Quietly and diligently, the family behind Hermès has become one of the world's richest, to the tune of more than $25 billion. They've done it not only by selling beautiful luxury items but also by selling aura as beautifully as any company on the planet
Axel Dumas, sixth-generation scion of the Hermès luxury goods dynasty and since February its CEO, has a secret. Sitting in his tenth-floor office with a glittering view of Montmartre, for an appointment that’s taken weeks of negotiations, Dumas is four days away from replacing Christophe Lemaire, the highly regarded designer of Hermès’ important ready-to-wear women’s fashion line.
So what does the 44-year-old chief executive want to talk about? “The main strength of Hermès is the love of craftsmanship” is the first thing he says in his accented but fluent English. Ten seconds later: “We see ourselves as creative craftsmen.” Thirty minutes in: “The philosophy of Hermès is to keep craftsmanship alive.” After two hours, Dumas is still holding back on the granular details, no matter which way I ask, of how Hermès has emerged as the most ascendant company in the $300 billion luxury market. No guidance on the art of selling everything from $94,000 crocodile leather T-shirts to $1,275 beach towels.
And certainly nary a hint that Dumas would imminently replace Lemaire with Nadège Vanhee-Cybulski, the 36-year-old design director at The Row (the couture clothing brand run by the Olsen twins), even though he knew that I would soon find out along with the rest of the world.
But all this obfuscation and secrecy, perversely, also drives home what has prompted Hermès’ stock to shoot up 175 percent over the past five years. Indeed, on Forbes’ accompanying list of the world’s most innovative public companies, the 177-year-old Hermès is ranked No. 13, ahead of companies such as Netflix, Priceline and Starbucks. The list, determined by measuring which companies trade at a level incongruous to their underlying financials and assets, measures each company’s market-tested premium for innovation. Dumas’ high-flying stock, accelerated by LVMH’s apparent interest in a takeover several years ago and a thin float, doesn’t rely on the technological efficiencies that drive so many others on this ranking. Nor is it propelled solely by his endlessly repeated “craftsmanship”, though that’s certainly an essential underpinning.
At Hermès, any lasting premium derives from mystique. After all, selling a commodity ultimately boils down to one thing: Price. But selling beautiful objects that people don’t inherently need? That requires a more complicated formula that Hermès has mastered: Last year, the company set a record, reporting an operating profit of $1.69 billion with $5 billion in sales—the fastest-growing company in its industry over the past six years, fuelled by a sort of branding and marketing craftsmanship as exacting as the stitching on one of its iconic Birkin bags.
The payoff for this softer kind of innovation is enough to make a social media startup founder blush. In examining Hermès’ ownership structure, Forbes estimates that at least five family members now belong on our global billionaires list. And the collective fortune for Dumas’ family now tops $25 billion—more than the Rockefellers, the Mellons and the Fords. Combined.
The creation of one of the world’s great wealth machines, built within the kind of sprawling family structure that tends to stifle innovation rather than spawn it, boils down to three dates.
The first one traces back to 1837, when a leather-harness maker named Thierry Hermès established a shop in Paris. To the beau monde who relied on equipage for travel, the quality and beauty of Hermès bridles and harnesses were unrivalled. Thierry had only one child, Charles-Émile, who moved the business to 24 Rue du Faubourg Saint-Honoré, where it remains to this day. Charles-Émile, in turn, had two sons, Adolphe and Émile-Maurice, who transformed the business into Hermès Frères. But eventually Adolphe believed the company had a limited future in the era of the horseless carriage, leaving Émile to carry on. Émile had four daughters (one of whom died in 1920), which explains why no one involved in the family business is named Hermès. It’s those descendants—the fifth and sixth generations—who control the company today.
This is how Hermès celebrated its first women’s runway show in the US. Much as one might want to congratulate the marketing department for the sensory overload spectacle—down to taste (champagne was served from a “bangle bar” shaped like an enamel Hermès bracelet) and smell (white-gowned ingenues proffered flowers scented with the brand’s latest fragrance, cooing, “Would you like to smell Jour d’Hermès Absolu?”)—that would be impossible: Hermès doesn’t have a marketing department.
It also represents the highest order of Dumas’ fabled craftsmanship. When I visit the six-story workshop in a Parisian suburb, I watched French leatherworkers, who must have at least three years of training before ascending to Birkin duty, hand-stitch each crocodile and goat-skin leather seam with two needles and beeswax-covered thread, and hammer the tiny rivets that attach the clasps to the leather. Vertically integrated leather, no less: In another example that defines a different kind of innovation, Hermès purchased two crocodile farms in Australia in 2010 and an alligator farm in Louisiana to supply the finest skins.
(This story appears in the 03 October, 2014 issue of Forbes India. To visit our Archives, click here.)