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21st Century Business Herald reporter Gao Jianghong and intern Zhang Yizhen report from Beijing

On July 25, local time, French luxury giant Hermès released its first half 2024 performance report. During the period, it recorded revenue of 7.5 billion euros, a year-on-year increase of 15%, of which the second quarter revenue was 3.7 billion euros, a year-on-year increase of 13.3%, both exceeding analysts' expectations. At the same time, its net profit in the first half of the year increased by 6.4% year-on-year to 2.37 billion euros, also exceeding analysts' expectations of 2.3 billion euros.

From a regional perspective, in the first half of the year, Hermès' Japanese market surged 22.4% to 693 million euros, Asia Pacific (excluding Japan) grew 9.9% to 3.521 billion euros, France grew 14.7% to 680 million euros, other European regions grew 16.4% to 1.651 billion euros, and the Americas grew 12.6% to 1.329 billion euros. In the second quarter, except for the Asia-Pacific region, all regions achieved double-digit revenue growth, while the Asia-Pacific region grew less than 6%, a significant slowdown from the 14% in the first quarter.

In terms of categories, Hermès' leather goods and saddlery business had revenue of 3.215 billion euros in the first half of the year, continuing to lead with a growth rate of 19.1%. The growth rate of 17.9% in the second quarter far exceeded the analyst's expectation of 11.5%. Ready-to-wear and accessories grew by 15.5% to 2.162 billion euros, perfume and beauty grew by 4.9% to 259 million euros, and other businesses grew by 18.7% to 967 million euros. However, textiles and watches performed poorly, with the former increasing slightly by 1.5% and the latter decreasing by 0.2%, and the decline was more obvious in the second quarter.

Recently, various luxury brands have frequently released financial reports, and their performance has not been ideal. Hermès can be regarded as an "excellent student" in the first half of this year. As of the close of European stocks on July 26, Hermès' stock price closed at 2075.00 euros per share, up 3.39%. Since the beginning of this year, Hermès' stock price has climbed by about 7%, but it still needs to solve the problem of declining performance in Greater China.

Facing the Winter

Before the release of the financial report on the 25th, Hermès' stock price fell by about 2% at the close of trading, affected by the sluggish performance of its peers.

Not long ago, Burberry warned that it would suffer an operating loss in the first half of this year and that its full-year operating profit would be lower than its guidance. HUGO BOSS also lowered its sales and profit guidance for this year due to weak consumer demand, triggering turbulence in luxury goods industry stock prices.

Judging from the financial reports released recently, the organic income of the Zegna Group in the second quarter decreased by 0.4% compared with the same period last year, and the net profit of the Swiss watch group Swatch fell by 70% in the first half of the year; the results of the three giants are not optimistic either - the organic sales growth of the LVMH Group slowed to 1% in the second quarter, and decreased by 14% in Asia outside Japan; the sales of the Richemont Group increased slightly by 1% in the first quarter, and the sales in Greater China decreased by 27%; the Kering Group, which had previously faced a stalling crisis, performed even worse, with revenue in the first half of the year down 11% year-on-year, and revenue in the Asia-Pacific region outside Japan plummeted by 22%.

Caroline Reyl, head of high-end brands at Pictet Asset Management, once pointed out that the situation in the past two years has shown that some brands will benefit more than others - such as Hermès, whose customer base is wealthier and has greater ability to withstand pressure at the moment.

The industry has been saying that the "luxury market will enter a cold winter" for more than half a year. This year, the Standard & Poor's 500 Textile, Apparel and Luxury Industry Index has also fallen by nearly 30%. Faced with rising living costs, consumers are becoming more and more selective in high-end goods, and the gap between brands such as LV, Chanel and Hermès and brands such as Burberry and Gucci, which are undergoing reforms, has further widened. Among them, price is a clear watershed.

According to Bernstein data, Burberry and Yves Saint Laurent have recently tried to regain market share by cutting prices. Burberry has cut the price of its medium-sized Knight handbag by 22%. Such "self-depreciation" seems to be parting ways with the high-end positioning of Hermès products as "hard currency".

Hidden worries on the platform

Hermès' fortress of high prices and high quality is not completely flawless.

Hermès has carried out several rounds of price adjustments since 2019. Previously, its annual price adjustment range was 1.5% to 2%, and in 2022, the price adjustment range reached about 4% for the first time - among which the Mini Kelly second-generation Box leather handbag and Kelly To Go handbag increased by more than 23% and 28% respectively, and the entry-level handbag Picotin 18 also increased by 10%.

At the same time, Hermès' undisclosed allocation system also requires customers to purchase a certain amount of other goods before they are eligible to buy popular handbags. However, many allocated goods will flow into the second-hand market and be resold at low prices, causing dissatisfaction among some consumers.

Zhou Ting, director of Yaoke Research Institute, pointed out that the price increase measures that continuously overdraw high-end consumption are the core reason for the continued slowdown in global luxury consumption. If luxury brands want to continue to consolidate their advantages, they must make more efforts in several aspects, including truly starting from the customer, not making unreasonable allocations of goods, and not engaging in discriminatory marketing.

Hermès said that the group's pricing strategy remains consistent, and its restraint in price increase strategy has proven to be the right decision. The group will only raise prices in two situations: one is inflation leading to rising production and employee salary costs, and the other is fluctuations in regional market exchange rates. In the future, the group will continue to adjust prices at its own pace.

In addition, Jefferies Investment Bank reiterated its "buy" rating on the luxury giant after Hermès released its financial report. The investment bank said that Hermès' relative premium in the luxury industry has recently decreased by about 20%, and this reduction in premium can make Hermès' stock price more stable during market fluctuations and less likely to fall sharply. Jefferies also pointed out that the key factors supporting the "buy" rating include Hermès' strong brand assets, high levels of direct-to-consumer sales, and vertical integration capabilities.

Changes in the Chinese market

In the financial reports recently released by various brands, the situation in the Chinese market is particularly eye-catching.

According to Hermès' financial report, in terms of market share, the US market share remained unchanged in its overall business at 18%, the French market remained at 9%, the European market share excluding France increased from 12% to 13%, the Japanese market share decreased from 10% to 9%, the other market share increased from 2% to 4%, and the Asia-Pacific market share including China decreased from 49% to 47%.

Hermès said that except for Asia, which was affected by fluctuations in customer flow in the Chinese market, other regions in the world showed strong momentum. However, the decline in market share in the Chinese market was very small in the first half of the year.

Regarding the slowdown in growth in the Asia-Pacific region in the second quarter, Hermès explained that after the first quarter, which included the Lunar New Year, customer traffic in Greater China declined. In addition, the Asia-Pacific region performed well after the lifting of epidemic restrictions in the second quarter of last year, and this year's growth was also affected by the high base.