iribe in Défense du luxe 1932.
We used this quotation to show how the value survive with time and so how what the
sustainable trend ask for deep and authentic value is a normal variation of time write in the
genetic of Hermes
5

FINANCIAL HIGHLIGHT
Growth
Hermès: Luxury Market:
1764 Millions € turneover (2008) 110 Billions € Turnover (2008)
1st quarter growth : 0.8 % Expected growth 2009 : 0 –5%
Expected growth 10%
14 SBA. 7,455 employees.
Growth 1Year 3 Years 5 Years
Sales % 7.27 6.87 5.52
EPS % 8.20 11.75 6.84
Dividend % 5.26 14.47 12.70
Income statement (3rd quarter 2008)
In Millions of 2007 2007 2006 2006 2005
(except for
31/12/2007 30/06/2007 31/12/2006 30/06/2006 31/12/2005
per share items)
Period Length Period Length Period Length Period Lengt Period Leng
Constant growth of 6 Months 6 Months 6 Months 6 Months 6 Months
revenue : Revenue 721.1 814.4 700.5 778.3
2006 -- 7.8%
2007 -- 18.3% -- -- -- --
2008 -- 10.2%
Total Revenue 721.1 814.4 700.5 778.3
Cost of 318.6 252.0 244.4 271.9
Gross Profit 585.4 469.1 533.9 456.1 506.4
Operating 237.9 185.8 216.5 184.6 212.3
This Growth is
Net Income 243.4 192.6 227.3 187.6 210.1
sustained by Operating
revenue (sales = cash) 79.3 64.5 72.5 63.7 73.2
Net Income 164.1 128.1 154.8 123.9 136.9
(2.9) (2.9) (2.4) (2.0) (2.3)
Equity In (1.3) 2.9 (1.5) (4.4) 3.3
Sce: Reuters/Hermes International/income statement
Financial stand point :
Regarding a constant growth both in sales (activities) and in dividend, today Hermès
is the 2nd biggest Luxury company in terms of capitalization.
Thanks to 25.5% operating margin and maintaining stability of change rate.
6

Shareholders highlight: Exceptional shareholders administration
The capital of the society is locked by the founder family which detained 73 % of share
stock (Share buyback Program of 50M€ in 2008 )
Analysts estimate Hermes share as a Price of shares: 82€
defensive value meaning an excellent Number of shares: 106125524
dividend and limited variation of quotation.
Ownership:
A strength : for a family run business.
Face to the speculation Hermes asserts
its independency.
A weakness: that deprives partly the
title of speculative attraction
PORTFOLIO - ACTIVITIES
Hermes activities turnover
Growth Box for focus comments
2007 2008 Growth on constant
Silk & Textile 192,7 173,5 11,1 % 16,1 %
Leather goods & saddlery 675,0 663,7 1,7 % 7,7 %
Clothes & accessories 315,2 293,7 7,3 % 13,1 %
Others 85,6 77,1 10,9 % 16,2 %
Distribution: Hermes Shops 1.268,5 1.208,0 part%
Sandrine’s 5,0 10,8 %
Perfumes 113,9 100,7 18,1 % 19,8 %
Watches 104,7 110,1 (4,9 %) 0,7 %
Tableware 50,7 44,5 13,9 % 17,0 % Box for focus comments
Distribution: specialized shops 274,3 255,3 7,5 % 11,1 %
Others 82,3 51,6 59,5 % 61,5 %
TOTAL 1.625,1 1.514,9 7,3 % 12,5 %
Box for comments 7

Hermes portfolio BCG Matrix CEO Patrick
Thomas long-term
Q
S
vision at 15 years
Market Growth
u
t
P
Growth
er “Our strategy will be a
eOthers
a strategy of value, not a
strategy of volume, we
s
r are not in the mass
D
C
T luxury. »
a Leather goods
o
a &
« We want to avoid the
W Silk saddlery
s
g
at Clothes & banality, in
Accessories maintaining the
s
h financial growth. We
preferred extend the
Market Share territories of the
brand, in table wear,
in watches for a most
of possible diversified
offer and make the
client surprised with. »
Patrick Thomas, CEO Hermès
International – juin 1988
40.000 new ref. by year
(most in leather goods) ;
Portfolio management: long-term strategy from dog to star Kelly bag: 1.800 ref.
