Just in case you didn’t know it, Hermès is a company that makes ladies’ purses among other things. Hermès is a French high fashion luxury goods manufacturer established in 1837. It specializes in leather, lifestyle accessories, home furnishings, perfumery, jewelry, watches and ready-to-wear. Just like every other business in the world, the arrival of the Covid-19 virus has affected Hermès. Their customers have had to stay home just like everyone else and have been unable to go out and shop for Hermès products. How has this impacted Hermès?
The Impact Of Covid-19 On Hermès
The interesting thing that product managers have to understand about a company like Hermès is that they cater to a unique type of customer – the very wealthy. These customers do not necessarily have the same problems as other types of customers and they may not behave in the same ways. During the Covid-19 pandemic, Hermès customers have been paying over the top for a secondhand Birkin handbag during Covid-19 lockdowns. This clearly shows that the Hermès product managers have created a good product development definition. Strong auction results for the Hermès brand aren’t a great indicator of the wider health of the luxury sector, though.
Product managers can take a look at the auction house Christies to try to get a gauge as to how the Hermès brand is doing during the pandemic. At a Christie’s online sale of used handbags this week, Hermès Kelly and Birkin models sold at an 80% premium to the midpoint of their estimates on average. That’s about the same level as a pre-virus auction held in November 2019. However, the total tally was smaller than previous auctions, which may reflect more conservative estimates or that the most coveted bags were held back for a later date.
During the pandemic it can be hard for product managers to measure the strength of a market. The secondhand luxury market, whether at auction or consignment websites such as The Real Real, is becoming an important measure of brand heat—even if the labels themselves don’t profit from it. Hermès is the only company whose handbags are more expensive to buy used than new. Supply of its two most popular bags, the Birkin and Kelly, is tightly restricted in boutiques. That forces shoppers into a thriving resale market where they can expect to pay 50% to 100% premiums over store prices for rare colors.
What The Future Holds For Hermès
Product managers who are struggling to make it through the current times are keeping their eyes open trying to find ways to determine what the world will look like once this has all blown over. The strength of demand for used Hermès bags even during the pandemic suggests sales of new ones will bounce back once stores reopen. That goes some way to justifying the company’s remarkable share-price performance. It is the only luxury stock that has risen this year and now trades for 54 times projected earnings, above a 10-year average of 36 times.
The value of the Hermès brand is quite impressive and would look good on anyone’s product manager resume. However, product managers need to realize that this figure partly reflects depressed profits as store closures choke off sales. Analysts expect total revenue to drop 30% this quarter. Signs of promising underlying demand at Christie’s should be caveated, though. The Birkin and Kelly bags only contribute around 25% to 30% of overall sales. The showing of other Hermès goods such as clothing, silk scarfs and jewelry may be softer.
What product managers can learn from Hermès during this pandemic is that Hermès does tend to be more resilient than rivals in economic downturns. The likes of Burberry or Prada are unlikely to benefit from the same level of pent-up demand as consumers return to stores. Revenue in the luxury sector overall will probably fall 35%. Demand for the French company’s bags looks healthy, but shouldn’t be read as a sign of Covid-19 immunity at other names.
What All Of This Means For You
The world has been turned upside down by the arrival of the Covid-19 virus. Every industry has been impacted and product managers are scrambling and reviewing their product manager job description trying to find a “new normal” in order to try to get things back on track. One interesting company to watch is Hermès which makes fancy purses and other goods. Their approach to handling the pandemic may provide product managers with some guidance on how to proceed.
Hermès sells their products to very special customers – wealthy customers. These customers are not affected by world events in the same way that many other people are. Hermès customers have continued to pay top dollar for their purses during auctions. Hermès purses have been auctioned at Christies and have gone for premiums. Hermès purses are more expensive to buy at an auction that to buy in a store. The strength of the demand for its products has boosted the value of the company. The closing of stores that sell Hermès products will affect the company and sales of non-purse items may be down. The demand for Hermès products is strong, but probably should not be used as a measure of the entire luxury goods industry.
There is no question that the way that we used to do things can no longer be the way that we continue to do things. The French luxury goods manufacturer Hermès is dealing with all of the same things that we are; however, they are currently doing very well. The strong demand for their product has allowed them to make it this far through the pandemic. Product managers need to realize that ultimately it’s the strength of our product that will allow us to survive tough times.
– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Product Management Skills™
Question For You: Do you think that Hermès should start to sell more purses to make up for decreases in other areas?
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What We’ll Be Talking About Next Time
So how do you feel about eating meat? For that matter, how do you feel about eating meat alternatives that are made from plants? Plant-based meat product managers are racing to update their product development definition and fill in for missing cuts of traditional meat in supermarket meat cases, after the coronavirus disrupted operations at meatpacking plants. How are product managers going to seize this once-in-a-lifetime opportunity to make their products more successful?