In luxury, there’s Hermès… and there’s everyone else. Stewarded by one French family over six generations, Hermès sells the absolute pinnacle of the French luxury dream. Loyal clients will wait years simply for the opportunity to buy one of the company’s flagship Birkin or Kelly bags. Unlike every other luxury brand, Hermès:
And yet everyone knows who they are and what they represent. But, despite all their iconoclasm, this is not a company that’s stood still for six generations. Unbeknownst to most, Hermès has completely reinvented itself at least three times in its 187-year history. Including most recently (and most dramatically) by the family’s current leaders, who responded to LVMH and Bernard Arnault’s 2010 takeover attempt by pursuing a radical strategy — scaling hand craftsmanship. And in the process they turned the company from a sleepy, ~$10B family enterprise into a $200B market cap European giant. Tune in for one incredible story!
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Transcript: (disclaimer: may contain unintentionally confusing, inaccurate and/or amusing transcription errors)
Ben: I don’t know if you realize this. Hermes is reporting earnings in two days.
David: Yes.
Ben: At first I was like, we should probably not do this episode because their annual report comes out in two days. What if we’re not current? And then I realized this is Hermes. The short term is of no consequence.
David: Yeah. Also, the Hermes annual reports are the most beautiful annual reports ever created in the history of the financialization of mankind.
Ben: You might think you can’t do all of your charts in orange, you need different colors, but you would be wrong.
David: The illustrations, the themes, you can tell they care.
Ben: You can tell. All right, let’s do it.
David: Let’s do it.
Ben: Welcome to season 14, episode 2 of Acquired, the podcast about great companies and the stories and playbooks behind them. I’m Ben Gilbert.
David: I’m David Rosenthal.
Ben: We are your hosts. Today, we tell the story of a handbag company that won’t sell you a handbag, a traditional saddle maker that makes very little of their revenue from saddles, a company that somehow has grown to be worth over 200 billion despite rejecting manufacturing efficiencies and economies of scale, a company so obsessed with craft and a reputation for quality that they have stayed independent while every other luxury brand has merged into conglomerates.
That’s right, listeners. Today, we tell the oldest story we have ever told here on Acquired, older than Standard Oil or the New York Times. This company dates back to 1837 in Paris, France. The crown jewel of the luxury industry, Hermès.
David: Ben, do you know what company was also founded in 1837 that we have discussed quite a bit on Acquired?
Ben: No, I do not, David.
David: That would be the other iconic color luxury company, Tiffany.
Ben: Really?
David: Also founded in 1837.
Ben: Chuck T. This episode, listeners, has been probably just under 12 months in the making. LVMH was just after one year ago, and it was in that episode that I feel like I got a real penchant for everything that Hermes stood for. After 187 years, still under family control, they’re on their sixth generation of family leadership at the helm. David, everything Hermes does is just so focused, intentional, and pure. As much as they get lumped together with brands owned by LVMH, they are in many ways the anti LVMH.
David: We’ve got a great discussion of that later in the episode. I used to think that and I no longer think that. But after our LVMH episode, you were so inspired by learning about Hermes. You went out and you bought your first luxury object. It was not an LVMH brand.
Ben: Yes, that is true. My wife and I were on our honeymoon, listeners, after LVMH, so last summer. We were in Aix-en-Provence, and we walked by an Hermès store. I thought that this would be a great time to go in and get each other something as a honeymoon gift. My wife got a little twilly scarf, and I got an Hermès belt. It’s the only luxury item I own of any traditional luxury brand.
David: Yeah, as foreshadowed on our holiday special episode a couple months ago.
Ben: Listeners, if you want to know every time an episode drops, you can sign up at acquired.fm/email. You’ll get hints at what the next episode will be and follow up facts from previous episodes when we learn new information. Come discuss this episode with us at acquired.fm/slack. Come check out our second show, ACQ2, where we interview founders, investors, and experts, often as follow ups to these episodes.
Ben: With that, this show is not investment advice. David and I may have investments in the companies we discuss, and this show is for informational and entertainment purposes only. David, I feel like we’re starting before 1837.
David: Yes, but not too much before 1837.
Ben: All right, we’re not going to the Egyptian invention of the handbag or anything like that.