2000 Hermès ask the pertinence of keeping a perfumes unit. 7 years later at the moment
of the launching of the « Kelly Calèche » perfume, this division is star in the portfolio.
Opposite to the big competitor groups where the perfumer are usually solicited
Hermes works with its own perfumer since 2004. And the success is building by
following the values of Hermes: use thematic, follow the identity and past of the Brand,
limited the number of launching to perpetuate the product range.
“Others” is hiring a galaxy of stars born with the product
innovation, diversification and customization
This dynamic is boosted by the strategy who have reintroduce the marriage of
creation and design with the tradition. And it’s support by a constant production
investment allow high variety, constant product innovation and diversification until
customization like special punctual order is star in the portfolio.
New CEO Patrick Thomas vision in 2006
“Boost the creativity in keeping the positioning of a prestige luxury”
Until 2006: 1% in pure innovation, 3% in creative process (lifting of the portfolio).
- Boost the creativity of quot;the housequot;, in keeping the positioning of a prestige luxury
- Intensify the presence in Asia (apart Japan) and in United States.
- Support the growth of the demand by an increase of the production capacities
- Contribute to the emergence of the follower familial managers
8

THE 4 P’s
PRICE PRODUCT
- Vertical integration from conception, - Core business: based on saddlery makers extended
manufacturing and distribution to the theme of Transportation & Travel (leather:
42% of the turn-over, cloth & accessories: 19 %, silk:
- Production cost: cost is not the reference point : 12 %...)
Mastering the cost of raw material (acquisition of
suppliers) - Expert of noble material = possibility to create and
enlarge the product portfolio = less dependant on 1
- Selling price: uniformity of price in the various category of product demand.
geographical zones
- SBA: silk, leather, art of living.
- Price = Value
- long life product cycle
- Operating margin: 25 %
PROMOTION PLACE
- Low volume of product advertising - Distribution network: 78 % of turnover generated
communication through Hermes fully owned shops (79% for non
private circuit for competitors).
- Higher effort of Corporate Communication
through rich content events and Hermès - 267 exclusive shops:
Foundation.
- 41% in Euro-zone, 24% in
Japan and 15 % in the U.S
- Launch of Corporate e-commerce web-site in
for main markets
2007
COMMUNICATION AND PRODUCT
Communication: singularity and focus on product and renew without
touching the fundamentals
« We are not in fashion, but in a house, where we cultivate the respect for the
client, the sharing and the sensibility » Philippe Chanet 2007
“Focus on product, singularity in being worldly understandable, same
message of making the people discover a singular universe and never imitate
any one, same creative axe to tell simple stories, poetical, to give the desire of
entering in the Hermes universe, always use the brand codes, play with
them.” Philippe Chanet 2007
Communication budget doubled in 4 years to 105 millions Euros, will rich 6 % of the
turnover in 2009 with an objective to 7 % (Starbucks who focus on the product and
services quality have a 1% budget)
Marketing specificity
9

« The marketing didn’t really exist in Hermes: “Be born art craft man, it’s
know to stay to the service of his client » Emile Hermes
«Opposite to LVMH or to PPR, who stake a lot on the marketing, Hermès
aim at only the excellence of the product. Their production cost doesn’t
matter » Bernard Malek, du cabinet de conseil en stratégie Roland Berger.
Operation of patronage for the contemporary art
quot;A manner of create a bridge between creation in art and creation in art craft
design » Hermes Art Director Fin 2007
quot;H Boxquot; of Hermes, an itinerant module within the World museums to present video Art +
exhibits his commissions in a network of galleries
Operation: linked innovation, design and know-how
First Emile Hermès Prize: 700 designers professional, student and self-taught compete to
allow Hermes to discover new design talents.
