Last month, Hermès reported its earnings for the first half of 2020. While revenues dropped by 25% from €3.3 billion ($3.9 billion) to €2.5 billion, one surprising bright spot was the growth of its online channels, where sales continued to rise even before its stores reopened.
The French luxury group reported that around 75% of their online customers were new, and its growth rates in e-commerce didn’t go down once stores reopened. “These aren’t sales that didn’t take place in stores. It took place online instead,” Hermès Executive Chairman Axel Dumas said in a conference call. “These are new customers who came to our online stores, so there wasn’t any sort of cannibalisation. We see that our website in China continues to grow very strongly in the second quarter despite the fact that all the Chinese stores have also reopened.”
At a time when many companies are having to rethink their business models and digital strategies in light of the global pandemic, how has Hermès managed to attract a whole new legion of online customers during one of the most difficult periods for the luxury industry?
The first thing to note is the unique positioning that Hermès possesses within the luxury market. “Hermès has always had this unique ability to position themselves as the iconic brand it is, but also embrace newness and technology whilst staying relevant and modern,” said Robert Burke, chairman and CEO of Robert Burke Associates. “They are strategic in everything they approach and they were very strategic with their online over the years.”
A big part of Hermès’ success online is down to how the company viewed its digital offering as complementary to its core business, rather than a threat, said Mario Ortelli, managing partner at luxury advisors Ortelli&Co.
“The big lesson that anyone can learn from Hermès, is that a brand that is probably considered to be one of the most exclusive and risk-averse in the luxury space, embraces the digital world and takes a great advantage from it. Hermès saw that digital was not something that would undermine its brand equity, but something that was a real platform to reach and reinforce their positioning among consumers.”
Another area where the company has always remained strong is in its ability to generate buzz about its brand and products. “They have a different way of marketing,” said Burke. “They really rely on their own placement through their website and social media like Instagram and they’ve been very good. Other brands spend an enormous amount of money on advertising and PR events and they seem to kind of stay away from that, from what I can see.”
The company is not afraid to embrace a different point of view either, like its recent fragrance launch, where perfume bottles are seen balanced on the edge of a diving board. “The strength of Hermès lies in its very distinctive creative content which allows them to post about any types of collections from horse riding equipment to lipstick while staying consistent. It is something that a lot of brands struggle with,” said Anne-Sophie Scharff, Social Media Project Manager at DLG.
Freedom to create
It is this focus on being creative that helps to generate excitement and buzz around its products. “The creative process was very important for me,” said Dumas. “It was very important to keep the same dynamism of creation, whatever be the situation, to preserve the freedom of creation. We don’t have a marketing department in Hermès. And so, our creators, our designers are free to create – they don’t start with a price point to arrive at something.”
While the result is a large selection of products – Hermès has around 50,000 product codes – this is counterbalanced by freedom of purchase. Meaning the company allows its store managers to choose their own assortment of products to sell in their individual stores, whose choices are also informed by their customers’ preferences.
Invest for the long-term
However, it is important for companies to note that that building a strong online presence like Hermès takes time and that companies cannot expect to reap immediate rewards.
Dumas acknowledges that Hermès had worked on its online omnichannel strategy for many years, and the continuous rollout of its platform has taken 4-5 years. For a company that generates 90% of its sales from its own stores, online represents a small but growing portion of its sales and one that is dependent on building a strong ecosystem – through its production, logistics and technology.
“E-commerce isn’t all virtual. There are very real things underpinning it all,” said Dumas. “We’re not talking about two separate universes. There’s always something physical underpinning online.”
Discovery is a luxury experience
Part of Hermès’ success reckons Burke, particularly during the pandemic, is that consumers have had a great deal of time to research and look at potential purchases. “There’s an overall feeling that when you do spend money, you want something that has a sense of investment and longevity,” he said.
“The feeling of quick and disposable fashion has not been successful during this time period… Hermès has year-round product ranges, they have classic styles, many things are limited editions, and so there was a demand for their sales, and the reality is they have a variety of price points. It’s a luxury experience in a time when many of the other competitors are not providing a luxury experience.”
Hermès is still facing its fair share of challenges like the rest of us, but “they are measured in everything they do,” said Burke. “They’re not reactionary. They are not one to be reactionary, and so I think that they are taking in what they have learned over this period with their online business and I would imagine that they will capitalise on it but only in the most strategic way.”
“I don’t think you are going to see a blast of new product on the Hermès’ website, part of their allure has always been that it’s limited. And scarce. And that’s like giving candy to a baby in the luxury industry,” he added. “They have always been, even more so now, in an enviable position compared to the other luxury brands and brands in general. In many ways, they are the antithesis of commercial. And I think that really works for them.”
Source: Luxury Society