David: Boy, let me tell you, I was tempted. If you read The Luxury Strategy, which is a great book that we’ve referenced many times on Acquired, they start back 50,000 years ago. We start in 1801, not in Paris, not even in France. As we’ve been talking about, the land of beauty, luxury, enlightenment, where Hermes, of course, was founded and is still based today.
Uniquely, Hermes still does 85% of their production by hand, by Mastercraft’s people in France, as we will talk a lot about. But instead, we start in the land of hardness and precision of engineering, of exactitude, the future land of the Porsches of the world. That is right, Germany.
Ben: A century before the Porsches and Volkswagens of the world.
David: Yes, where Thierry Hermes was born in the town of Krefeld, which is just outside of Dusseldorf, where he’s the sixth child of a family of innkeepers.
Ben: Hermes, is that a German name? A French name?
David: Hermes is obviously not a German name, even I know that. Thierry’s father was French and his mother was German. Shortly after Thierry is born, he was born in 1801, something pretty major happens in France and then throughout continental Europe that will become very, very important to our story here, and that is that Napoleon comes to power in France. This is the era we’re talking about here. Napoleon.
Ben: We finally did it here on Acquired, your AP European history class has now merged with business history We’re covering Napoleon.
David: He is critical to what is about to happen here. In the aftermath of the French Revolution, Napoleon essentially stages a coup, declares himself emperor, first of France, and then he basically begins conquering all of continental Europe, including Germany. This Napoleonic conquest was, at the same time, both the very best thing that could happen to young Thierry, It leads directly to Hermes.
Also, the very worst and truly worst, all this conquering, this glory of France that we’re going to talk about becomes important to Hermes, that’s the result of wars. Thierry’s entire family, his parents, his mom, his dad, all five of his siblings, are all killed either directly in the Napoleonic wars or by disease and famine as a result of this. Absolutely terrible. The result is that Thierry, by the time he’s 20 years old, he’s an orphan. He is the last Hermes left.
Ben: David, 1821, pretty rough time out in the world. Do you know who was born in this year, 1821, and was also an orphan? We have talked about them on Acquired.
David: Obviously not Rockefeller, which is where my mind first went, because we talk a lot about his dad.
Ben: Yup. Louis Vuitton himself.
David: He will also come up here in a minute.
Ben: Twenty years younger than Thierry Hermes, but also an orphan.
David: Wow, I didn’t know he was also an orphan.
Ben: Yup.
David: Wow, it’s just crazy. Two orphans, one of whom was German, go on to found the two most important, most French, most luxurious brands and really communicators of status in the modern world. That’s wild.
Ben: Yeah, especially crazy considering they both came from nothing. These people who would create the monikers of the elite of what would go on to be the symbols of wealth and nobility, came from nothing, were orphans, and at their greatest aspirations were craftspeople for the elite. They were almost servants.
David: Yes. In 1821, Thierry leaves Krefeld, leaves Germany. He abandons his original destiny as an innkeeper. He moves to France, not to Paris, but to Normandy in the north. There, he becomes an apprentice under a master craftsman learning the art of equipage craftsmanship. Equipage is the business of outfitting horse drawn carriages. Who were the customers of horse drawn carriages? Ben, like you’re talking about.
Ben: The nobility.
David: The nobility. Horses were extremely important to the world back then. The horse was the car. It was the Ford F150, it was the Toyota Camry. It was also the Rolls Royce that drew the carriage, and only the Rolls Royces were the carriages.
When Thierry moves to Normandy and takes up as an apprentice, he apprentices for 16 years. It’s not until 1837 that he finally moves to Paris as now a master craftsman and opens up his own shop in Paris on the Rue Basse-du-Rempart in the 9th arrondissement, which that whole street today no longer exists.There, he establishes himself as really quite an exceptional harness maker for horse drawn carriages.
It’s unclear to me at this point if he’s using the famous saddle stitch, which becomes so important to Hermes. The reason it’s unclear to me is because he’s not making saddles. Saddles are what other people are making. It’s not that the nobility don’t ride horses. They do, but they ride horses like the elite today drive a Ferrari. It’s not something they do every day.
Ben: Right. Their daily driver is a Bentley because someone else is driving them. They have a Ferrari for when they occasionally want to drive a Ferrari. They’ll climb in a saddle occasionally, but mostly they’re in the carriage.
David: Yeah. When Thierry arrives in Paris in 1837, he pretty quickly starts becoming known as really the best harness maker and carriage outfitter in Paris serving the nobility, which is pretty impressive. Here, he’s this immigrant from Germany, apprenticed in Normandy. He shows up in Paris. All of a sudden, he’s making the best stuff out there.