Preservation of the now-how capital, active formation Policies
“The notions of transmission, education and creation are the art of the
Hermès identity» 2008 Yamini Kumar, Hermes communication director
- Exclusive partnership with two professional secondary school (since 1999) liked each
with a specific workplace for developing the specific need of Hermes in know how in fine
leather craft.
- Workforce: a strong integration of know how, a reinforcement in production and
sale
2000-2004: 1000 hiring with formation actions ; 2004: 5 871 (new 277) ;
1990-2006: 1050 new artcraft men (14 know—how); 2006 : 6 825 (new 675)
2008 7 894 (new 439 on witch 263 in France); 2009 forecast: new 200
- Punctual collaboration with masters of the creation
2008 Le sac Yohji d'Hermès: sketch by Yohji and made by Hermes, a cross style of both
2008 one time supply Inglass: glass support for the Hermes Watch « La Montre Hermès »
2009 leather worplace designing by the architect Patrick Berger, « Equerre d’argent 2005 »
and « Grand prix national d’architecture en 2000 »
Operation design
For the 60 years of the 2CV in the world salon of cars 2008:, the mythical car of the
common people, the symbol of the democratisation was made by Hermès a custom interior
design on one unique model of 1969.
Image strategy expressed in distribution: innovation art design history
2007 quartier résidentiel de Séoul, 3000m2 sont dédiés au magasin et « l'Atelier Hermès »
L'union de la tradition et du design pour ancrer une forte identité dans un univers
ultra moderne, une approche hyper luxueuse du concept store à la française. En plus de la
boutique et du siège social, réunit un musée (exposition de Daniel Buren intitulée quot;Filtres
colorésquot; un travail sur la lumière naturelle et la transparence + des troncs, dans des vitrines
écrins, objets, photos et films retracent l'histoire du sellier : Le patrimoine ), un café de
lecture, une bibliothèque (250 books on horse),.
En chine sur le territoire des musées d'art avec ses foulards « Une
exposition d'art permet de montrer les valeurs de notre marque mieux qu'une
10

campagne d'affichage publicitaire» en ligne avec la stratégie d’ouverture à
l’art et la création.
Mars 1988 Exposition « The Tale of Silk » au Today's Art Museum de Pékin: un mix
étonnant, parfois détonnant, entre industrie du luxe et art contemporain, entre influences
occidentales et traditions chinoises, entre histoire du luxe et avenir de l'art avec des
installations, danse, peinture, vidéo… mêlant artiste contemporain américain et noms de la
scène artistique chinoise
Operation: sustainable design against aids
2008 quot;Life in a pocketquot; tie with a condom pocket to encourage people protect themselves
Communication operation: sustainable
« there is a trend in a charity for just golden his image with Hermès it’s not a
question of image. The Brand is positioning in back on profit of the
actions. … Give a festive dimension festive at this project, far from the
discourse of mortification and culpability who are killing the dynamic of a
charitable action. » 2008 Yamini Kumar, Hermes communication director
« Fête de la Couleur » UNICEFpartnership for the 19th anniversary of the « Journée
Internationale des Droits de l’Enfant » by ONU: collect fund for school in poor countries.
Animation: children have made drawing (within pictured by Bettina Rheims) and exposed in
the Museum of l’Orangerie .
