This document summarizes the key insights from the "Hermès: The Complete History and Strategy" podcast episode from Acquired. The episode delves into the 187-year history of Hermès, exploring its unique business model, its unwavering commitment to craftsmanship, its family leadership, and its dramatic transformation into a luxury behemoth. Hermès is presented not just as a luxury brand but as a cultural phenomenon and a study in long-term business strategy that defies many conventional principles.
- Defiance of Conventional Business Practices: Hermès deliberately avoids many practices common in the luxury industry, such as:
- Limiting Supply: They intentionally restrict supply to maintain exclusivity and create waitlists. "a handbag company that won't sell you a handbag"
- Subtle Branding: They avoid loud branding, relying on the "IYKYK" (if you know, you know) approach.
- No Celebrity Endorsements: They don’t utilize celebrity endorsements, with stars purchasing their products as regular customers. "stars buy their bags just like everyone else"
- Minimal Marketing: Hermès famously has barely any marketing department and almost no advertising. "Doesn’t even have a marketing department! (they barely advertise at all)"
- These intentional choices position Hermès as the "anti-LVMH," despite being often lumped together with brands owned by LVMH. "As much as they get lumped together with brands owned by LVMH, they are in many ways the anti LVMH."
- The Power of Craft and Heritage: Hermès’s core identity is rooted in hand craftsmanship, using traditional techniques like saddle stitching.
- Saddle Stitching: This intricate, durable, and aesthetically pleasing hand-sewing method is used in all of their leather goods. "Saddle stitching is an amazing technique that Hermes uses for every single bag that they make… a far more effective, high quality, and durable form of stitching"
- Emphasis on Quality: Hermès is obsessed with quality and a reputation for excellence, which underpins its long-standing independence from conglomerates. "a company so obsessed with craft and a reputation for quality that they have stayed independent"
- Non-Transferable Skills: Their craftsmanship skills are so specialized and unique that they are effectively non-transferable to other companies. "The skills are completely non transferable. This process doesn't really exist, certainly not at scale at any other company."
- Connection to History: "They have a hundred and eighty seven years of history to call upon, and they do so over and over and over again."
- Family Leadership and Long-Term Vision: Hermès has remained under family control for six generations, fostering a long-term perspective and a commitment to heritage.
- Sixth Generation: The current leadership responded to a takeover attempt by scaling hand craftsmanship, transforming the company from a small family business to a major player in the luxury market.
- Dinner Table Conversations: The importance of the family’s “je ne sais quoi” – the absorbed wisdom gained through generations of working together – is highlighted. "how do you replicate those dinner table conversations?"
- Stewardship: The family has been very protective of the brand and incredibly careful about how they deploy it. "They make sure that the mystique is always there. They don't violate the promise. They never cut corners."
- The "Hermès Universe" and the Dream: Hermès doesn't just sell products; it sells an experience, a dream, and a piece of its heritage.
- Artistic Connection: Their window displays are "portals into this world of dream and art." The goods are not just functional but connected to this dream and sense of tradition.
- Creating Value: The products represent "an interesting midpoint between extreme functionality but also artwork."
- Signaling: Customers are seeking to adopt a part of Hermes's heritage and reputation as part of their own identity and to signal it to other connoisseurs. "You're not necessarily trying to signal it to everyone, but you do want to signal it to the right people who would appreciate it."
- Strategic Pivots & Adaptability: While rooted in tradition, Hermès has reinvented itself multiple times, adapting to changing markets and societal shifts.
- Carriage to Handbags: Their business transitioned from carriage and equestrian goods to handbags, recognizing the changing modes of transport and social structures. "The business is now a meals and the business is now handbags."
- Silk Scarves & Expansion: Robert Dumas introduced iconic silk scarves and the Sac a Depeches (which later becomes the Kelly bag), expanding their range.
- Embracing Modernity: Jean-Louis Dumas understood the need to co-exist with the "cool" and "fashionable," adapting the brand while maintaining its classic appeal. "The young customers came to us more than we went to them."
- The Birkin and Kelly Bags as Cultural Icons: These bags are more than just products; they are symbols of status, exclusivity, and art.
- Grace Kelly Effect: The Sac a Depeches became the "Kelly bag" after Princess Grace Kelly was seen using it to hide her pregnancy, catapulting it to fame.