Ben: It turns out he was just really good at the craft.
David: He had exceptionally good timing. We spoke about Napoleon a little bit earlier. When Thierry finally comes to Paris, at this point, Napoleon I has been defeated in the Battle of Waterloo. That was 1850, and France has now seesawed through a whole bunch of different republics, and the monarchy comes back. It’s crazy French history stuff.
Shortly after Thierry returns, Napoleon’s nephew, Napoleon III stages another coup and reestablishes the Empire in France. This is super important, Ben, to what you were talking about earlier about this guy’s an orphan. Louis Vuitton was an orphan. How did they become so important?
When Napoleon III comes to power in France, he does two things. (1) He completely modernizes the city. If people have heard of the Baron Haussmann who rebuilt Paris, that happens at this time under Napoleon III. They transformed Paris from a medieval city with super tight streets. If you go up to Montmartre, those streets around there, that is old Paris. But when you think of the Eiffel Tower, the museums, the grand boulevards, the Champs-Élysées, that’s happening right at this time.
The Baron Haussmann, he’s like Robert Moses was in New York in the mid 20th century remaking New York. He is given full latitude and direction by Napoleon III to burn Paris to the ground and remake this city as a modern city.
Ben: Fascinating.
David: This is super important for Thierry and Hermes for two reasons. (1) In the old medieval streets in Paris, not that many people were going up and down them. Not that many people were going to see the nobility in their carriages and all their finery. Now you’ve got the Champs-Élysées, the Grand Boulevard, everything about the gallantry of Paris that we know today, is all on display now. This becomes really important for showing off for signifying your wealth, your status.
The other related thing here that happens with Napoleon and Napoleon III is that status is no longer just about what you were born into. In the old system, the nobility, the royalty, it was like you’re born noble or you’re not. It’s independent of how much money you have, what you do, or what influence you have. Under Napoleon, he brought in this modern idea that you could shift your class. He was essentially a nobody, and he became the emperor of Europe. That’ll completely upset the mindset of people.
All this is happening, this is the best thing that could ever happen to Thierry. He’s the best artisan, most exclusive crafter of carriageway of equipage. The city is being transformed so that this can all be displayed prominently. Social stratifications are becoming more blurry. People can spend money for the first time to buy status. Great for business.
Ben: These are the disruption waves that enabled him to create a business.
David: Yes. Before all this, before this era, there’s no way that this evolves into Hermes. Honestly, Louis Vuitton and what he’s doing with luggage and with trunks, there’s no way that that evolves into Louis Vuitton. Speaking of, both Hermes and Vuitton have one really important client, a key influencer, so to speak, that they both land at this time.
Ben: I remember Louis Vuitton’s key client was the Empress Eugenie. Is Hermes the same client?
David: Yes, the same client. Napoleon III’s wife, the Empress Eugenie, becomes a client of both of these men for her carriages, in the case of Hermes, and for her luggage and for her trunks. Actually, I think also for her packing. I think Louis Vuitton was the royal laities, I believe, and he packed the trunks. He was the luggage guy, Hermes was the carriage guy.
Ben: Which is so funny because that is still, in some ways, both of their legacy today.
David: Yes, absolutely. Eugenie and everything going on at this time makes Louis Vuitton and makes Thierry Hermes. It’s interesting. Vuitton and luggage, that is inherently of the world that’s coming, the modern world. The train exists at this point in time, steam engines are a thing, and then the car is about to come, and Louis Vuitton, trunks, and luggage, all translates directly.
Ben: Right, it’s built for the upcoming world.
David: Yes. Not the case with Hermès. Actually today, I think this is one of the biggest strengths of Hermes and they still. The equestrian theme, the horse is so much of their brand. They talk about it so much of their products, the saddle stitching. It’s calling back to that other era, that pre modern era where the horse was primary.
Ben: Right. Hermes is deeply rooted in French history, in Parisian history, and really a key part of how France as a nation has the identity that it has today.
David: But it would all be irrelevant if the brand didn’t translate out of the horse era and into the car era, which was not Thierry Hermes’ doing, nor was it his son’s doing. Thierry dies in 1878. His son, Charles-Emile, takes over. He apprenticed coming up in the shop in exactly the same way that Thierry apprenticed. He just apprenticed for his dad. By the time he takes over, he’s been working in the shop as a craftsman for 20 years.