An operation is hiding another: from prestige to sustainable
A communication operation based on authentic action who support brand
prestigious and authentic values. This elegant discretion of the communication serve
the brand value but we recommended to increase quietly democratically the
communication 1 - to allow people in crisis time to see a way to access to the dream 2
- to educate people against counterfeiting 3 - to give an alternative solution to the e-
bay system who encourage counterfeiting. 4 – to make better know the sustainability
of Hermes
2007, special creation of an only Kelly bag with a serigraphy of Grace Kelly in 1954 for the
exhibition « Les Années Grace Kelly » to Grimaldi Forum
Jun 2008 the only Kelly bag with a serigraphy of Grace Kelly was sale in auction at the
quot;Hermès vintagequot; for 52 000 euros goes to help « Fight Aids Monaco » association to
build a « Maison de Vie » in Provence (Princesse Stéphanie de Monaco’s association)
“Hermes Vintage”: bidding for an “accessible” dream
Organized by Artcurial for 12 years. This is an inescapable appointment for collectors and
Hermes lovers in the World. More accessible prices from the square of silk at 60 € to the bag
at 4 000 €
Cristie’s bidding : the vintage prestige
Dec 2008 Pour sa vente aux enchères annuelle la prestigieuse maison Christie's propose une
collection de 23 sacs vintage Hermes
e-commerce deployment strategy
« … I don’t know why we shoul rush on what is moderne, is trendy… We
don’t want to be demagogue and say anywhat on Internet. We have to keep
part of the mystery” Christian Blanckaert, VP Hermes Internationnal 2008
« Put ourself at the client side provide a fair service, plutôt rather than create a
new source of business» Charles-Henri Leroy, Director of Client Relation Hermès International, 2008
11

- a supplementatry service in the processus of the client purshases ; a stong care to the
usability of the site and to the logistic, a special attention to the packaging and delivery (3 h
in Paris), a custom offer (initials on leather agenda…).
- complementarity offline /online
- local product line
PRICE AND PLACE
Management of the devise effect
compensated by productivity and price rising : 6 % in United States and 8 % in Japan. But
they don’t want to go too far because the « Birkin » bag is selling 1 million of yens, (6.500
euros).
VERTICAL INTEGRATION :
Strategy of organic growth and innovation
The organic growth is a long-term strategy essential to Hermes finance its
investments
Distribution channel development
Strengthen the commercial presence on the overseas
markets
Innovation : Increase in
Develop the the capacity of
activities under producing
represented in the Hermès International Increase sales and
portfolio of the
Strategy answer the
group increase of the
Organic Growth
demand
As part of its strategy of welcome in the group Masters of know-how of
exception to consolidate its expertise or secure supplying, perpetuation
subcontractor, control the quality on vertical: Acquisition of emblematic
brands, artistic know how, innovative technique or small long-term
suppliers, raw material suppliers
Invest mainly in the reinforcement of its distribution network and it’s production
capacity
2008 : Investment 150 millions € en 2008, 70 millions € in network of direct distribution
(focus is in China) and the other main part for capacity of leather goods production
Operational strategy: optimisation of logistic
2003 investment IT solution for the logistic allows: 25 000 items perd ay and 1000 sendings
Operational strategy combining logistic performance and preserving company
values.
12

- Optimize the preparation of the ordered: multiply by 3 the storage capacity, reorganize
flux
- Manage the quality: reorganizing the logistic process
2003 Accelerate investments: +57,5 % and + 11 % of supplementary production
capacity
2003 New logistic and quality control platform Infolog in Paris area to serve the entire world
and prepare his international development
2003 extension of leather workplace
2003 building 2 leather workplaces (300 hiring in total)
2003 hiring/formation in leather within 2/3 years: 200 people
2003 acquisition of tanner
2003 interests reinforced in leather companies
Quality, reactivity and flexibility of the production capacity
« face to the competition of emergent countries… we have to increase the
flexibility who allows us to switch quickly from a motif to one anoter, from a
taffeta to a satin». Olivier Fournier, directeur général 2005
« This acquisitions have been made in the aim of perpetuate our suppliers
and with a voluntary policies of commercial development. » Olivier Fournier, directeur
général.
2006 owner 25% of high horlogy Vaucher Manufacture
2006 acquisition textile photoengraver Marcel Gandit, subcontractor since end of 40s for
HTH
2006 acquisition printing on silk square : studio Gandit de Bourgoin-Jallieu
This acquisition will enable to meet robust demand for leathers goods products,
particularly in crocodile skin. And will rich 73 millions d'euros turnover on this erea
2007 Acquisition of Soficuir International in witch « Tanneries des Cuirs d´Indochine et de
Madagascar », already held a 49.6% supply and tanning precious leathers, primarily crocodile
skin.
