A Luxury Leader Shies From an Unwelcome Suitor

In the world of luxury brands, Hermès International has cultivated an image of purity by remaining true to its roots, shunning the mass production and outsourcing that many rivals have employed to improve profitability. Lately, however, it has been attracting attention less for its expensive silk scarves and artisan-crafted handbags and more for the unwelcome approach of Bernard Arnault, the head of LVMH Moët Hennessy Louis Vuitton, the luxury goods giant. As he has often done, Mr. Arnault, one of the world’s wealthiest men, came in quietly, surprising the family-controlled Hermès last month with the news that he had acquired a 17.1 percent stake. LVMH said its objective was “to be a long-term shareholder of Hermès and to contribute to the preservation of the family and French attributes which are at the heart of the global success of this iconic brand.” Nevertheless, many analysts, having watched Mr. Arnault assemble his empire, say they believe he would like nothing more than to have Hermès as another trophy. By whatever measure, Hermès seems to be thriving, posting 289 million euros (about $390 million) in net income last year. Sales, which held up during the financial crisis better than those of its rivals, rose 25 percent in the first nine months of 2010 from 2009, and are on track for at least 2.3 billion euros for the year. The stock is up 51 percent this year. Patrick Thomas, chief executive of Hermès, argues that the company must remain independent to pursue its focus on craftsmanship and creativity. “We have adopted a strategy of the ultimate quality, the value strategy as opposed to the volume strategy,” Mr. Thomas said during a recent interview. “We’ve never been tempted by mass-market techniques because it’s not part of our culture.” Mr. Thomas is the first nonfamily member to run the group. He assumed the title of chief executive in 2005, after Jean-Louis Dumas, the fifth-generation family leader, stepped down. Mr. Dumas’s son, Pierre-Alexis Dumas, is now the company’s creative director. Some companies have chosen to follow a “financial strategy,” growing through acquisitions and putting together as many good brands as they can under a single roof, he said. Only a few operate similarly to Hermès, including a handful of Swiss watchmakers and some makers of fine spirits. “But Hermès is sort of a unique exception that has managed to grow and still stick to its roots,” he said. Manfredi Ricca, managing director of Interbrand Milan, a branding consulting firm, said that Hermès seemed to have found the right balance in its strategy. By virtue of a “very focused, very cautious” approach to growth over the years, Mr. Ricca said, “Hermès is probably the quintessence of luxury today, in the sense of the purity of the brand, in the way the brand has preserved its meaning from the origin.” Founded in Paris by Thierry Hermès in 1837, Hermès began life as a harness maker, later evolving into a saddle maker. In the 1920s, with the automobile era in full swing, Émile-Maurice Hermès, grandson of the founder, introduced couture accessories and broadened the array of leather goods — which still make up about half the company’s sales. Trendsetters like Princess Grace and Jane Birkin have helped over the years to bolster the brand’s appeal, but Hermès has managed to stay relevant, even edgy, by constantly introducing new colors and materials while maintaining its attraction to traditionalists. Today the company employs more than 100 designers, and its roughly 3,500 craftworkers make about 85 percent of the products sold in its stores. Its products are sold at 313 exclusive stores and 21 other outlets worldwide. The reputation for handcrafted quality comes at a price. A Birkin bag can easily cost more than $10,000 — if one is available. The company’s scarves, neckties, clothing and watches and jewelry are comparably priced.