Many of us wouldn’t know how to pronounce Hermès properly until it featured in our Global Compounders Portfolio (GCP) team’s launch portfolio a couple of years ago. Since then, we have been fascinated by the story behind the brand. Here’s a blog by Trung Phan which throws plenty of nuggets which help understand the brand that perhaps defines luxury consumption.

“Hermès sells the world’s most sought-after leather bags: Birkin and Kelly…For the uninitiated, Birkin and Kelly bags start at ~$10k (but regularly sell for $50k to $100k on secondary markets). Each one is handcrafted and takes 20 to 25 hours to make. The supply is tightly controlled and .. the process to attain one is arduous.”

The blog discusses how central to Hermès’ or any other heritage brand’s moat is ‘time’ or its heritage which no new entrant will ever be able to match or catch up to.

“Axel Dumas — the current CEO and Executive Chair of Hermès and a 6th generation member of the Hermès-Dumas family — says that “what we do at Hermès is sell time.””

Hermès’ origins in craftmanship lies in its early 19th century founder Thierry Hermès who earned a reputation as the best atelier for leather horse harnesses and saddles in Europe.

“When the automobile revolution began in the 1920s and threatened the Hermès horse market, Thierry’s grandson Émile pivoted the business towards luggage, furniture, handbags, men’s clothing, jewelry, watches, scarves, sandals, and even special zippers (known as the Hermès fastener).

The focus on craftsmanship never wavered.

Nor did the connection to royals. Émile had four daughters and decided to pass the business onto his son-in-law Robert Dumas (hence, the Hermès-Dumas lineage). Dumas had designed the Kelly bag in the 1930s and it received the royal treatment in 1956 when iconic American actress Grace Kelly — married to the Prince of Monaco — was photographed with the bag covering a baby bump”

That’s the history behind the Kelly bag. Here’s the one on the Birkin bag:

“In 1981, Jane Birkin — a hugely popular British actress — was sitting next to Hermès CEO Jean-Louis Dumas (Axel’s uncle) on a Paris-London flight, when he noticed her over-flowing straw bag. “You should have one with pockets,” Dumas told Birkin. “The day Hermès makes one with pockets, I will have that,” Birkin replied. “But I am Hermès,” Jean-Louis told her and soon ordered his team to make a variation on the Kelly Bag with a similar belt and lock closure. The Birkin debuted three years later and became an instant hit.”

Here’s the best part that defines luxury as exclusivity, creating desire, social mobility:

“The best example of this is the mythical buying process for a Birkin Bag.

You can’t simply walk into a Hermès store and ask for one. Instead, Hermès flips the buying process on its head and decides whether or not it wants to sell the bag to a buyer.

…First-time shoppers — even very wealthy ones — don’t walk into a store and ask for a Birkin. Hermès gives them the opportunity to purchase it. To be eligible for a Birkin, a shopper must have a relationship with the sales staff. The way to establish that relationship is to purchase some of the items mentioned earlier. This tiered buying approach psychologically connects a shopper to the Hermès brand.

…Hermès makes the customers “work” for the right to get a Birkin Bag. Think about that. Time is a much more scarce asset than money. And Hermès forces even the most well-off people to expend their time before they can get the bag.

Notably, Hermès doesn’t have a marketing department and doesn’t do traditional sponsorships with celebrities.

…The process creates such a strong desire that celebrities often love to show off their collection of Birkin Bags. think Cardi B, Jennifer Lopez, Victoria Beckham, or Floyd Mayweather on Instagram.”

Effectively, celebrities spend on a Hermès bag so its possession can endorse their personal brand.

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