2007 fusion tanning of exotic leathers Soficuir and Gordon-Choisy (alwrady subsidiary)
2008 owner 45% of fashion designer Jean-Paul Gaultier (35% since 2003)
« These investments more affective than rational maintain the myth »
2007 acquisition Shoes: John Lobb
2007 acquisition Silversmith: Puiforcat
2007 acquisition Crystal: Saint-Louis
2007 acquisition Weaving: Perrin & fils.
2009 vertical integration and creation working together for a strategy apply until the
production facilities
Project of innovating new leather workplace allowing to operate a complete cycle : reception
of the tanned skin, processing, transforming by hand. For the « La maroquinerie des
Ardennes », third local subsidiary in Hermes.
The building of 5.000 m2 is designing by the architect Patrick Berger, « Equerre d’argent
2005 » and « Grand prix national d’architecture en 2000 »
Sustainable policies in production
2002 to 2006, decrease of 41 % of water consumption
in context of continuing growth (used in silk square printing)
2007 creation of a network of environmental managers by activity:
leather, textile, perfumes and logistic.
13

2007 Discharge of gas effect divided by 20 favour by the Soficuir’ know-how « Our
ambition is never more transport the raw skin of alligator » Francis Chauveau, directeur
général in charge of the industrial issues Hermès. Tan in original place (USA) they weigh 10 times less
, are less bulky and don’t need to be cool, then they transportation are less polluting.
Network of distribution and internationals redeployment
2006: 206 exclusive stores (38 indirect distribution)
2007: 267 stores (new 15)
2008: United States and Asia, focus in China (forecast 40 in the 3 or 4 years)
OPPORTUNITIES AND THREATS
Porter’s 5 forces Analysis
Threat of new entry
•Luxury market is a mature
market
•Concentration in few groups
•Distribution channel is locked
Supplier power Buyer power
•Vertical Integration •No bargaining
•No bargaining power
power Competitive Rivalry
Growth on core business
•Low volume
•Internal growth •High income target
Economy of scale
•Supplying Risk of change •High brand values
discrepancies Advertising level
Threat of substitution
•low propensity to substitute
•Know-how --- core competencies
•Distinctive image of Hermes brand
Opportunity: rapid growth in leather industry
Growth turnover 6 %. 7,4 millions bags made in France 2008
Hermès and Louis Vuitton dominate the sector with 10 workplaces each in France, making
work a lot of important subcontractors.
14

Opportunity in the emergent markets
The emergent countries represent less than 20% of the world market: $175 billions 2008
After the crisis we can expected a growth with two figures due to the growth of people with
high revenues, the access of the woman to the work, development of the luxury product for
men and economic growth on long-term. http://www.e24.fr Marc-André Kamel, associate to Bain & Co
According to these following recommendations we see that Hermes was for a long
time in this strategy policies
- Focalize on understanding the clients segments for a better targeted offer emphasis the
differentiation (niche market strategy)
- Concentrate on the organic growth by consolidating the direct distribution, emphasis the
formation policies to improve the quality of the services.
- Work and the cost management, a long-term suppliers relationships…
how luxury market face to the decrease in Japan : combination monetary
crisis, economic crisis
Until 2006 Hermes had a growth of 15 % with the strong decrease of the Yen in 2006 the
turnover as growth only of 2% and at that time 27% of the turnover of Hermes has done in
Japan.
Hermes model allows them to resist with a growth of 5 %, during that the most other
brands are decreasing. In Japan the specificity is to have middle clients compare to USA
where they are wealthier. And the population will decrease.
All the luxury try a strategy of delocalizing investment to China and reinforce the direct
retrail (Hermes to Ginza, Gucci to Tokyo and Vuitton to Nagoya)
Again with a differentiating strategy Hermes is trying a series of actions and thing
that this could be made them consider this market like a laboratory.
