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STRATEGY CASE March 23th, 2009 Professor : Dorel PARASCHIV

A FAMILY COMPANY History and timeline of diversification and Brand spirit building
Founded in 1837, Herms, was a company of harness and saddler, today his principal activity is in piece of luggage and leather goods.
Context
1878 1902

Diversification
first bag (model precursor of the Kelly) Haut Courroies High international clients: Kings of Romania, of Spain, Emperors of Japan, Russia, Presidents of France, Perou, Philippines, names in finance, in Industry, in politic. pieces of luggage and leather goods because anticipate the development of car industry development in USA and Canada

Location
24 rue du Fbg-Saint-Honor conquer international markets: Germany, Belgium, Poland, Russia (Nicolas II) purshasse of the leither in USA and CAnada Take over the big English saddlers installed in Paris Metamorphose of the familial firm in a store with a wide corner window Close new York store Some years leater new stores: Cannes, Deauville and Biarritz.

Image- art - creation

1837 After 5 generations Thierry Herms comes to Paris to offer his family expertise of saddlery makers.
Charles-mile Herms Hermes frre 70 80 ouvriers cosmopolite prestige First war Emile Maurice went to USA beginning of the automobile industry

1880 24 faubourg St Honor: Opening the first famous POS. Ssupplier of the European Royal Families

191418

style: the cousus sellier

1918 The start of the spirit: Emile Hermes, Mr Vif Argent opens new horizon : the world in mouvment
191926 192938

Economy slump

193945

The Hermes Family is refugee in Cannes Occupation And Liberation

For new way of life: inedited accessories for travel, sport, car Exclusivity on design innovation=>first patent and first introduction in France the sliding faster: Hermes exclusivity Diversification an rebound on crisis: cult pieces until now, the Kelly and others : sac de dpches economies of means : the cult leather agenda make with scrap. Way of life luggage design for : Elegance on liner travel ; Trend of yachting ; Car comfort Renew of use of precious and historical material: The cult Carr Herms made of the silk used for the jockeys blouse A humour spirit within difficult period: inspire square name Le Retour la terre, la gloire de la cuisine franaise. Ingenuity face to shortage of colouring and rarity of silk: rediscover linen, wool, raffia the leather stay orange, color adopted on boxes associate with the bolduc. + logo duc attel . Follows the evolution of the way of life : women close for bicycle : divided skirt, shoulder strap bag. Diversification: The Herms Tie An attractive place for celebrity : Grace Kelly, le Duc et la Duchesse de Windsor, Ingrid Bergman, Jacky Kennedy

beginning of link with art private collection, inspirate designers Cult pieces

5 workshop dedicated to the sewing (dressmaking)

visual identity is building

1950 Diversification of products: Robert Dumas and Jean-Ren Gurand (genders of Emile)
195060

Robert Dumas-Herms Jean-Ren Gurand (genders)

Shops window attract the celebrity were meting with Set in scene

R.Dumas the illustrator of silk square, A.Beaumel decorator of window

1978 a world-wide distribution network conducted by Jean-Louis Dumas (5th and 6th generation of Herms Family) 1993 Introduction on the Stock Market: but still 73% ownership by Herms Family.
2003

Crisis

Plan investments: distribution and production capacity of the leather+ Innovation logistic

International distribution network

2006 Patrick Thomas New CEO continuity of the strategy with a re introduction of design and creativity

A unique family companys project


Economic strength, Profitability as guaranty of the independence, Visionary strength found on knowhow of exception and on the creativity and the diversification

Organization chart & Ownership


Supervisory Board -Patrick Thomas and Emile Herms SARL (represented by Bertrand Puech) Executive Committee -Patrick Thomas (grant) -Christian Blanckaert Managing Director, Intl Affairs -Patrick Albaladejo Associate Managing Director, Strategic Development and Corporate branding -Guillaume de Seynes Associate Managing Director -Mireille Maury Managing Director, Finance & Administration -Pierre-Alexis Dumas Artistic Director

The structure of the company allows the family to keep the perfect control of the brand, in privileging its positioning on the long-term, even they have to forecast a slow down in the short-term Clmence Bounaix,
Richelieu Finance.

The advantage is the long-term vision support by the 6 members working at a decision level on 40 family shareholder members.

