Hermès began its journey in 1837 as a humble saddle-making workshop founded by Thierry Hermès in Paris, catering to the horse-drawn world of the time. Even in its early days, the brand’s craftsmanship drew the attention of elite clientele, including Napoleon III and his wife, Empress Eugénie de Montijo. This prestigious foundation set the tone for what would become a global symbol of luxury and exclusivity.

Over the years, Hermès evolved beyond saddlery, crafting iconic pieces such as the Birkin and Kelly bags and its renowned silk scarves, all while maintaining an unwavering commitment to quality. Today, Hermès represents the pinnacle of luxury, generating €13.4 billion in revenue and €4.3 billion in net income last year—an extraordinary 32% profit margin. Remarkably, the company remains majority-owned by the Hermès family, with Axel Dumas, a sixth-generation descendant of Thierry Hermès, serving as CEO.

Here’s the roadmap for our deep dive into Hermès’ business:

1. Hermès Business Overview

2. Competitive Position

3. Ownership and Compensation

4. Capital Allocation

5. Pre-Mortem Analysis

6. Final Words

Hermès Business Overview

Hermès International (RMS.PA) structures its operations into two main segments: Hermès Brands and Other Products and Brands. The Hermès Brands segment encompasses 16 métiers (or “departments”) and local retail subsidiaries, which oversee the sale of Hermès products in stores worldwide.

The métiers include leather goods, silk scarves, ready-to-wear clothing, perfumes, and jewelry—each playing a pivotal role in upholding the brand’s legacy of luxury and artisanal excellence. This carefully designed structure allows Hermès to maintain direct control over the customer experience, ensuring its hallmark quality and exclusivity at every touchpoint.

The Other Products and Brands segment covers non-Hermès ventures, such as the esteemed bootmaker John Lobb, as well as emerging initiatives designed to explore new markets and opportunities. Among these is a partnership with Apple to produce Hermès watch straps.

The Hermès Brands segment accounts for the majority of the company’s revenue. In 2023, 70% of this revenue came from the Leather Goods & Saddlery and Ready-to-Wear and Accessories métiers. Geographically, Asia represents 57% of Hermès’ revenue, followed by Europe at 22% and the Americas at 19%.

An Hermès Birkin bag has a starting retail price of $11,400, with prices climbing to around $80,000 or more for limited editions and rare leathers. On the secondary market, these prices can soar significantly higher due to the bag’s exclusivity and the challenges of obtaining one through official Hermès channels.