Opportunities of improving social and environmental performance as
part of deepening their luxury offering
“over consumption is no longer a signal of success” and that it is being
replaced by “conspicuous abstention”. WWF-UK’s Sustainable Business and Markets team
1. Operational efficiency gains.
2. Enhanced employee relations, making for easier recruitment, more motivated and loyal
staff, better customer service, enhanced learning and innovation, and higher productivity.
3. More welcoming and accommodating local communities.
4. Enhanced brand reputation and trust.
5. Connections with voluntary associations and networks that generate new market
intelligence and enable access to new markets.
6. A more secure and sustained supply of raw materials, provided by more motivated
suppliers.
7. Improved relations with the financial sector, including responsible investors and lenders.
“Emphasis by consumers on ethics is an enduring trend…More sustainable
luxury to be pursued by luxury brands as part of their core commercial
strategy” R. Michman and E. Mazze.
This eco-awareness sweeping the urban middle classes across Asia, Africa, Latin America
and eastern with significant implications for business. Even they are concerned by immediate
preoccupations such as the need to escape from poverty and ill health. The luxury industry
is calling to bring to life a new definition of luxury, with deeper values expressed through
social and environmental excellence. Their performance and progress on environmental,
social and governance issues should be comprehensively measured and reported.
15

Opportunity for deep value in China
Testimonial Across Asia – in 2007 report by WWF-UK’s Sustainable Business and Markets team
Environmental responsibility confers social status on individuals, celebrity
endorsements of green, long tradition of ecological awareness from its religious
beliefs such as Taoism and Buddhism, fortune building on the success of his solar
power company
In China: 76% of the more ostentatious nouveau riche segment said they “would pay more
to buy natural healthy foods”
In China: luxury products “are not conducive to harmony” mayor of Beijing
Luxury be more socially acceptable in societies of high inequality by generating more value
for everyone involved in (or affected by) its manufacture and supply; by preventing
irreparable damage to the beauty and biodiversity of the global commons; and by developing
processes, techniques and materials that are consistent with the demands of sustainable
development.
Change Of Strategy To Combat Counterfeiting
A well planned education campaign might be a more effective riposte to
counterfeiters?
2007 - Hermes has sued online auction site eBay in the Tribunal. This marks a policy
departure for the luxury group in its ongoing battle to snuff out counterfeiting. Up until
know, Hermes' policy has been to join suits brought by eBay's disgruntled customers relating
to counterfeit Hermes products. It also brings them in line with the policies of other luxury
groups such as Tiffany's and cosmetic giant L'Oreal both of whom have sued eBay directly.
The problem is that many of the Birkin bags listed on eBay are indeed counterfeit but that
not all eBay clients are aware of this fact.
New Business Unit: Intérieur & Design
This re-opening to design, follower to the horses, car, boat design until the beginning was
very effective in 2008:
- For the « Smart » car’s 10 years anniversary: a limited series with a luxurious interior
design sewed “point sellier”: 38.000 € (10 430 € 1er prix) United States: $48.500
- For the Bugatti Veyron the exclusive car became inaccessible 1.853.800 €.
- For Eurocopter « An industrial cooperation, not a simple communication
operation: to enhance the status of it’s conceptual, artistically and art craft
know-how». A fuse style technology in landmark design. Partnership 5 millions €
was bought by an Emirats Arabes Unis company: Falcon Aviation Services
With the crisis the car industry is not in good wealth but Hermes can follow:
-a strategy of niche with the very high level (ex: Bugatti)
-a strategy of deployment (slow: like Hermes know to do) of entering in the Middele Est (
helocoptere)
- a strategy of sustainability in working on the new trend of sustainable small electric car
for the city (a sustainable smart could be perfect)
Opportunity in mobile and accessories for mobile
quot;ABI Research forecasts that revenues from luxury branded handsets will
exceed $11 billion next year, increasing to more than $43 billion in 2013”
août 2008 ABI research
The luxury brands could rich multi-billion dollars in turnover on the mobile market and his
accessories (clutch) in the logic of the consumption luxury as social distinction. (in 2008
Vuitton has launch a range of clutch and screen for iphone, Ralph Lauren launch software
for it, Tag Heuer create completely a mobile
Karl Lagerfeld conceived an iPod case once for Fendi, and an handcrafted custom trunk
from Louis Vuitton (contained 20 iPods, one charger (what just one?), JBL iPod speakers
and a subwoofer), to make from four to six months and run upwards of $10,000.
