Hermes Joins Europe’s €200 Billion Club As Global Luxury Sales Soar

French luxury fashion group Hermes International soared past €200 billion ($218 billion) in market value for the first time this week, making it the eighth-most valuable name across the pan-European Stoxx 600 index.

It is second in the luxury space only to fellow French behemoth LVMH Moet Hennessy Louis Vuitton, which is valued at $459 billion and lifted the fortune of its controlling shareholder Bernard Arnault past $200 billion this year.

Arnault has joined Elon Musk and Jeff Bezos as the only people to have ever passed the $200 billion mark, and the 74-year-old became the first outside the U.S. to do so.

Hermes’ stock has been rallying this year and although it closed the day slightly off its weekly and yearly peak, it was still 27.09% up year to date. That means only seven other European companies are valued higher: LVMH, Novo Nordisk, Nestle, ASML Holding, L’Oreal, Roche Holding and AstraZeneca.

The luxury manufacturer of silk scarves and the iconic Birkin bag is also now worth more than the combined value of a raft of French bellwethers across a number of sectors, Bloomberg pointed out, including such giants as Airbus, Renault, Vivendi, Carrefour, Societe Generale and Orange.

Meanwhile, analysts are busily revising their target prices upwards for Hermes ahead of its first-quarter results announcement, April 14.

So just what has propelled Hermes to match and exceed the performance of other luxury goods brands?

Investor Flight To Luxury

Investors have become increasingly confident that the global luxury sector is capable of withstanding any economic downturn, especially as China’s post-Covid recovery and reopening has seen a bounce back in demand for high-end, upscale fashion and accessories in Asia, which has been largely closed off since the pandemic.

Demand for Hermes handbags typically exceeds its production capacity — anecdotal reports point to some airport stores being display only because of lack of availability — despite starting prices of $10,000 and upwards for the most popular models. Many designer bags also hold a high resale value.

Hermes has forged a reputation as one of the most exclusive brands in luxury, and its controlling shareholder, the Dumas family, has adopted a conservative approach to managing growth. It has kept supplies of handbags deliberately constrained and tightly controls product distribution.

Globally, Hermes operates from around 300 stores, which is at broadly similar levels to a decade ago, even though sales have more than doubled over that period.

There are, however, plans to boost output and Hermes will open a new leather manufacturing plant in Louviers, Normandy, tomorrow.

But the catalyst has been China. Demand in the country began to re-emerge as Covid-19 restrictions in some cities lifted last summer. The return of free-spending American tourists to Europe, bolstered by the strength of the dollar, has also driven sales in the key luxury markets of France, Italy and the UK.

Upward Predictions Ahead Of Results

Investors had been anticipating tougher times for the luxury sector because the market has typically contracted during previous recessions, although this time round the downturn because of the pandemic proved unexpectedly brief.

And luxury brands have also been putting up their prices this year, not only for inflation but also to preserve the exclusivity of their products.

Indeed, Hermes is just one of several European companies enjoying the boom in luxury shares and the rally has catapulted Paris into Europe’s top stock market, leapfrogging London, with the gap between the two capitals widening this year.

Can anything stop Hermes? Next week’s results update will likely tell us whether luxury is still the boat to ride in a storm.