By the way, this family tradition and way of business continues to this day. Axel Dumas and Pierre-Alexis Dumas, who are the two descendants of Hermes, the sixth generation that are running the company today, Axel is the CEO and Pierre-Alexis is the artistic director, apprenticed in the business. When they were teenagers for five years after school, they went to the atelier, they learned the saddle stitch, they made bags, they made items with their hands.
Obviously, they also learned the business from their parents, but they’re not learning the business the way that the Arnault children are learning the business at LVMH as executives. They’re learning with their hands as craftspeople how to make this stuff, which is wild. Axel is the CEO of a $200 billion plus company.
Ben: It’s crazy. To bring it back to the late 1800s, I think the point you’re making here is, when Charles-Emile was apprenticing, there was no other example of what this company could become. He thought, why don’t I carry it on in exactly the same manner, Thierry, that you did? There’s not this grand ambition to innovate and change with the times, it’s well how do I learn exactly your craft exactly the way you do it and then continue that?
David: Right. The business and the craft are intimately intertwined, they cannot be separated. This is a playbook theme I want to pull all the way forward, but it’s so critical to understand about Hermes and what really in my mind differentiates it from LVMH. LVMH, as we talked about on that episode, has world class best in the world business executives who partner with world class best in the world creatives.
At Hermes, these are not different people. Obviously, there is a different CEO and artistic director that are both members of the same family and who are cousins. But in spirit, they’re cut from the same cloth, they apprentice as creative craftspeople, and they collectively and the family, is in charge as much of the creative side of the house as they are of the business side.
Ben: Yeah, makes sense.
David: Back to Charles-Emile and the second generation, he finally adds saddlery to the business. That’s his big expansion, he adds saddles. Again, as Paris is modernizing as you can now buy your way into status, for the first time in Paris, you couldn’t be seen riding in addition to carriages.
The ideal of what it is to be a noble person or a noble person of status has changed. It’s no longer just, oh, I’m a leisurely courtier. It’s like, no, I’m Baron Haussmann. I am doing things for the state, for the country. It’s like America in its way and the Rockefellers.
Ben: Right. You’re not just famous for being famous, you are famous because you’ve achieved something, you’re in the act of achieving something, or you hold a high office in which you were elected or appointed to get a specific goal done. You’re on the move. You got stuff to do, and you got to get there.
David: Exactly, and you need a saddle for that. Charles-Émile adds saddles. In 1880, he moves the workshop in the store to 24 rue du Faubourg Saint-Honoré in the 8th arrondissement of Paris.
Ben: The famous address.
David: The building that is today known as Le Faubourg by everybody in the Hermes universe. This street and this location is one of the most iconic streets in the world, buildings in the world, headquarters in the world.
Ben: It was stunning to walk it last summer when I was there. You can feel the presence of Hermes and all the other brands that are there.
David: Yeah, the rue du Faubourg Saint-Honoré is where the French presidential residence is. It’s where the British embassy is. It’s where French Vogue is today, probably because Hermès is there and because all of the other luxury flagships are there.
Charles Emile runs the business for 25 years. He adds saddles, he moves the company to the Faubourg. In 1902, he retires. His two sons, Adolphe and Emile, who have apprenticed in the business just like him, just like every generation will do for many generations to come, take over. They change the name of the company to Hermes Freres, Hermes Brothers, because the two brothers are now running the company.
Ben: And they’re going to do this forever together, and they’re going to be thick as thieves. They are of one mind on how this company should go.
David: They’ve been apprenticed together, going to be like Axel and Pierre-Alexis today. Of the two brothers, I think it is fair to say that Emile, who I believe is the younger brother, is the much more ambitious and much more adventurous one.
There’s this great story that in the late 1890s, before his father Charles-Emile retires, the young Emile sets off to conquer Russia for Hermes. He literally gets on a train with a notebook and a suitcase filled with miniature versions of the saddles and the harnesses that Hermes makes. He just finds his way into the Tsar of Russia’s court and lands him as a customer.
Ben: That is wild.
David: Unreal. They have to staff up a whole new atelier with 80 craftspeople to fulfill all the orders for the Tsar in Russia.
Ben: Whoa.