ORGANIZATION Holding around 30 companies (Production,


distribution, real estate...) - Leather goods - saddlery: Herms Sellier; AvrilMorio & Patte; Maroquinerie de Sayat; Ganterie de Saint-Junien; Gordon-Choisy; La Manufacture de Seloncourt; La Maroquinerie Nontronnaise; Manufacture de Haute maroquinerie; Maroquinerie de Belley; Maroquinerie des Ardennes; Nehel - Textile: Holding Textile Herms HTH - Watch: La Montre Herms - Perfumes: Comptoir Nouveau de Parfumerie - Table Wear: Castille Investissement - Shoes: John Lobb, JL & Co

Herms International owns (in%, 2007) :


Gordon-Choisy 100 exotic tannery Soficuir International 99,99 on which Tanneries des cuirs d'Indochine et de Madagascar Maroquinerie Thierry 47,79 Perrin & Fils 39,5 Jean-Paul Gaultier 35 Vaucher Manufacture Fleurier 21,5

BRAND VALUES AND CORE BUSINESS The core competences


Conception, manufacture and distribution of prestigious luxurious products. Almost 200 hundred years Expert in noble material and know-how:
The ton is given to the creation within the companys activities with an annual theme. - Union of traditions and design - Association of know-how and exceptional materials

An historical and long-term strategy of value


2005-2008: Strive towards a strategy based on the creativity, the quality of the product and the reinforcement of the know-how and the art carft spirit in each of his activities. 2009: A long-term strategy, based on the mastery of the know-how and the control of the distributors network (applied despite the recession) Annual report

LUXURY MARKET OVERVIEW 3 criteria of positioning in the luxury Market


There is no universal definition of the luxury on the point of view of the consumer. Material value: quality of the product, rarity, performances, finish Immaterial values: image reinforces positioning Consumer distance: not accessible for all, by his price, his selective distributors network The Kelly bag is an icon object of high range product: very high material value, high immaterial value, high consumer distance

Competitors?
The competitors? Its not a topic. Hermes is not positioned regarding the others because we broach the product creation, in each know-how, with our own meaning and with our history. Pascale Mussard
(art director in 2006)

9 attributes fundamental to the business of luxury


Beauty Creativity Uniqueness - Truth Bravery Responsibility - Attention to detail Simplicity - Playfulness

The luxury market is in a competitive system of specialization


The intrinsic characteristics of luxury product are their customization The fundamental values of each brand are the way of customer loyalty and the differentiation is mandatory. Luxury brands are more sensitive to reputation damage, because a greater proportion of their brand value is derived from empathy and trust. The competition was emphases in the 90s The means needy to face to the competition (communication or distribution costs) have lead to a concentration of those brands in big group who dominate the market. 40 brands with international reputation are competing with a large range of product (variety).

Groups: LVMH: Vuitton, Givenchy, Kenzo, Lacroix, Celine ou Gucci Gucci Group: Gucci, Yves Saint Laurent, Stella Mac Cartney, Alexander Groupe Prada : Prada, Helmut Lang, Jil Sander, Miu Miu Mono-brand company: Hermes Chanel, Versace, Armani

Extension in Asia
In Tokyo, 94% of women in there twenties own Louis Vuitton bags. Hong Kong hosts more Gucci and Herms stores than New York or Paris. Chinas luxury market is set to become the worlds largest within just six years.

Global strategy trend of the luxury


An important part of the role of luxury products was to confer on their owners an air of success : a strategy of democratisation with an access luxury opposite to the Hermes strategy of prestige luxury

Market positioning
Turn over 2006
The leader, LVMH

Domestic market

International market

Domestic market

Herms is highly exposed to the international market

The luxury face to the crisis: some data


The sale in own shop are quietly maintained The sales in the indirect distributor: 79% of the market falls of 15% Certain product categories suffer more: arts de la table or watches. The most exclusive products should better resist Luxury as industry is young (20 years): Marge of progression can be expected on long-term

PEST : Bad trends for luxury market


China: engine for luxury goods

LVMH a high distance leader Change risk gets higher Activity fall down

New trend in societys value emphasis with the crisis


Source Marival 2009

as markets mature, they will become more discriminating and people will want more true luxury rather than pseudo luxury Michael Burke, chief executive of
Fendi

To continue to thrive in maturing new markets, luxury brands will need to offer deeper luxury, with social and environmental excellence built in. A new tend of the definition of success is becoming. Successful people want to show that they care about environmental and social issues. Asian luxury gurus Radha Chadha and Paul Husband
describe how tastes are maturing towards interest in luxury lifestyles.

Western existentialism In a world that seems to worship speed, going a little

faster is not a luxury, Being able to go a lot slower is the luxury. futurist Charles
Leadbeater.

only the brands that show deeper meanings and foster simplicity in creativity will thrive need a concrete and morally right background story to endorse a brand industry consultant Uche Okonkwo. In a period of financial crisis, revive for all things an instinctive desire of authenticity whom bring back at its just value an amusing showy stuff Paul
Iribe in Dfense du luxe 1932.

