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Hermès vs LVMH

Blood lines and a deep independent streak fuel a family's fight for control of a storied French fashion house, writes Jing Zhang

 

"When my grandmother died she got all her children and she said, Hermès is your land, protect it and develop it," says Hermès chief operating officer Axel Dumas, sixth-generation of the Hermès family, holding court in a beautiful old colonial Shanghai compound. It is the kind of clear, sunny Shanghai day where shadows from leafy trees cast a lovely effect on the boulevards of the French Concession area. Light from the courtyard streams through tinted vintage glass panes into the restaurant where a relaxed 42-year-old Dumas chats with amiable, effortless charm.

And a message for his competitors: control of Hermès is held tightly in the hands of a family related (by blood and marriage) to the founder, Thierry Hermès. Those close-knit values infuse the brand's identity, a spirit that will not be relinquished lightly.

"My mother worked for Hermès for 20 years until she died," says Dumas, who is set to take over the family firm as CEO, following the retirement of current CEO Patrick Thomas - the only non-family member to hold the role - next June.

The primacy of the founding family in the house of Hermès' has become a touchy topic of late. The French luxury conglomerate LVMH does not see it that way. LVMH commands a global empire comprising more than 60 brands such as Louis Vuitton - which accounted for 30 per cent of group sales last year - Moët & Chandon, Loewe, Fendi and Bulgari - its latest acquisition in 2011 - to name a few. Now it appears restless to add Hermès to that stable.

The feud between the two historical French houses began in 2010 when Hermès family members discovered Bernard Arnault, LVMH boss and France's richest man, had personally acquired a 17 per cent stake in their firm.

Arnault is believed to be fascinated by the rarefied quality of Hermès, known for its silk scarves and highly coveted Kelly and Birkin leather bags. He's also enthused by the prospect of the brand's potential with China's next wave of luxury consumers.

Seeking protection from their so-called predator, around 60 Hermès family members set up a holding company with a 50.2 per cent stake in Hermès' shares which they agreed not to sell for 20 years, to block LVMH's presumptive takeover.

"There is a kind of attachment [within the family]. Everybody is putting first the interest of Hermès before their own, which is why we were able to create the holding company. Despite the fact that we are numerous people, there is a sense of unity that is quite rare," says Dumas.

"It was an important sign for the family to do this … a sign for our clients and Hermès' employees that we are here for the long term and not willing to sell to Bernard," says Dumas.

But the fashion feud escalated again this year, when Hermès filed a legal complaint against LVMH in July, asking the French courts to investigate LVMH's purchase of Hermès shares in 2010. LVMH has since issued a counter-complaint for defamation.

Paris prosecutors in October launched a preliminary criminal investigation into the conditions by which LVHM took its 22.3 per cent stake in Hermès. A police financial-crimes unit is making preliminary checks, according to an official at the prosecutor's office, Reuters reported. The prosecutor could choose to hand the case to an independent investigating magistrate or drop it. Arnault meanwhile filed a complaint for "blackmail, slander and illegal competition" and repeated that LVMH's initial stake-building was "perfectly regular".

Dumas isn't about to wax lyrical, but when asked about LVMH's action he emits a spirited laugh then offers this thought: "It's debatable who has been antagonistic with whom."

What is so covetable about this 175-year-old French brand?

Women wait from six months to a year for Hermès' goods such as the Kelly and Birkin bags (named after Grace Kelly and Jane Birkin). Each can cost from €2,500 (HK$24,800) to €500,000 with exotic skin versions pricier still. Hermès wins support for retaining its creative independence in an era when fashion is big business, and where style considerations are driven increasingly by commercial decisions at corporate level.

This, says Dumas, has resulted in "banalisation" of the fashion sector. "There is a lack of authenticity. People talk about craftsmanship without actually implementing it."

Of course Hermès is different. "We don't have a marketing department," he adds, by way of contrast.