David: Yeah. This is Emile. He’s going places. Right as he and Adolphe are taking over at the end of Charles-Emile’s tenure, they decide to introduce a new product. They’re not thinking that this is going to be a big thing at the time. Some of their customers, again, now that they’ve added saddles, once they get off the horse, they want something to carry the saddle and maybe their riding boots with them while the horse is in the stables wherever they’re going.
They say, great, we can help you with this. They introduce the Haut a Courroies bag, which translates as the high belted bag to carry saddles and boots for their clients. Like I’m saying here, this was intended to be an accessory to the main business of équipage and saddles, the equestrian business. It’s not really practical for anything else. I don’t know why anybody else would want a big tote bag that could carry your boots.
Ben: What’s this bag look like?
David: This bag looks exactly like the Birkins and the Kellys today, except a lot bigger.
Ben: Interesting. Because you’re putting a whole saddle in it, like you’re de-saddling your horse, and then you’re putting that in this bag?
David: Yup, but it has the same trapezoid shape. It has the crossover belt, the Haut a Courroies that means the high belted bag. It has the belt. It has the turnstile lock closure for the belt at the top of the bag.
Ben: Fascinating.
David: This accessory that we’re going to add to the business becomes the spiritual heritage to the business today.
Ben: That’s crazy. It’s like if Apple eventually transitioned to being not the Vision Pro company, but the Vision Pro carrying case company.
David: Yes. Did you get the carry case by the way?
Ben: No, I’m not going to spend another $200 on that.
David: That thing looks like a balloon. It’s enormous.
Ben: Yes, and it takes up your whole backpack.
David: This bag, this accessory that would become the Kelly and then the Birkin, they introduced it just at the right time. It’s 1902, as Charles-Emile is retiring. This idea of this bag that you would put stuff in, because you wouldn’t bring a bag on a train—if you’re of this class, you need a trunk. You need a flat pack trunk that Louis Vuitton is going to make for you. None of these three men could have seen it at the time, but this accessory to the real business of saddles, horses, and harnesses was going to become the perfect transition to move Hermes into the age of the automobile. Before we tell that story…
Ben: Yes, we mentioned Hermes founded in 1837 as the oldest company we’ve covered on Acquired, but we might have to caveat that.
Ben: Now, David, how was Hermes perfectly positioned for the age of the automobile with this new accessory?
David: This is wild. I suspect you probably also found this in research, but when I did, my mind melted. During World War I, in 1916, Emile becomes an officer in the French military. The military sends him to the United States to learn about US industrial and military production. He’s a leading industrialist in France at this time, shall we say? One of the people that he gets sent to meet with is, do you know about this, Ben?
Ben: No, I have no idea.
David: I can’t believe you didn’t find this.
Ben: No.
David: He meets with Henry Ford. He goes to Detroit. He sees the assembly lines. He sees the car, he sees the future.
Ben: He sees the assembly lines and then he had blinders on? He’s like, oh, pay no attention to the manufacturing efficiencies they’ve got going on over there.
David: This is what’s so funny. No, he’s like, this is unbelievable. To the manufacturing efficiency’s point, he actually does take some elements of the assembly lines and brings them back to Hermes. It’s not like they’re anti-efficiency. They’re pro efficiency, but in the context of being a craft, non-mechanized human master craftsman built object.
He actually does take some of the production ideas from Henry Ford, but more importantly, he’s looking at this place and he’s like, my God, there is a Model T rolling off the assembly line every three minutes. Ford at this point is producing half a million cars per year. Everybody knew about the automobile, but this is a different arrow. This is the same time as when we talked about our Novo Nordisk episode about the start of that company, where news didn’t reach Europe. This wasn’t a global world. Emile getting this window, literally seeing the assembly lines in Detroit, he’s like, whoa, Once this war is over, the world is going to change forever.
Ben: Okay. Emile both figures out how to open business in Russia and goes to America, meets with Henry Ford, understands the automobile is going to change the world.
David: Yeah, he’s quite the character, this guy. The other thing he finds in America is, I know you know this one, the zipper.
Ben: Yes, or as it was originally called…
David: The close-all.
Ben: Yes, which really does not have the same ring to it, I’m glad we changed it to zipper.
David: I couldn’t believe this. The zipper was a late 1800s, early 1900s invention in America. It was primarily used for Industrial use cases. In this case, it was zippering closed the hood of a car,
Ben: I think a military car.