We used this quotation to show how the value survive with time and so how what the sustainable trend ask for deep and authentic value is a normal variation of time write in the genetic of Hermes

FINANCIAL HIGHLIGHT Growth


Herms: 1764 Millions turneover (2008) 1st quarter growth : 0.8 % Expected growth 10% 14 SBA. 7,455 employees. Growth Sales % EPS % Dividend % 1Year 7.27 8.20 5.26 Luxury Market: 110 Billions Turnover (2008) Expected growth 2009 : 0 5%

3 Years 6.87 11.75 14.47

5 Years 5.52 6.84 12.70

Income statement (3rd quarter 2008)


In Millions of
(except for per share items) Period Length Period Length Period Length Period Lengt Period Leng

2007
31/12/2007

2007
30/06/2007

2006
31/12/2006

2006
30/06/2006

2005
31/12/2005

Constant growth of revenue : 2006 -- 7.8% 2007 -- 18.3% 2008 -- 10.2%

6 Months Revenue -Total Revenue Cost of Gross Profit Operating 318.6 585.4 237.9 243.4 79.3 Net Income 164.1 (2.9) Equity In (1.3)

6 Months 721.1 -721.1 252.0 469.1 185.8 192.6 64.5 128.1 (2.9) 2.9

6 Months 814.4

6 Months 700.5 --

6 Months 778.3 -778.3 271.9 506.4 212.3 210.1 73.2 136.9 (2.3) 3.3

814.4

700.5 244.4

533.9 216.5 227.3 72.5 154.8 (2.4) (1.5)

456.1 184.6 187.6 63.7 123.9 (2.0) (4.4)

This Growth is sustained by Operating revenue (sales = cash)

Net Income

Sce: Reuters/Hermes International/income statement

Financial stand point :


Regarding a constant growth both in sales (activities) and in dividend, today Herms is the 2nd biggest Luxury company in terms of capitalization. Thanks to 25.5% operating margin and maintaining stability of change rate.

Shareholders highlight: Exceptional shareholders administration


The capital of the society is locked by the founder family which detained 73 % of share stock (Share buyback Program of 50M in 2008 ) Analysts estimate Hermes share as a defensive value meaning an excellent dividend and limited variation of quotation. Ownership: A strength : for a family run business. Face to the speculation Hermes asserts its independency. A weakness: that deprives partly the title of speculative attraction Price of shares: 82 Number of shares: 106125524

PORTFOLIO - ACTIVITIES Hermes activities turnover

2007 Silk & Textile Leather goods & saddlery Clothes & accessories Others Distribution: Hermes Shops Perfumes Watches Tableware Distribution: specialized shops Others
TOTAL

2008

Growth

Growth on constant

Box for focus comments

192,7 675,0 315,2 85,6 113,9 104,7 50,7 274,3 82,3 1.625,1

173,5 663,7 293,7 77,1 100,7 110,1 44,5 255,3 51,6 1.514,9

11,1 % 1,7 % 7,3 % 10,9 % 18,1 %

16,1 % 7,7 % 13,1 % 16,2 % 10,8 % 19,8 % 0,7 % 17,0 % 11,1 % 61,5 % 12,5 %
Box for focus comments

1.268,5 1.208,0 part% Sandrines 5,0

(4,9 %)
13,9 % 7,5 % 59,5 % 7,3 %

Box for comments

Hermes portfolio BCG Matrix


P u t er

Market Growth

Q S

CEO Patrick Thomas long-term vision at 15 years

Growth

eOthers a s r D C T
a

Leather goods & saddlery Silk W at Clothes & s g Accessories

Our strategy will be a strategy of value, not a strategy of volume, we are not in the mass luxury. We want to avoid the banality, in maintaining the financial growth. We preferred extend the territories of the brand, in table wear, in watches for a most of possible diversified offer and make the client surprised with.
Patrick Thomas, CEO Herms International juin 1988

o a

s h Market Share

Portfolio management: long-term strategy from dog to star


2000 Herms ask the pertinence of keeping a perfumes unit. 7 years later at the moment of the launching of the Kelly Calche perfume, this division is star in the portfolio. Opposite to the big competitor groups where the perfumer are usually solicited Hermes works with its own perfumer since 2004. And the success is building by following the values of Hermes: use thematic, follow the identity and past of the Brand, limited the number of launching to perpetuate the product range.

40.000 new ref. by year (most in leather goods) ; Kelly bag: 1.800 ref.

Others is hiring a galaxy of stars born with the product innovation, diversification and customization
This dynamic is boosted by the strategy who have reintroduce the marriage of creation and design with the tradition. And its support by a constant production investment allow high variety, constant product innovation and diversification until customization like special punctual order is star in the portfolio.

New CEO Patrick Thomas vision in 2006


Boost the creativity in keeping the positioning of a prestige luxury
Until 2006: 1% in pure innovation, 3% in creative process (lifting of the portfolio). - Boost the creativity of "the house", in keeping the positioning of a prestige luxury - Intensify the presence in Asia (apart Japan) and in United States. - Support the growth of the demand by an increase of the production capacities - Contribute to the emergence of the follower familial managers

THE 4 Ps PRICE
- Vertical integration from conception, manufacturing and distribution - Production cost: cost is not the reference point : Mastering the cost of raw material (acquisition of suppliers) - Selling price: uniformity of price in the various geographical zones - Price = Value - Operating margin: 25 %