16

Even we can find leither clutch hermes for iphone, Hermes is not involved in this
erea. A strong reason could be the lake of perfectly high quality (even Iphone are
not), but for a certain part it enter perfectly in the tradition of voyage or “mobility” could be
the word. But behind this there is the future development of the “Internet of object”, where
there is more place for the quality control because it’s not an wearing of a technology but the
technology inside the object.
Opportunity of cosmestile: innovation cosmetic design
Holding Textile Hermès HTH: department « Care and Textile » growth of 21% at the end
2007 « Intelligent textile » of witch « cosmestile»: bioactive textile . Hermès, Guerlain et Dior,
Lolita Lempicka, Yves-Saint-Laurent Beauté, Lancaster, Paco Rabanne, Nina Ricci … are
working with the 130 companies of the Cosmetic Valley (turnover 2007: 2,5 Md€)
This area where Hermes is already involved could be used to work on a way where
design, sustainability and luxury could be imagine to build object with technology or
used the intelligent textile
STRENGHTS WEAKNESSES
-Strong name value Replenishment of raw material
High exposure to Japanese and American Market
-Very strong internal cultural company
Change rate sensivity
-Large portfolio of products (less
vulnerable to the demand of a certain OPPORTUNITIES
type of products) Distribution network
-Products are not seasonable Promotion possibilities
New market: helicopter and design….
-Well balanced distribution on a world-
wide basis Not fully present on Asian market
Internet
-Control and quality of the distribution
circuit (156 owned shops out of 300)
-Suppliers: Long-term relationship and
protection of some critical “know
how”. Some include some participation THREATS
of Hermès Group to secure this (ex: Luxury market tougher and tougher
Vaucher Manufacture Fleurie, watches
Holding of luxury group
-Supply Chain: Iso 9001 and new SWOT New Luxury trend ( Internet )
implementation of processes in 2007.
Analysis New demand from emerging countries
17

OUR STRATEGY
Focus strategy: continuity and sustainability
I - Production: ”A long-term strategy, based
-Vertical integration by suppliers acquisitions (raw materials) in on the mastery of the know-
order to avoid break in supply chain (leather…) how and the control of the
distributor’s network (applied
II - Expansion of the distribution network despite the recession)” Annual
report
A/Middle East: high GDP per capita, market trends (long relationship
with horses)
B/Emerging countries “Boost the creativity in
C/Internet: expand eCommerce: specific selection of products and keeping the positioning of a
distribution. Introduction of second-hand sales on christies.com prestige luxury”
III - New sources of innovation “Strategy based on value and
Outsourcing of Design talents: enlarge creative sources on an not on volume” CEO Patrick
international cultural heritage and reduce creativity cost in Euro-zone. Thomas
IV - Communication
Extend visibility of the brand and know-how (only 3 % of the budget in
2004)…
V – Sustainable market
Use transversality of Hermes core business to enter RESEARCH and
PRODUCTION in new key environment business area (housing,
textile,…) extend Hermes Design Laureate on an int’l basis and especially
on emerging markets.
