Hermès International

A family business steeped in tradition

I preach it over and over again: "If you want to be successful in the stock market over the long term, you have to diversify broadly." Added in 2026: This was my last article. Shortly afterwards I started to question exactly this sermon. In the stock market it still holds for me, but when it comes to money itself, I have found my answer: Bitcoin. So today, let's once again venture a look beyond the usual horizon. Why buy stocks when you could also invest in handbags? No joke, a classic Birkin Bag from Hermès increased in value by more than 14 percent per year from 1980 to 2015, according to a study - and the trend is rising. And interestingly, demand for luxury handbags doesn't even shrink during economic downturns, quite the opposite. To be honest, though, I'd rather stick with the stock: first, I know next to nothing about the fashion world, and second, I don't have the necessary cash for an exquisite Hermès handbag either. By the way, we're quickly talking about 5- to 6-figure prices here...

The French family company Hermès International isn't just any luxury group, it's a luxury group in an absolute class of its own. Hardly any other company places such great value on quality, durability and exclusivity. In fact, you even have to put yourself on a waiting list if you want to buy one of the coveted handbags at Hermès. So today, let's see whether the stock can win us over too.

The history and business model of Hermès International SCA

The origins of today's fashion house can be traced back to January 15, 1801, in Krefeld in North Rhine-Westphalia, when Thierry Hermès was born as the sixth child of an innkeeper. His family had previously emigrated from France to Germany, but shortly afterwards the French annexed the territory west of the Rhine. As a young man, Thierry already discovered his talent for craftsmanship. Not in the silk and cloth industry, though, which was booming in Krefeld at the time, but as a leatherworker. Tragically, he lost his entire family to illness and war, which is why Thierry decided in 1821 to move to Pont-Audemer in Normandy and work there as an apprentice to a saddler and harness maker. A few years later he got married and had a son: Charles-Émile Hermès. In 1837 the young family moved to Paris, where Thierry opened his first own leather workshop for bridles and harnesses and perfected his saddle stitch. That's a special sewing technique in which a waxed linen thread is tensioned with two needles in such a way that, if done correctly, it will never come loose. By the way, to this day this saddle stitch is sewn exclusively by hand at Hermès. It didn't take long for Thierry to realize that his customers were willing to dig deeper into their pockets for outstanding quality. From then on he focused on the upper class and supplied them with high-quality leather goods.

In 1867 Thierry received an award for his work at the prestigious World's Fair in Paris. When he died in 1878, his son Charles-Émile took over management. In the following years, the railroad and the automobile increasingly pushed horse-drawn carriages off the streets. Hermès recognized this trend early on and added suitcases and leather bags to its product range. Émile-Maurice, the son of Charles-Émile, ran the company from 1902. On a business trip to Canada, he discovered by chance a kind of zipper system that was used to close military vehicle tarps. Thrilled with this technology, he secured the exclusive patent rights for the French market and soon presented novel bags and garments with matching Hermès zippers. When his wife once complained that she couldn't find a suitable handbag, Émile-Maurice designed a handbag collection himself, which was introduced from 1922. Since 1929, the famous Hermès silk scarves have also been part of the range.

After Émile-Maurice, his son-in-law Robert Dumas took over management, and in the 1930s he designed, among other things, a smaller version of the ladies' handbag. This bag wasn't a bestseller at first, but when the American actress Grace Kelly was photographed with it in several pictures, sales took off sharply. Ever since, this handbag model has been known as the Kelly Bag. A few decades later, Jean-Louis Dumas, son of Robert Dumas and CEO at the time, met the English actress and singer Jane Birkin on a plane. She complained that she couldn't find a handbag that was both fashionable and roomy. Without further ado, Jean-Louis sketched a design on a piece of paper and thus created the Birkin Bag, which is still popular today. In 1993 the company went public on the Paris stock exchange, with 80 percent of the shares remaining in family hands. Today, Hermès International produces and sells not only handbags, leather goods and silk scarves, but also fashion, perfumes, cosmetics and jewelry.

How can Hermès International develop in the future?