PRODUCT
- Core business: based on saddlery makers extended to the theme of Transportation & Travel (leather: 42% of the turn-over, cloth & accessories: 19 %, silk: 12 %...) - Expert of noble material = possibility to create and enlarge the product portfolio = less dependant on 1 category of product demand. - SBA: silk, leather, art of living. - long life product cycle

PROMOTION
- Low volume of product advertising communication - Higher effort of Corporate Communication through rich content events and Herms Foundation. - Launch of Corporate e-commerce web-site in 2007

PLACE
- Distribution network: 78 % of turnover generated through Hermes fully owned shops (79% for non private circuit for competitors). - 267 exclusive shops: - 41% in Euro-zone, 24% in Japan and 15 % in the U.S for main markets

COMMUNICATION AND PRODUCT Communication: singularity and focus on product and renew without touching the fundamentals
We are not in fashion, but in a house, where we cultivate the respect for the client, the sharing and the sensibility Philippe Chanet 2007 Focus on product, singularity in being worldly understandable, same message of making the people discover a singular universe and never imitate any one, same creative axe to tell simple stories, poetical, to give the desire of entering in the Hermes universe, always use the brand codes, play with them. Philippe Chanet 2007
Communication budget doubled in 4 years to 105 millions Euros, will rich 6 % of the turnover in 2009 with an objective to 7 % (Starbucks who focus on the product and services quality have a 1% budget)

Marketing specificity
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The marketing didnt really exist in Hermes: Be born art craft man, its know to stay to the service of his client Emile Hermes Opposite to LVMH or to PPR, who stake a lot on the marketing, Herms aim at only the excellence of the product. Their production cost doesnt matter Bernard Malek, du cabinet de conseil en stratgie Roland Berger.

Operation of patronage for the contemporary art


"A manner of create a bridge between creation in art and creation in art craft design Hermes Art Director Fin 2007
"H Box" of Hermes, an itinerant module within the World museums to present video Art + exhibits his commissions in a network of galleries

Operation: linked innovation, design and know-how


First Emile Herms Prize: 700 designers professional, student and self-taught compete to allow Hermes to discover new design talents.

Preservation of the now-how capital, active formation Policies


The notions of transmission, education and creation are the art of the Herms identity 2008 Yamini Kumar, Hermes communication director
- Exclusive partnership with two professional secondary school (since 1999) liked each with a specific workplace for developing the specific need of Hermes in know how in fine leather craft. - Workforce: a strong integration of know how, a reinforcement in production and sale 2000-2004: 1000 hiring with formation actions ; 2004: 5 871 (new 277) ; 1990-2006: 1050 new artcraft men (14 knowhow); 2006 : 6 825 (new 675) 2008 7 894 (new 439 on witch 263 in France); 2009 forecast: new 200 - Punctual collaboration with masters of the creation 2008 Le sac Yohji d'Herms: sketch by Yohji and made by Hermes, a cross style of both 2008 one time supply Inglass: glass support for the Hermes Watch La Montre Herms 2009 leather worplace designing by the architect Patrick Berger, Equerre dargent 2005 and Grand prix national darchitecture en 2000

Operation design
For the 60 years of the 2CV in the world salon of cars 2008:, the mythical car of the common people, the symbol of the democratisation was made by Herms a custom interior design on one unique model of 1969.

Image strategy expressed in distribution: innovation art design history


2007 quartier rsidentiel de Soul, 3000m2 sont ddis au magasin et l'Atelier Herms L'union de la tradition et du design pour ancrer une forte identit dans un univers ultra moderne, une approche hyper luxueuse du concept store la franaise. En plus de la boutique et du sige social, runit un muse (exposition de Daniel Buren intitule "Filtres colors" un travail sur la lumire naturelle et la transparence + des troncs, dans des vitrines crins, objets, photos et films retracent l'histoire du sellier : Le patrimoine ), un caf de lecture, une bibliothque (250 books on horse),.

En chine sur le territoire des muses d'art avec ses foulards Une
exposition d'art permet de montrer les valeurs de notre marque mieux qu'une
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campagne d'affichage publicitaire en ligne avec la stratgie douverture lart et la cration.


Mars 1988 Exposition The Tale of Silk au Today's Art Museum de Pkin: un mix tonnant, parfois dtonnant, entre industrie du luxe et art contemporain, entre influences occidentales et traditions chinoises, entre histoire du luxe et avenir de l'art avec des installations, danse, peinture, vido mlant artiste contemporain amricain et noms de la scne artistique chinoise

Operation: sustainable design against aids


2008 "Life in a pocket" tie with a condom pocket to encourage people protect themselves

Communication operation: sustainable


there is a trend in a charity for just golden his image with Herms its not a question of image. The Brand is positioning in back on profit of the actions. Give a festive dimension festive at this project, far from the discourse of mortification and culpability who are killing the dynamic of a charitable action. 2008 Yamini Kumar, Hermes communication director
Fte de la Couleur UNICEFpartnership for the 19th anniversary of the Journe Internationale des Droits de lEnfant by ONU: collect fund for school in poor countries. Animation: children have made drawing (within pictured by Bettina Rheims) and exposed in the Museum of lOrangerie .