- Jane Birkin & The Birkin: The Birkin bag was created after a chance encounter between Jean-Louis Dumas and Jane Birkin on an airplane, designed to be a more practical tote for mothers.
- Beyond Utility: The bags have become Veblen goods, where increased prices fuel desire and demonstrate status. "A Veblen good is the opposite. As price increases, people actually want it more."
- Scarcity and Access: The difficulty of acquiring a Birkin is part of its appeal, with the experience of purchasing one becoming a part of the status it conveys. "The hard thing about buying a Birkin is not coming up with the money."
- The LVMH Takeover Attempt & The Family's Defense: LVMH's Bernard Arnault attempted a hostile takeover, but the Hermès family mounted a strong defense to maintain control.
- Equity Swap Derivatives: Arnault accumulated shares using equity swap derivatives, a strategy that allowed him to secretly gain a significant stake. "He continues buying for the next 10 years using equity swap derivatives."
- H51: The family created a holding company, H51, to pool their shares and prevent individual family members from selling out. "That vehicle was and is still headed by one of the family members, Julie Guerrand, who was an investment banker at Rothschild."
- Scale of Market Cap Increase: The market cap grew 16x after the takeover attempt and during the leadership of the 6th generation family members.
- Arnault's "Win": Even though he didn't take over Hermès, Arnault's LVMH profited significantly from the increased stock price and ultimately gained 100% control of Dior through a strategic share swap. "Even when he loses, he still wins, and Bernard still wins here."
- The Sixth Generation and Modernization: Under the leadership of Pierre-Alexis and Axel, Hermès scaled production while staying true to its values and heritage.
- Scaling Hand Craftsmanship: They invested heavily in training and infrastructure to meet demand without compromising craftsmanship. "They're building data centers."
- Horizontal Scaling: The expansion of production capabilities (artisans and workshops) is compared to AWS, scaling horizontally and consistently.
- Innovation and Collaboration: They've embraced strategic collaborations like the Apple Watch, blending tradition with modern technology. "Wouldn't it be nice to have something combining our craftsmanship, our vision?"
- The Importance of Maintaining Exclusivity: Hermès actively avoids overexposure and mass production, maintaining its position at the top of the luxury pyramid.
- No Sales or Discounts: Hermès avoids discounting its products, maintaining the perception of high quality and value.
- Limited Production: The meticulous manufacturing process contributes to their limited supply.
- Founded in 1837 in Paris.
- Current market cap is over $200 billion.
- Family-owned and controlled for six generations.
- 16 métiers (craft divisions).
- Employs 7,000 artisans.
- 120,000 Birkin and Kelly bags produced per year.
- Leather goods and saddlery account for 43% of revenue, ready-to-wear and accessories 27%.
- Asia (excluding Japan) accounts for 48% of revenue, Japan 10%.
- Prices increase on average 7% per year.
- The Hermes color orange is a non-Pantone color.
- Petit H: Uses leftover materials from production to create small goods through "creation in reverse."
- Hermes's "Orange": The use of the non-Pantone orange box is a result of wartime necessity, using readily available orange material at the time.
- The Zipper: Hermès introduced the first zippered jacket ever created, a leather golf jacket for the Duke of Windsor.
- Window Displays: Their window displays are intentionally created as artistic expressions that tie into the dream aspect of the brand.
- Hermès Horizons: This is a bespoke division that offers Hermes quality outfitting for yachts, private jets, and more.
- "Blind Stamp": Every Hermès item has a blind stamp that identifies the year it was made and the craftsperson that made it.
- Veblen Good: The Birkin and Kelly bags fall into the category of a Veblen good, where increased price leads to increased demand.
- Branding Power: A dominant power of the brand and the mystique it embodies.
- Cornered Resource: The unique artisans and their specific craft skills.
- Counter-Positioning: Intentionally choosing to do everything differently from other brands in the market, especially at scale.
- No Scale Economies: Hermes intentionally refrains from mass-producing goods and utilizes an exclusive distribution network.
Hermès stands out not just as a luxury brand but as a cultural phenomenon, a testament to the power of heritage, craftsmanship, and unwavering commitment to a long-term vision. It has defied conventional business practices to build its brand, resisting trends while remaining iconic. The story of Hermès is a lesson in the strategic value of tradition, quality, and exclusivity.
This briefing document should give you a solid understanding of the key themes and facts presented in the source material. Let me know if you have any questions.
