Hermès has potential to surpass LVMH’s flagship Louis Vuitton in the coming years as the luxury industry’s biggest brand by turnover, according to Citigroup Inc. analysts.
The Birkin bag maker’s sales are set to hit the “symbolic” €20 billion ($21.3 billion) level by 2027 or before, Thomas Chauvet wrote in a note dated April 12 — a milestone that the Louis Vuitton fashion label reached in 2022. Hermès generated group revenue of €13.4 billion in 2023.
“Hermès enjoys one of the most predictable growth, margin and cashflow profiles in the luxury industry,” said Chauvet. The analyst highlighted the French firm’s pricing strategy, which ranges from affordable to ultra-luxury, its control over distribution and opportunities to grow in categories beyond leather such as ready-to-wear, watches, jewellery and tableware.
While there have been concerns over a slowdown in demand for high-end items following a post-pandemic boom, Hermès’ shares have outperformed fellow luxury goods stocks with a 20 percent gain so far this year. A gauge tracking the industry is up just 6.8 percent over the same period, while LVMH has risen 8.2 percent.
The stock gained 1.8 percent Monday, taking it closer to Chauvet’s price target of €2,350. He has had a neutral rating on Hermès since initiating coverage in 2020.
Hermès is considered to be more insulated from an industry downturn, due to its exposure to very wealthy clients and a unique business model which is driven by scarcity. The company is due to give an update on first-quarter sales on April 25.
Conglomerate LVMH is the world’s biggest luxury group, with its 75 brands making products ranging from handbags to Champagne. HSBC analysts have estimated that Louis Vuitton alone generates around 50 percent of LVMH’s profitability, and accounts for 26 percent of sales.
By Kit Rees
Learn more:
Case Study | Inside Hermès’ Best-in-Class Leather Goods Strategy
How a unique approach to supply chain, design, communications and retail has powered blockbuster demand for iconic bags like the Birkin and Kelly, enabling the French leather goods house to face down rivals and become a global megabrand with a market capitalisation greater than Nike’s.
Disclosure: LVMH is part of a group of investors who, together, hold a minority interest in The Business of Fashion. All investors have signed shareholders’ documentation guaranteeing BoF’s complete editorial independence.
