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French luxury goods brand Hermes said Friday it has “no strategy” to significantly increase prices or expand production of its prized products despite disappointing fourth quarter results which saw supply fail to meet demand.
Speaking to CNBC, CEO Axel Dumas said the company’s hand-crafted production model means it is less exposed to inflationary pressures, such as increasing energy costs, than many of its rivals that have warned of price hikes.
“There is no strategy at all to create growth through unnecessary price increases,” Dumas told Charlotte Reed.
“We have very limited inflation because our main tool to create our bags is hand stitching,” he continued, noting that price hikes are largely driven by wage increases for the some 300 artisans who create the company’s famed Birkin and Kelly handbags.
Full year results Friday showed Hermes increased global prices by 3.5% on average in 2021, above the usual rate of 1.5%, reflecting a rise in production costs and currency fluctuations. That’s well below the more aggressive price increases of competitors, such as Louis Vuitton, which hiked prices by an average of 7% worldwide.
Still, the company — typically one of the industry’s strongest names — fell flat on fourth quarter results, which saw sales in its leather goods and saddlery division fall 5.4% due to capacity constraints. Overall sales rose to 2.38 billion euros ($2.71 billion) in the three months to December, below the consensus forecast of 2.53 billion euros
Hermes shares fell as much as 7% in early trade, recording their worst day since September 2016 and their lowest price in more than eight months.
Dumas defended the self-imposed production caps, which limit volume growth in its leather goods production at 6% to 7%, saying it was more important “to keep the value of craftmanship.” However, he said that one “bad quarter” was not indicative of any wider downturn.
“It is difficult to make a precise prediction. What I do see now is there’s no change of trend,” he said.
2021 sales up 42% driven by U.S., China demand
The dip follows stellar performance in the company’s prior three quarters. Despite ongoing covid-19 restrictions, overall 2021 sales were up by 42% on the prior year and 33% from 2019 levels.
That growth was largely driven by the U.S., China and the rest of Asia. France was the only market not to see revenues exceed pre-pandemic levels.
“China has been one of our buying markets lately, with the U.S. and with the rest of Asia,” said Dumas. “There we see a very strong appetite,” he said, citing China’s growing millennial middle class, who account for 80% of its buyers in China.
Dumas added that the company continues to see strong growth through its digital channels, with 78% of online sales being to new customers.
“After lockdown, when the stores reopened, the dynamics of the ecommerce didn’t change,” he said.