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Hermès defies Hong Kong turmoil as Chinese demand buoys sales

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Reuters
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today Oct 24, 2019
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Thriving demand in mainland China drove sales higher at luxury brand Hermès in the third quarter, helping the Birkin-handbag maker offset a slowdown in Hong Kong, and the company said on Thursday that the momentum had carried into October.


Hermes - Printemps-été 2020 - Paris - © PixelFormula


Several months of pro-democracy demonstrations in Hong Kong, which descended into clashes earlier this week, have forced France’s Hermes and other luxury goods labels to temporarily shut stores and lose out on business in a key shopping hub.

Still, a clutch of high-end brands including Hermes are capitalizing on growing appetite for branded goods from a new generation of Chinese shoppers, who are starting to spend more online and within mainland China despite a slowing economy.

The company said sales growth in Hong Kong had slowed in the July to September quarter, but did not fall. Overall, revenue rose 18% to 1.7 billion euros ($1.89 billion) in the third quarter. Hermes shares were up 1.5% in morning trade.

At LVMH revenues contracted by around 25% in the period in Hong Kong, while others like Germany’s Hugo Boss were hit even harder.

Hermes - whose famed products like the $10,000-plus Birkin handbag often generate waiting lists, helping the brand maintain its position as a status symbol - said the launch of its e-commerce site in China a year ago was helping drive revenue.

Sales growth across the broader Asia region grew by 20.1% in the third quarter on a comparable basis, accelerating from the previous three months, when rivals like LVMH’s Louis Vuitton reported stable trends in mainland China in the period.

“Our digital site has allowed us to attract new clients... It’s given us visibility,” Finance Chief Eric du Halgouet told reporters.

GOING ONLINE

Brands are looking to draw shoppers outside China’s main cities where they may lack stores, and are targeting growing demand from “Gen Z” shoppers in their early 20s, often supported by their parents’ income.

Hermes peers including Vuitton and Kering’s Gucci have been running online sites in China since 2017, while others like jeweler Tiffany are catching up with new e-commerce roll-outs.

Brands are also investing in social media campaigns or events like “pop-ups” in China to drum up interest.

Hermes temporarily set up shop in a Beijing record store in May, for instance, in an event that focused on its silk scarves and promoted via online platform WeChat.

Du Halgouet added that the “very favorable trends” in China - where the government has also encouraged shoppers to spend more at home with VAT and import duty cuts - had continued into October.

On a like-for-like basis, which strips out currency swings and the effect of shop openings, Hermes sales were up 15% in the third quarter, accelerating from the 12.3% posted a quarter earlier, and coming in higher than some analysts had expected.

Hermes’ silk business recovered slightly from a lull, while its core leather handbag division grew steadily.

The company - which trades off its “Made in France” cachet and was originally founded as a saddle maker - said it was opening three new leather goods workshops in the country between 2020 and 2022 to keep up with demand.  

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