Hermès Overtakes Its Luxury Rivals as Retail Sector Slows

Achieving sales of €3.37 billion in the third quarter, a 15.6% increase, Hermès outperformed analysts’ forecasts. Despite the general pessimism about the luxury sector, attributed to a pullback in spending on premium goods amid global financial uncertainty, the French fashion label continues to thrive. According to Victoria Scholar, Interactive Investor’s head of investment, Hermès’ ability to weather the economic storm is largely due to its successful price increases that have not dampened customer demand.

Contrary to the conventional economic principle that a rise in price leads to a dip in demand, Scholar noted that the luxury market seems to function differently. The allure of a Hermès bag, some priced above $10,000 (€9,450), appears to enhance with price hikes.

Conversely, the broader economic challenges have impacted other luxury companies. Kering Group, owner of esteemed brands such as Gucci, Yves Saint Laurent (YSL), and Balenciaga, reported a steeper-than-expected 9% drop in sales to €4.46 billion.

Gucci, responsible for over half of Kering’s annual sales, endured a 7% sales downturn. The brand is currently undergoing a makeover under new creative leadership following two years of disappointing performance.

Smaller brands under the Kering umbrella, despite showcasing robust growth in previous quarters, also experienced a contraction between July and August. Sales at YSL and Bottega Veneta fell by 12% and 7%, respectively.

In the recent past, Kering Group has experienced competition pressure from French rivals such as Dior and Louis Vuitton, brands under LVMH, which have managed to recover remarkably post-pandemic. Despite being the world’s largest luxury group and one of the most valuable companies in Europe, LVMH witnessed a 9% increase in Q3 sales for its fashion and leather goods sector, falling slightly short of the anticipated 10% growth.

Economic constraints in Europe and the U.S. are driving consumers to reduce their spending on luxury goods. Meanwhile, the situation in China, a vital market for luxury brands, remains challenging due to unprecedented youth unemployment rates and an ongoing real estate crisis.