An operation is hiding another: from prestige to sustainable


A communication operation based on authentic action who support brand prestigious and authentic values. This elegant discretion of the communication serve the brand value but we recommended to increase quietly democratically the communication 1 - to allow people in crisis time to see a way to access to the dream 2 - to educate people against counterfeiting 3 - to give an alternative solution to the ebay system who encourage counterfeiting. 4 to make better know the sustainability of Hermes 2007, special creation of an only Kelly bag with a serigraphy of Grace Kelly in 1954 for the exhibition Les Annes Grace Kelly to Grimaldi Forum Jun 2008 the only Kelly bag with a serigraphy of Grace Kelly was sale in auction at the "Herms vintage" for 52 000 euros goes to help Fight Aids Monaco association to build a Maison de Vie in Provence (Princesse Stphanie de Monacos association)

Hermes Vintage: bidding for an accessible dream


Organized by Artcurial for 12 years. This is an inescapable appointment for collectors and Hermes lovers in the World. More accessible prices from the square of silk at 60 to the bag at 4 000

Cristies bidding : the vintage prestige


Dec 2008 Pour sa vente aux enchres annuelle la prestigieuse maison Christie's propose une collection de 23 sacs vintage Hermes

e-commerce deployment strategy


I dont know why we shoul rush on what is moderne, is trendy We dont want to be demagogue and say anywhat on Internet. We have to keep part of the mystery Christian Blanckaert, VP Hermes Internationnal 2008 Put ourself at the client side provide a fair service, plutt rather than create a new source of business Charles-Henri Leroy, Director of Client Relation Herms International, 2008

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- a supplementatry service in the processus of the client purshases ; a stong care to the usability of the site and to the logistic, a special attention to the packaging and delivery (3 h in Paris), a custom offer (initials on leather agenda). - complementarity offline /online - local product line

PRICE AND PLACE Management of the devise effect


compensated by productivity and price rising : 6 % in United States and 8 % in Japan. But they dont want to go too far because the Birkin bag is selling 1 million of yens, (6.500 euros).

VERTICAL INTEGRATION : Strategy of organic growth and innovation


The organic growth is a long-term strategy essential to Hermes finance its investments

Distribution channel development


Strengthen the commercial presence on the overseas markets

Innovation :
Develop the activities under represented in the portfolio of the group

Increase in the capacity of producing

Herms International Strategy


Organic Growth

Increase sales and answer the increase of the demand

As part of its strategy of welcome in the group Masters of know-how of exception to consolidate its expertise or secure supplying, perpetuation subcontractor, control the quality on vertical: Acquisition of emblematic brands, artistic know how, innovative technique or small long-term suppliers, raw material suppliers
Invest mainly in the reinforcement of its distribution network and its production capacity 2008 : Investment 150 millions en 2008, 70 millions in network of direct distribution (focus is in China) and the other main part for capacity of leather goods production

Operational strategy: optimisation of logistic


2003 investment IT solution for the logistic allows: 25 000 items perd ay and 1000 sendings Operational strategy combining logistic performance and preserving company values.
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- Optimize the preparation of the ordered: multiply by 3 the storage capacity, reorganize flux - Manage the quality: reorganizing the logistic process 2003 Accelerate investments: +57,5 % and + 11 % of supplementary production capacity 2003 New logistic and quality control platform Infolog in Paris area to serve the entire world and prepare his international development 2003 extension of leather workplace 2003 building 2 leather workplaces (300 hiring in total) 2003 hiring/formation in leather within 2/3 years: 200 people 2003 acquisition of tanner 2003 interests reinforced in leather companies

Quality, reactivity and flexibility of the production capacity


face to the competition of emergent countries we have to increase the flexibility who allows us to switch quickly from a motif to one anoter, from a taffeta to a satin. Olivier Fournier, directeur gnral 2005 This acquisitions have been made in the aim of perpetuate our suppliers and with a voluntary policies of commercial development. Olivier Fournier, directeur
gnral. 2006 owner 25% of high horlogy Vaucher Manufacture 2006 acquisition textile photoengraver Marcel Gandit, subcontractor since end of 40s for HTH 2006 acquisition printing on silk square : studio Gandit de Bourgoin-Jallieu

This acquisition will enable to meet robust demand for leathers goods products, particularly in crocodile skin. And will rich 73 millions d'euros turnover on this erea 2007 Acquisition of Soficuir International in witch Tanneries des Cuirs dIndochine et de Madagascar , already held a 49.6% supply and tanning precious leathers, primarily crocodile skin. 2007 fusion tanning of exotic leathers Soficuir and Gordon-Choisy (alwrady subsidiary) 2008 owner 45% of fashion designer Jean-Paul Gaultier (35% since 2003)