First, I'd like to briefly sum up the luxury group's business model again. Hermès International is a French luxury goods manufacturer with iconic status. In fact, it's even perceived as the most exclusive luxury brand in the world. Hardly any other company combines excellent craftsmanship with the finest materials, traditional artisanship and attention to detail, as well as brand exclusivity, the way Hermès does. The company divides its products into the following categories: leather goods and saddlery, women's and men's ready-to-wear and accessories (including shoes, belts, gloves and hats), silk and textiles, fragrances, watches and other products (including jewelry, furniture, home accessories and furnishings, tableware and sporting goods).

To this day, Hermès makes a lot of things by hand - a classic Birkin Bag takes about 40 hours of work. A single employee who has been trained for at least five years handles every single step. In fact, every bag gets not only a date stamp but also an identification stamp, so that in case of a repair, the bag can go back to its maker. The tools used and the techniques applied have also barely changed over time - a lot is still produced the traditional way with plenty of patience and love. The products are sold on the one hand in the currently 306 Hermès boutiques worldwide and on the other hand through the company's own online shop. As steeped in tradition as Hermès is, it has always recognized important trends fairly quickly. For example, at the beginning of the millennium, Hermès was one of the very first luxury brands with its own online store.

Now let's take a look at the data from the most recently published quarterly report (Q1 2022 - ended March 31, 2022). In the period from January to March 2022, Hermès generated revenue of €2.7 billion. That's a whopping 32.7 percent more than in the prior-year quarter. Even adjusted for currency effects, the increase is still a strong 27.1 percent. Analysts had previously expected an increase of 15 percent. The reason for this growth was continued demand, especially in the USA and Europe. The luxury outfitter also got off to a phenomenal start in Asia, but business stalled slightly due to COVID-related closures of some boutiques. However, the company is confident that things will soon get back to normal there. Because of the Russia/Ukraine war, Hermès decided to cease its business activities in Russia, although its roughly 60 employees will continue to be paid for the time being. By the way, all exports to Russia were stopped as well, and sanctioned oligarchs can no longer shop at Hermès either.

As already mentioned in the introduction, the business of luxury brands is surprisingly crisis-proof. While people do consume less during economic downturns, high-priced luxury goods often act as a kind of "safe haven". However, we're really only talking about true luxury here: teenagers who think they have to show off with Gucci and Louis Vuitton today will probably have to cut back. Furthermore, economic crises hit wealthy people far less hard than they hit, for example, poorer people. And even though the gap between rich and poor keeps getting wider, the number of millionaires and billionaires keeps growing. According to a study (see page 20 of the study), last year there were more than 62 million people in the world who owned a million US dollars or more, and no fewer than 2,750 billionaires. Not a small customer base for Hermès.

Another point I really like is that Hermès International is still family-owned. With Axel Dumas, the sixth generation is already running the company. Only the previous CEO Patrick Thomas bridged the period from 2006 to 2013 - apart from him, a family member has always been at the helm of the luxury group to this day. Hermès isn't just a great investment for private investors. LVMH also tried in vain to buy the company. For this reason, the family members founded the holding company H51, through which they intend to hold the majority of the company's shares until at least 2041 and thus prevent a hostile takeover. Family businesses often think in generations and not just until the next quarterly results - I follow a similar approach with my long-term investing.

What about the dividend?

Just one year after the IPO, in 1994, Hermès began sharing its profits with its shareholders in the form of dividends. Since then, the fashion house has managed to pay a dividend every year, but it hasn't been raised since 2018. Looking at the last 10 years, the average dividend growth rate is nevertheless a solid 11.6 percent. The current dividend yield is 0.6 percent. It remains to be seen whether or when Hermès will raise its dividend again, but in my eyes, the payout ratio of just 34.3 percent would certainly allow for it.

Conclusion:
Hermès International has an interesting history behind it, and I'm extremely optimistic that it can continue just as successfully in the future. If you want to add a certain touch of luxury to your portfolio, you should take a closer look at Hermès stock. Pure dividend investors, however, will probably be happier with LVMH, another French luxury company.