David: Yeah, where Emile first sees it. It’s not at the Ford factory. I think it actually might have been in Canada on the later leg of his journey where he sees it on the car. It was also used for opening and closing boots. That is how the name zipper came to be. I think it was the BF Goodrich company.
Ben: Really?
David: Yeah, I believe they made a brand of boot with this close-all function and they called it the zipper, and that’s where the zipper came from. Regardless, enterprising young Emile, he tracks down the inventor of the zipper, the holder of the patent in America. He obtains an exclusive license for two years in France. This literally is like the Novo Nordisk episode.
Ben: Totally.
David: It brings it back to France and makes the first zippered products. He makes the first zippered jacket ever created anywhere in the world. It is a leather golf jacket for the British Duke of Windsor, the heir to the throne. It’s just amazing. For years in France, the zipper would be called the Hermes fastener in France.
Ben: Yes, that’s right.
David: Just wild. I think they made the right decision not to make zippers the business and instead to stay focused on leather goods.
Ben: It does show their penchant for innovation, the idea that we can push the envelope forward in functionality and what people would be willing to wear. This guy’s a duke, and he’s wearing a zippered jacket. I’d imagine that drew some eyes at first.
David: Yeah, and a golf jacket literally for use while playing golf, while playing sport. What more modern activity to happen here? Regardless though, the big thing for Hermes that he brings back is, oh, my God, the car is coming.
Ben: Okay. We’re still in Hermes family. Two brothers are running it. What’s next?
David: When Emile comes back and he’s running around making zippered jackets, he’s collaborating with car companies, it leads to a rift between the two brothers. Adolphe, the older brother, he’s much more conservative. He wants to remain in the horse market. He’s depressed about the car coming. He’s like, hey, I just want to remain a niche leather worker. I’m not really cool with everything you’re doing here.
Ben: This is literally like he wants faster horses of the analogy of like, if you would ask people what they want, they’d say a faster horse. He’s stuck in horse land.
David: Right. I don’t know if it was that he had his head in the sand or more just like he didn’t want to go build a big company.
Ben: Right, which I could understand.
David: Totally, I can totally understand that. Either way, in 1919, Emile buys him out and says, I believe in my ability to lead this company, making this transition into the automobile era. Legend has it that he goes to the craftsman in the atelier above the shop in the Faubourg and says, okay, what are we going to do? What can we make with our hands here in this atelier that will interest our clients today?
I think this is still legend around Hermes of like, what can we make with our hands that will interest our clients today? The obvious answer at the time is a version of the Haut a Courroies bag. It’s bags for these cars. If you want the most exquisite bags, the most exquisite things to show in your automobiles that you’re buying, who better than Hermes and finely handcrafted leather bags and accessories that you can outfit your car in the same way you could outfit your horse?
Ben: The business is now a meals and the business is now handbags.
David: Once again, the timing and insight here like Thierry in the original case, what the automobile does, and it’s not just automobiles, it’s also improvements to trains and improvements to ships, the global rich, the global elite, start traveling a lot more. We’re now in the 1920s, the roaring 20s.
This is what F. Scott Fitzgerald is writing about. The visible symbols of wealth. It’s when you’re home, it’s in your car and the bags and the accessories you’re using with your car. But you’re also out traveling a lot more, you’re rubbing shoulders with elite all around the world.
The American elite are going to France. They’re going to Europe, vice versa. People are starting to travel around the world. People are traveling to Asia. People are traveling to the Middle East. People are traveling to South America. Emile’s going right along with all these people. Your luggage, your bags, that’s what you bring with you. That’s what you show.
Ben: Yeah. Importantly, it’s not just that you’re trying to show a label, which is a little bit different than the modern version of luxury. It’s that you’re trying to have something really nicely crafted. When you show up somewhere, someone should just look at your luggage and go, wow, that is beautiful. Hermes is not yet a recognized brand, so merely slapping Hermes on it won’t do the trick. The way to wow the people that you want to wow is through the raw craftsmanship.
David: The product itself, yes. In 1922, Emile’s wife famously complains that the large bag they’ve been making, the Haut a Courroies, the saddlebag, it’s too large to fit through car doors, so she asks for a smaller version. This launches the handbag business in 1925.
Ben: By the way, by this point, they’ve put the zipper on a handbag.
