RMS Hermes International

By Carol Ryan 

Even with no place to go to flaunt their purchases, wealthy shoppers kept the tills ringing at Hermès during the coronavirus pandemic.

Axel Dumas, the chief executive officer of the French maker of $10,000 Birkin and Kelly handbags, said Friday that sales at constant exchange rates fell 6% in 2020 compared with a year earlier. Competitors LVMH Moët Hennessy Louis Vuitton and Gucci-owner Kering both recently reported more severe declines of 16%. Hermès also had the best fourth-quarter performance across the luxury sector to date. The brand's shares were up 6% in early European trading.

In hard-hit categories where many of its competitors are struggling, Hermès has bucked trends. Sales of the company's watches increased by 28% in the fourth quarter. Compagnie Financière Richemont, which makes Swiss watch brands Officine Panerai and Jaeger-LeCoultre, said sales at its specialist watchmakers division dropped 4% over the same period.

The growth is striking considering Hermès has one of the stingiest ad budgets in the industry, spending just 5% of its sales on marketing. Most of this goes on live events rather than media campaigns. Less desirable luxury brands need to plough up to one quarter of their turnover back into marketing to maintain sales growth.

So far, Hermès hasn't resorted to the kind of aggressive price increases that other brands used during the pandemic to offset weaker volumes. Louis Vuitton lifted prices on certain handbags by up to 6% in May last year, according to Jefferies data. At closely owned Chanel, its best-known handbag is now around one-fifth more expensive globally than it was at the end of 2019. Hermès' management said it would only increase prices by around 1% in 2021 to offset the cost of higher wages.

All these indicators of healthy demand mean Hermès faces another uncertain year in better shape than most of its luxury peers. The brand has always starved the market of supply, particularly of its coveted Birkin handbags. Shoppers often can't get their hands on what they want, increasing the label's desirability.

After climbing close to 40% over the past 12 months, Hermès' shares are trading at 63 times next year's earnings and well above the company's 10-year average of 37 times. That is hardly good value, but investors are assuredly getting good quality.

Write to Carol Ryan at carol.ryan@wsj.com

(END) Dow Jones Newswires

February 19, 2021 09:36 ET (14:36 GMT)

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