These investments more affective than rational maintain the myth


2007 acquisition Shoes: John Lobb 2007 acquisition Silversmith: Puiforcat 2007 acquisition Crystal: Saint-Louis 2007 acquisition Weaving: Perrin & fils. 2009 vertical integration and creation working together for a strategy apply until the production facilities Project of innovating new leather workplace allowing to operate a complete cycle : reception of the tanned skin, processing, transforming by hand. For the La maroquinerie des Ardennes , third local subsidiary in Hermes. The building of 5.000 m2 is designing by the architect Patrick Berger, Equerre dargent 2005 and Grand prix national darchitecture en 2000

Sustainable policies in production


2002 to 2006, decrease of 41 % of water consumption in context of continuing growth (used in silk square printing) 2007 creation of a network of environmental managers by activity: leather, textile, perfumes and logistic.
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2007 Discharge of gas effect divided by 20 favour by the Soficuir know-how Our ambition is never more transport the raw skin of alligator Francis Chauveau, directeur gnral in charge of the industrial issues Herms. Tan in original place (USA) they weigh 10 times less , are less bulky and dont need to be cool, then they transportation are less polluting.

Network of distribution and internationals redeployment


2006: 206 exclusive stores (38 indirect distribution) 2007: 267 stores (new 15) 2008: United States and Asia, focus in China (forecast 40 in the 3 or 4 years)

OPPORTUNITIES AND THREATS

Porters 5 forces Analysis Threat of new entry Luxury market is a mature


market Concentration in few groups Distribution channel is locked

Supplier power Vertical Integration No bargaining


power Internal growth Supplying discrepancies

Buyer power No bargaining Competitive Rivalry


Growth on core business Economy of scale Risk of change Advertising level power Low volume High income target High brand values

Threat of substitution low propensity to substitute Know-how --- core competencies Distinctive image of Hermes brand

Opportunity: rapid growth in leather industry


Growth turnover 6 %. 7,4 millions bags made in France 2008 Herms and Louis Vuitton dominate the sector with 10 workplaces each in France, making work a lot of important subcontractors.

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Opportunity in the emergent markets


The emergent countries represent less than 20% of the world market: $175 billions 2008 After the crisis we can expected a growth with two figures due to the growth of people with high revenues, the access of the woman to the work, development of the luxury product for men and economic growth on long-term. http://www.e24.fr Marc-Andr Kamel, associate to Bain & Co According to these following recommendations we see that Hermes was for a long time in this strategy policies - Focalize on understanding the clients segments for a better targeted offer emphasis the differentiation (niche market strategy) - Concentrate on the organic growth by consolidating the direct distribution, emphasis the formation policies to improve the quality of the services. - Work and the cost management, a long-term suppliers relationships

how luxury market face to the decrease in Japan : combination monetary crisis, economic crisis
Until 2006 Hermes had a growth of 15 % with the strong decrease of the Yen in 2006 the turnover as growth only of 2% and at that time 27% of the turnover of Hermes has done in Japan. Hermes model allows them to resist with a growth of 5 %, during that the most other brands are decreasing. In Japan the specificity is to have middle clients compare to USA where they are wealthier. And the population will decrease. All the luxury try a strategy of delocalizing investment to China and reinforce the direct retrail (Hermes to Ginza, Gucci to Tokyo and Vuitton to Nagoya) Again with a differentiating strategy Hermes is trying a series of actions and thing that this could be made them consider this market like a laboratory.

Opportunities of improving social and environmental performance as part of deepening their luxury offering
over consumption is no longer a signal of success and that it is being replaced by conspicuous abstention. WWF-UKs Sustainable Business and Markets team
1. Operational efficiency gains. 2. Enhanced employee relations, making for easier recruitment, more motivated and loyal staff, better customer service, enhanced learning and innovation, and higher productivity. 3. More welcoming and accommodating local communities. 4. Enhanced brand reputation and trust. 5. Connections with voluntary associations and networks that generate new market intelligence and enable access to new markets. 6. A more secure and sustained supply of raw materials, provided by more motivated suppliers. 7. Improved relations with the financial sector, including responsible investors and lenders.

Emphasis by consumers on ethics is an enduring trendMore sustainable luxury to be pursued by luxury brands as part of their core commercial strategy R. Michman and E. Mazze.
This eco-awareness sweeping the urban middle classes across Asia, Africa, Latin America and eastern with significant implications for business. Even they are concerned by immediate preoccupations such as the need to escape from poverty and ill health. The luxury industry is calling to bring to life a new definition of luxury, with deeper values expressed through social and environmental excellence. Their performance and progress on environmental, social and governance issues should be comprehensively measured and reported.

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Opportunity for deep value in China


Testimonial Across Asia in 2007 report by WWF-UKs Sustainable Business and Markets team

Environmental responsibility confers social status on individuals, celebrity endorsements of green, long tradition of ecological awareness from its religious beliefs such as Taoism and Buddhism, fortune building on the success of his solar power company In China: 76% of the more ostentatious nouveau riche segment said they would pay more to buy natural healthy foods

In China: luxury products are not conducive to harmony mayor of Beijing


Luxury be more socially acceptable in societies of high inequality by generating more value for everyone involved in (or affected by) its manufacture and supply; by preventing irreparable damage to the beauty and biodiversity of the global commons; and by developing processes, techniques and materials that are consistent with the demands of sustainable development.