David: Yes, exactly. Speaking of the zipper in 1925, they had ready to wear clothes like the legacy of the golf jacket here. The legend has it that they added clothes because a long time client came in and said, I am fed up with seeing my horse better dressed than me. Who knows if that’s true, but it’s a nice story. But they really go into this. In this modern world where the global wealthy, the global elite, are traveling, they’re seeing each other, what outward signifiers can they supply them? Clothes, in 1927 they had jewelry, in 1928 they had watches.
Ben: Something interesting that is different than the Hermes you know today, the way that they’re adding all of these things, they’re finding crafts people who are experts at particular crafts. Exactly what you’re talking about, David, a watchmaker. They’re finding a watchmaker and they’re saying, can we work with you on designing something uniquely Hermes, but you’re the craftsperson? We’re not trying to build this competency in-house.
David: It’s not right to say that they’re licensing products. It is a collaboration, but they are selling products in their stores that are not made end to end by Hermes employed craftsmen.
Ben: Right. It’s interesting, because they’re towing this line between first and foremost being a craftsman themselves, being a manufacturer, and being a designer, but also being a retailer, where they’re just bringing in other branded goods and selling it in their shop.
David: Yes. I think all this is being figured out real time. These ideas of retailers versus brands, it was a much fuzzier line then than it was today. What does Hermes do? What does Emile do? They start opening up stores outside of Paris. Where are they going to go? They’re going to go to the travel destinations where their clients are going. The first store is in the Côte d’Azur in the south of France, and then they start opening up more stores around the world, again, not necessarily in the Londons, the Romes, or the New Yorks of the world. They’re opening them up in the travel destinations.
Ben: Their mindset around additional stores at this point is it’s for the same clientele in all the places that they travel.
David: Yes, and the clientele was primarily French at this point in time.
Ben: Yeah, or if not exclusively other than the czar.
David: I suspect though that it was strategic of like, our French clients are going to go to these places, they’re going to rub shoulders with the Americans, with the British, and then we’re going to have a store there so that those Americans, those British, elite, can go purchase our products there too.
Ben: Right. This, by the way, is a different retail strategy than what they have today. Today, management insists that the idea is that each store is for the local clientele. We will only expand into an area if we feel that we can serve the local clientele that lives there well. That’s a recognition of the maturation of their business. The rich people are going to go find an Hermes store somewhere. It’s easy for them to travel somewhere, buy it on vacation. But if we’re going to open new stores, we should open it in places where there is a thriving new upper class who can buy the goods locally there in their city.
David: Yes. Now, I think some element of this certainly still exists. You had a nice time going into the Hermes store in X, right?
Ben: Yes, for sure. But it plays well for me as someone who is on vacation and shopping to believe that I’m shopping in a store that is for the locals. It’s less fun to be shopping somewhere that is very clearly created for you as a tourist.
David: Yeah, I think they very brilliantly walk this line. The products that the shops carry are very different. We’ll get into that later in the episode too. Back to this era, I think we’ve laid the groundwork of a few critical components of Hermes so far. First and most importantly, the craftsmanship, these things are handmade by artisans with their hands, and the family and the people who own the company are the chief artisans. That goes all the way back to Thierry.
We’ve talked about the connection to the legacy of French nobility, but not really French nobility. It’s like status, but accessible status for the first time in the world and the modernization of the world. We’ve talked now here about the true modernization of the company in the transition to the automobile era. What we haven’t talked about yet and what Hermes at this point certainly is not is this element of whimsy and art that is really, really critical, I think, to the company.
Ben: Yes. If you’ve ever been in an Hermes store, you can feel a warmth that doesn’t exist in other luxury stores. If you’re in a destination with a lot of luxury shops, you’ll walk past a lot of bright lights, mirrors, punch you in the face reds, and black and white, and you just feel like there’s a lot going on. Then you arrive at Hermes, and it feels warm, it feels soft, it feels welcoming, and it feels whimsical. There’s this almost dreamlike color palette that they use, starting with a base of orange and having this explosive rainbow of fun, but in some ways it all feels natural, from the earth, and just whimsy. I think that you nailed it, David, whimsical.
David: This I think is really a very different thread than the original leather craftsmanship, and it is a critical one in the weaving of the Hermes business. This thread comes from the next generation of the family, specifically Robert Dumas. Emile had four children, but they were all daughters. Tragically, one died young, but the other three grew up and got married. Back in this day, women weren’t going to take over the business, unfortunately.
