Luxury fashion brand, Hermes, signals a possible slowdown in its business for the second-half. This means the Birkin handbag maker might not continue the stellar growth recorded in the first half of the year. Why so?
According to Reuters, Hermes is planning to allocate more funds in the investments. This became one of the reasons the band will unlikely reach 41% in its half-year operating profit margin. This figure, as a note, is the highest record of the last decade.
The luxury goods industry in general itself suffered from unprecedented sales contraction last year. Though, the industry managed to stand tall again in 2021. Compared to its competitors, Hermes and French rival LVMH proved their better management amidst the crisis.
Analyst, however, remain skeptical on Hermes’ future growth. Despite recovery in demand from easened coronavirus restrictions around the world, Hermes still promises to maintain its self-imposed production limits. In another note, Hermes will not accelerate production of its items. Thus, people who want to get a hold of Hermes’ prized handbags might need to queue a little longer.
Through an analyst conference call, Executive Chairman Axel Dumas said, “Our real capacity constraint is quality, and that means having the right material and the know-how as these are labour-intensive products requiring a lot of skill”.
Dumas added that the group would follow its policy strictly. Hence, the increasing of annual sales volume in its leather goods division will not exceed 8%. The policy still applies even if the group face a shortage in some of its products.
Hermes: how the business is going on
Hermes has more than doubled its sales for the leather goods and saddlery division from its pre-pandemic June 2019 levels. Including the sales for $9,000-plus Birkin and Kelly Handbags, sales for Hermes sruged by 24% in the three months to June.
However, Dumas said, “We will not have the same growth rate for leather goods (in the second half)”.
Accordingly, the overall sales for hermes at constant currencies grew 127% to 2.15 billion euros ($2.55 billion). The brand noted a particular rise from Asia and the United States markets. This further allowed Hermes to run down stocks built up during the COVID-19 emergency. That was 33% above where they stood in the first half of 2019.
Additionally, Hermes’ recurring operating margin is at 41% of sales. This number was six percentage points above the 2019’s level. The number matched LVMH’s fashion and leather goods division result as well. Though, Dumas said not to use the level to extrapolate for the rest of the year.
Dumas further added that Hermes has kept on advancing with its investments during the health crisis. The group also continued renovating existing stores and opened new branches during the first-half of the year. Hermes also stayed true to its tradition to open a new manufacturing site in France every year. According to Reuters, in 2021 alone Hermes has hired around 400 people so far.
Read also: China Boycotts Several Fashion Apparels for Supporting Xinjiang
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