Change Of Strategy To Combat Counterfeiting


A well planned education campaign might be a more effective riposte to counterfeiters? 2007 - Hermes has sued online auction site eBay in the Tribunal. This marks a policy departure for the luxury group in its ongoing battle to snuff out counterfeiting. Up until know, Hermes' policy has been to join suits brought by eBay's disgruntled customers relating to counterfeit Hermes products. It also brings them in line with the policies of other luxury groups such as Tiffany's and cosmetic giant L'Oreal both of whom have sued eBay directly. The problem is that many of the Birkin bags listed on eBay are indeed counterfeit but that not all eBay clients are aware of this fact.

New Business Unit: Intrieur & Design


This re-opening to design, follower to the horses, car, boat design until the beginning was very effective in 2008: - For the Smart cars 10 years anniversary: a limited series with a luxurious interior design sewed point sellier: 38.000 (10 430 1er prix) United States: $48.500 - For the Bugatti Veyron the exclusive car became inaccessible 1.853.800 . - For Eurocopter An industrial cooperation, not a simple communication

operation: to enhance the status of its conceptual, artistically and art craft know-how. A fuse style technology in landmark design. Partnership 5 millions
was bought by an Emirats Arabes Unis company: Falcon Aviation Services With the crisis the car industry is not in good wealth but Hermes can follow: -a strategy of niche with the very high level (ex: Bugatti) -a strategy of deployment (slow: like Hermes know to do) of entering in the Middele Est ( helocoptere) - a strategy of sustainability in working on the new trend of sustainable small electric car for the city (a sustainable smart could be perfect)

Opportunity in mobile and accessories for mobile


"ABI Research forecasts that revenues from luxury branded handsets will exceed $11 billion next year, increasing to more than $43 billion in 2013
aot 2008 ABI research

The luxury brands could rich multi-billion dollars in turnover on the mobile market and his accessories (clutch) in the logic of the consumption luxury as social distinction. (in 2008 Vuitton has launch a range of clutch and screen for iphone, Ralph Lauren launch software for it, Tag Heuer create completely a mobile Karl Lagerfeld conceived an iPod case once for Fendi, and an handcrafted custom trunk from Louis Vuitton (contained 20 iPods, one charger (what just one?), JBL iPod speakers and a subwoofer), to make from four to six months and run upwards of $10,000.
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Even we can find leither clutch hermes for iphone, Hermes is not involved in this erea. A strong reason could be the lake of perfectly high quality (even Iphone are not), but for a certain part it enter perfectly in the tradition of voyage or mobility could be the word. But behind this there is the future development of the Internet of object, where there is more place for the quality control because its not an wearing of a technology but the technology inside the object.

Opportunity of cosmestile: innovation cosmetic design


Holding Textile Herms HTH: department Care and Textile growth of 21% at the end 2007 Intelligent textile of witch cosmestile: bioactive textile . Herms, Guerlain et Dior, Lolita Lempicka, Yves-Saint-Laurent Beaut, Lancaster, Paco Rabanne, Nina Ricci are working with the 130 companies of the Cosmetic Valley (turnover 2007: 2,5 Md) This area where Hermes is already involved could be used to work on a way where design, sustainability and luxury could be imagine to build object with technology or used the intelligent textile

STRENGHTS
-Strong name value -Very strong internal cultural company -Large portfolio of products (less vulnerable to the demand of a certain type of products) -Products are not seasonable -Well balanced distribution on a worldwide basis -Control and quality of the distribution circuit (156 owned shops out of 300) -Suppliers: Long-term relationship and protection of some critical know how. Some include some participation of Herms Group to secure this (ex: Vaucher Manufacture Fleurie, watches -Supply Chain: Iso 9001 and new implementation of processes in 2007.

WEAKNESSES
Replenishment of raw material High exposure to Japanese and American Market Change rate sensivity

OPPORTUNITIES
Distribution network Promotion possibilities New market: helicopter and design. Not fully present on Asian market Internet

THREATS
Luxury market tougher and tougher Holding of luxury group

SWOT Analysis

New Luxury trend ( Internet ) New demand from emerging countries

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OUR STRATEGY Focus strategy: continuity and sustainability I - Production:


-Vertical integration by suppliers acquisitions (raw materials) in order to avoid break in supply chain (leather)

II - Expansion of the distribution network


A/Middle East: high GDP per capita, market trends (long relationship with horses) B/Emerging countries C/Internet: expand eCommerce: specific selection of products and distribution. Introduction of second-hand sales on christies.com

A long-term strategy, based on the mastery of the knowhow and the control of the distributors network (applied despite the recession) Annual
report

Boost the creativity in keeping the positioning of a prestige luxury Strategy based on value and not on volume CEO Patrick
Thomas

III - New sources of innovation


Outsourcing of Design talents: enlarge creative sources on an international cultural heritage and reduce creativity cost in Euro-zone.