While it might be discrete, Hermès is hardly the shy and retiring kind in terms of size. Although in its feud with LVMH the company likes to play up the David and Goliath angle, the group reported first half revenues of €1.59 billion in 2012. That success, entwined with creative familial blood, make it as desirable - and profitable - a possession as its highly prized products.

"A lot of people said to us, don't relinquish in front of LVMH ... we were very touched," says Dumas.

Perhaps it's nostalgia and the exclusivity that appeals to people - the romance of a family-owned company floating in a saturated sea of brands steered by conglomerates like LVMH or PPR. In a quick aside, these two have had their own skirmishes, mainly over the acquisition of Gucci, which Francois Pinault of PPR won in court.

"Hermès is a family company, not just in capitalistic ownership," says Dumas. "There are family values."

Longstanding ones, too. Hermès started life as a luxury saddle maker under Thierry Hermès in 1837. Its horse and carriage logo is still used today on their familiar tangerine boxes and products. "For 100 years we did saddles, our first clients were horses," says Dumas. "After the first world war, cars then began to replace horses, so we lost our market."

Of the two Hermès brother/owners, one thought the business finished with transport's shift from horse power to motor cars, while the other saw opportunity and bought his brother out. He then began designing relevant items for a new era. Soon Hermès made bags for cars, travel luggage and women's bags. And when chic Parisian women stopped wearing hats as a matter of course, Hermès launched their famous silk scarves.

When Hermès started making handbags during the 1920s, women were becoming freer. At the time women's bags were very small, because they didn't 

have to carry their own keys or money. "We were the first ones to do large bags that were utilitarian and functional so that she can be more independent," says Dumas.

Their magic formula still seems to be working. In the first half of 2012, Hermès Asia sales (excluding Japan) rose 25 per cent - driven by China, Singapore and Hong Kong. Clearly the Asian appetite for luxury fashion and in particular luxury leather goods is showing few signs of abating. Sales in France grew by 10 per cent and even the rest of cash-strapped Europe grew by 21 per cent. The Americas saw a more modest 9 per cent increase, but that followed a staggering 34 per cent growth in 2011.

The company is also focused on developing different sides of their brand, so if one line or sector doesn't achieve, others compensate. A smart strategy it seems, even if nearly all sectors of their business seem to be performing. Ready-to-wear fashion and accessories rose by 21 per cent in the first half of this year, watches by 23 per cent, while the jewellery and lifestyle products rose 50 per cent. They launched their Chinese lifestyle label Shang Xia (which translates as "up down") in 2010. The two brands are entirely separate and they are committed to doing it "as Chinese as we can with the ideas, the design and the staff", says Dumas. Shang Xia will open its first boutique in Paris next year, close to Hermès' flagship on historic Rue du Faubourg Saint-Honoré.

The family's fight with LVMH is no less than a battle for the soul of Hermès, says Dumas. "I really believe that the culture of LVMH does not match with the culture of Hermès, and that it will be to the detriment of Hermès' culture," says Dumas.

"We don't value the same things. I think the way he [Arnault] acquires shares is still under investigation from our [the French] administrative authority."

Hermès remains a thoroughly family-run affair. Family member Pierre-Alexis Dumas, holds the key role of artistic director. Other kin occupy similarly crucial positions.

"I have seen my uncle [Jean-Louis Robert Frédéric Dumas-Hermès] working for Hermès as CEO for 28 years," Dumas says. "When he was younger, he never thought about going into the family business.

"There was no pressure from my parents, they always said the most important thing was that I was happy, whatever that means," he quips.

After a career in banking, Dumas started out at Hermès doing auditing, even though he specifically asked his uncle not to be put in the numbers department. "It was a test of my will," laughs Dumas.

He switched into retail, soon heading a small jewellery studio, working with shoe designer Pierre Hardy. He later led Hermès' biggest division - leathers - before becoming COO.

Pierre-Alexis Dumas, Axel Dumas and family, have a mighty task ahead, to protect and develop something Dumas calls "a big but humbling responsibility". He pauses: "we are all grateful for what our predecessors did."

- with reporting from Reuters

 

 

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