SOURCES :
http://www.strategies.fr/blogs-opinions/idees-tribunes/r49204W/5-l-orange-d-hermes.html
http://archives.lesechos.fr/archives/2003/LesEchos/18919-44-ECH.htm
http://www.lavf.com/conseil-bourse/Hermes_International_Une_double_strategie_pour_une_valeur_a_surveiller-RMS-0000040373.html
Stratégie Hermès
http://www.att-fr.info/tracenews/Strategie-Hermes.html?var_recherche=conqu%Eate
HERMES INTERNATIONAL
http://www.ernstrade.com/srd/HERMES.html
Hermès intègre les partenaires de la Fondation de la Haute Horlogerie - Actualités - News - Fondation de la Haute Horlogerie
http://journal.hautehorlogerie.org/fr/medias/actualites/hermes-integre-partenaires-fondation-haute-horlogerie.html
Boutiques Worldwide: Hermès Ginza (Japon)
http://209.85.229.132/search?q=cache:5e2HnaNLBzMJ:luxecie.typepad.fr/photos/boutiques_worldwide/100_0849.html+hermes+japon&hl=fr&ct=clnk&cd
=4&gl=fr&client=firefox-a
Hermès confiant pour 2008 malgré le Japon
http://209.85.229.132/search?q=cache:pG1v0s1Jj1UJ:www.aujourdhuilejapon.com/actualites-japon-hermes-confiant-pour--malgre-le-japon-
3037.asp%3F1%3D1+hermes+japon+2009&hl=fr&ct=clnk&cd=1&gl=fr&client=firefox-a
Hermès poursuit ses investissements dans son pôle industriel textile – Archives
http://archives.lesechos.fr/archives/2005/LesEchos/19322-103-ECH.htm
Proverbio : du carré Hermès aux implants chirurgicaux -
http://www.apce.com/cid67900/proverbioducarrehermesauximplantschirurgicaux.html
Textiles : le tissu file vers l'avenir (Montredon - Hermes)
http://www.ladepeche.fr/article/2008/06/28/461818-Textiles-le-tissu-file-vers-l-avenir.html
Hermès lance la H Box, cinéma quot;nomadequot;, bientôt au Japon
http://209.85.229.132/search?q=cache:HQglJmfMbEUJ:www.aujourdhuilejapon.com/actualites-japon-hermes-lance-la-h-box-cinema-nomade-bientot-au-
japon-2384.asp%3F1%3D1+hermes+japon+2009&hl=fr&ct=clnk&cd=2&gl=fr&client=firefox-a
WORLDTEMPUS.COM: La Manufacture Vaucher: Un partenariat favorable aux deux parties
http://www.worldtempus.com/marques/marques-partenaires/hermes/la-manufacture-vaucher-un-partenariat-favorable-aux-deux-parties/
Les soyeux Perrin se portent bien – Archives
http://209.85.229.132/search?q=cache:dCwmeDqe8f0J:archives.lesechos.fr/archives/2007/SerieLimitee/52-9-
SLI.htm+soyeux+perrin+hermes&hl=fr&ct=clnk&cd=1&gl=fr&client=firefox-a
Perrin & Fils: la plus belle soie du monde Perrin & Fils: la plus belle soie du monde
http://209.85.229.132/search?q=cache:YqwjJxrx-NsJ:espace-
documentaire.cg38.fr/uploads/Document/09/WEB_CHEMIN_34357_1201615212.pdf+soyeux+perrin+hermes&hl=fr&ct=clnk&cd=2&gl=fr&client=firefox-a
Luxe : Hermès pourrait racheter Jean-Paul Gaultier
http://www.actualite-francaise.com/depeches/hermes-rachat-jean-paul-gaultier,1501.html
Hermès International : un rachat de la maison Jean-Paul Gaultier n'est pas à l'ordre du jour
http://fr.biz.yahoo.com/07112008/17/hermes-international-un-rachat-de-la-maison-jean-paul-gaultier.html
Hermes International : Une double stratégie pour une valeur à surveiller (Finance Actualités)
http://fr.newspeg.com/Hermes-International--Une-double-strat%C3%A9gie-pour-une-valeur-%C3%A0-surveiller-9656784.html
Nouvelles rumeurs de vente d'Hermès
http://www.challenges.fr/20071004.CHA1512/nouvelles_rumeurs_de_vente_dhermes.html
Hermès sur l'olympe malgré les turbulences
http://www.fashionunited.fr/News/Columns/Herm%E8s_sur_l%27olympe_malgr%E9_les_turbulences_200902106276/
Hermès voit une baisse des marges en 2009 - Luxe - E24.fr
18