Affairs

The all-new Hermès: Taking its cues from…Michael Kors?

PARIS — “Heavy discounts.” “Ubiquity.” “Commodification.” When it comes to luxury companies, these are words you’re likely to associate with a Coach or a Michael Kors. Given these brands’ accessible, mass-market positioning, that would make perfect sense.

These words are not, however, what you’d immediately associate with a house as esteemed as say, an Hermès. And yet, you’d better get used to it — according to Exane BNP Paribas luxury analyst Luca Solca, they’re the exact the type of tactics Hermès is now dabbling in. (continued below…)

It’s all part of the newer, more expansive Hermes, writes Solca in a report at BoF — and for him, newer isn’t better. He sounds remarkably concerned, even alarmed, about the current goings-on at Hermès HQ.

Here’s what’s going down, according to him:

Hermes’ strength for so long has been this: “Put simply, Hermès has pursued one of the most effective stratagems for marrying high sales volume with the perception of exclusivity — category segregation — by confining iconic, core-category products (like bags) to high-end price ranges while offering other categories (like scarves) at lower price points to aspirational consumers.”

But they’ve started to move away from this. “In 2016, I was able to find standard Birkin handbags available in stores in Europe for the first time in years. The brand also seems to have moved away from the principle of category segregation, as consumers can now buy Hermès handbags at significantly lower prices, only slightly above the €1,000 threshold. . . . Demand frustration and category segregation were the two traits that set Hermès apart from its luxury megabrand peers. Without these elements, the genetic difference between Hermès and, say, Louis Vuitton is more difficult to discern. Hermès is still more desirable in the eyes of some consumer groups, especially the Chinese. But this seems more a difference of degree than essence. In fact, French consumers seem to have the opposite feeling.”

Several concerns to note:

  • Deflated brand equity is a huge concern here. As Mizzen+Main’s Kevin Lavelle will tell you, discounting is a slippery slope, a slip and slide race to the bottom. It’s a narcotic for both the company that engages in it, and the consumers who come to expect it — and it’s an incredibly difficult habit to kick once you’ve crossed that line.
  • Of even greater worry for Hermes, though, should be the devaluation of brand equity in the minds of consumers. As we’ve stated before: “Once a brand has crossed over into ‘masstige’ and lowered its standing among consumers through practices of ubiquity, it becomes an immensely difficult battle, when they decide to swim upmarket, to shed nasty that image.” Hermès still has the benefit of longstanding heritage and prestige on it side. But how long does that last in the face of tactics that quarter by quarter, year by year, start to chip away at the facade?

Why this might be good for modern luxury companies (MLCs): Compared to its peers, Hermès was one of the last holdouts against going mass market — and certainly against engaging in discounting. If they’ve capitulated here, that’s simply another great opportunity for MLCs to step forward and lead the way — if not though product integrity, then absolutely in strategy and behavior.

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