IV - Communication
Extend visibility of the brand and know-how (only 3 % of the budget in 2004)

V Sustainable market
Use transversality of Hermes core business to enter RESEARCH and PRODUCTION in new key environment business area (housing, textile,) extend Hermes Design Laureate on an intl basis and especially on emerging markets.

SOURCES :
http://www.strategies.fr/blogs-opinions/idees-tribunes/r49204W/5-l-orange-d-hermes.html http://archives.lesechos.fr/archives/2003/LesEchos/18919-44-ECH.htm http://www.lavf.com/conseil-bourse/Hermes_International_Une_double_strategie_pour_une_valeur_a_surveiller-RMS-0000040373.html Stratgie Herms http://www.att-fr.info/tracenews/Strategie-Hermes.html?var_recherche=conqu%Eate HERMES INTERNATIONAL http://www.ernstrade.com/srd/HERMES.html Herms intgre les partenaires de la Fondation de la Haute Horlogerie - Actualits - News - Fondation de la Haute Horlogerie http://journal.hautehorlogerie.org/fr/medias/actualites/hermes-integre-partenaires-fondation-haute-horlogerie.html Boutiques Worldwide: Herms Ginza (Japon) http://209.85.229.132/search?q=cache:5e2HnaNLBzMJ:luxecie.typepad.fr/photos/boutiques_worldwide/100_0849.html+hermes+japon&hl=fr&ct=clnk&cd =4&gl=fr&client=firefox-a Herms confiant pour 2008 malgr le Japon http://209.85.229.132/search?q=cache:pG1v0s1Jj1UJ:www.aujourdhuilejapon.com/actualites-japon-hermes-confiant-pour--malgre-le-japon3037.asp%3F1%3D1+hermes+japon+2009&hl=fr&ct=clnk&cd=1&gl=fr&client=firefox-a Herms poursuit ses investissements dans son ple industriel textile Archives http://archives.lesechos.fr/archives/2005/LesEchos/19322-103-ECH.htm Proverbio : du carr Herms aux implants chirurgicaux http://www.apce.com/cid67900/proverbioducarrehermesauximplantschirurgicaux.html Textiles : le tissu file vers l'avenir (Montredon - Hermes) http://www.ladepeche.fr/article/2008/06/28/461818-Textiles-le-tissu-file-vers-l-avenir.html Herms lance la H Box, cinma "nomade", bientt au Japon http://209.85.229.132/search?q=cache:HQglJmfMbEUJ:www.aujourdhuilejapon.com/actualites-japon-hermes-lance-la-h-box-cinema-nomade-bientot-aujapon-2384.asp%3F1%3D1+hermes+japon+2009&hl=fr&ct=clnk&cd=2&gl=fr&client=firefox-a WORLDTEMPUS.COM: La Manufacture Vaucher: Un partenariat favorable aux deux parties http://www.worldtempus.com/marques/marques-partenaires/hermes/la-manufacture-vaucher-un-partenariat-favorable-aux-deux-parties/ Les soyeux Perrin se portent bien Archives http://209.85.229.132/search?q=cache:dCwmeDqe8f0J:archives.lesechos.fr/archives/2007/SerieLimitee/52-9SLI.htm+soyeux+perrin+hermes&hl=fr&ct=clnk&cd=1&gl=fr&client=firefox-a Perrin & Fils: la plus belle soie du monde Perrin & Fils: la plus belle soie du monde http://209.85.229.132/search?q=cache:YqwjJxrx-NsJ:espacedocumentaire.cg38.fr/uploads/Document/09/WEB_CHEMIN_34357_1201615212.pdf+soyeux+perrin+hermes&hl=fr&ct=clnk&cd=2&gl=fr&client=firefox-a Luxe : Herms pourrait racheter Jean-Paul Gaultier http://www.actualite-francaise.com/depeches/hermes-rachat-jean-paul-gaultier,1501.html Herms International : un rachat de la maison Jean-Paul Gaultier n'est pas l'ordre du jour http://fr.biz.yahoo.com/07112008/17/hermes-international-un-rachat-de-la-maison-jean-paul-gaultier.html Hermes International : Une double stratgie pour une valeur surveiller (Finance Actualits) http://fr.newspeg.com/Hermes-International--Une-double-strat%C3%A9gie-pour-une-valeur-%C3%A0-surveiller-9656784.html Nouvelles rumeurs de vente d'Herms http://www.challenges.fr/20071004.CHA1512/nouvelles_rumeurs_de_vente_dhermes.html Herms sur l'olympe malgr les turbulences http://www.fashionunited.fr/News/Columns/Herm%E8s_sur_l%27olympe_malgr%E9_les_turbulences_200902106276/ Herms voit une baisse des marges en 2009 - Luxe - E24.fr

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