Ben: Right, same story as the New York times. There was a whole generation of daughters, none of the ox daughters get the business, so it goes over to the son in law, the souls burger, and now it’s the souls burger ox family that owns the business in the same way that Hermes is the Hermes-Dumas family. The son in law tends to do well in this early 20th century period of passing it down from, unfortunately, father not to daughter, but father to son-in-law.
David: In this case, when you read about the Hermes family fortune today, it’s the Dumas family that are obviously the CEO and the artistic director that you hear about visibly. But really, I think all the sons-in-laws and all of their descendants become active in the business. There’s Robert Dumas, there’s Jean-René Guérin, and there’s Francis Puech.
Ben: And these are all son-in-laws.
David: These are all son-in-laws. Those are the three family names that you still hear about to this day of the Hermès family. Back to Robert Dumas and the fourth generation, he brings this whimsy and real art into the business.
Ben: The way Hermes describes it today when you read their annual report is they talk about their trademark humor and imaginative flair. Despite the fact that they really are tied to this old French elite, they really don’t take themselves too seriously in all their products, especially the entry level ones. The Birkin is the Birkin. Yeah, they’ll do some special editions here and there, but there’s a weight to that product line. There’s an overall playfulness that’s exuded from the brand that comes from this era of leadership.
David: Totally, and this comes from Robert. One of the first things he does when he joins the business is he redesigns the smaller Haut a Courroies bag, the handbag line, into what he calls the Sac a Depeches in 1935.
Ben: Really great name. It’s got a ring to it. I feel like that’s going to go be a viral hit and appear on Sex in the City.
David: Beautiful, beautiful, elegant bag.
Ben: Sac a Depeches. Hold on to that one, listeners.
David: Yup. A little later in the 1930s, he introduces the Chaine d’ancre bracelet, which is another iconic Hermes item in their jewelry métier.
Ben: Wait, David, I can’t let you get away with that métier. Please enlighten listeners. I know Hermes sprinkles around French words in all their literature, and it just expects Americans to deal with it. If it’s italicized, it’s French. You can go look up what it means yourself here on Acquired. David, tell us about a métier.
David: A métier is someone’s work, but in the craftsman’s sense. A métier is like a trade. It’s like a craft profession. This is what Hermes calls their divisions. I feel gross even just saying the word divisions. There are 16 of them today, and jewelry, of course, is one of the métiers. I feel so much better saying métier.
Ben: I bet, yeah. There’s a levity here in the room now.
David: Chaine d’ancre in French means chain of anchors, anchor chain. These are anchors like boat anchors. The way that this bracelet comes about is Robert is walking along the beach in Normandy one day, and he’s just inspired by the scene of these boat anchors on this foggy beach, so he makes a little sketch in his notebook. He plays with it, and then he decides he’s going to turn this into a bracelet.
Ben: Love it. An important thing to know here is when you’re buying Hermes products, they’re really not pushing the brand. There is not an iconic, recognizable Hermes H, horse and carriage logo, or bright color that you’re supposed to identify. This is really the origin of quiet luxury, where Hermes is handcrafting the highest quality product they can make a single artisan is the person making the good. When you receive it, you really are just aware that it’s the highest quality thing made by a single person with their blood, sweat, tears, love, a piece of them left inside.
It’s super different than luxury today because it is just not branded, and Hermes hadn’t even really developed the iconography yet that would become a Hermes’ version of slightly louder luxury. Over the years, if you look at products now, the belts have an H. They incorporate horse motifs into designs on their ready-to-wear clothing, but that really wasn’t a thing yet in this era. Hermes is on the lighter side of branding their goods today, but it’s still…
David: They have to adapt to the market.
Ben: The customers want some way to let people know that they’re wearing an Hermes item, even if it’s lower key than other luxury brands, so Hermes builds that for them.
David: The family talks about this a lot. The words they use is this is not a museum. There is this artistic element to what we do, but we are not a museum. We are a business, we have clients, and we are here to serve our clients. There is this push pull here.
Ben: Yes. Okay, what year are we that the bracelet is entering the market?
David: That was in the mid 30s. In 1937, Robert introduces the other key pillar of Hermes products that is less talked about today relative to the bags and the leather goods, but for many, many decades was the bigger business.
Ben: Yes, I have numbers on this.
David: Silk scarves, the Hermes classic silk scarves. This is the embodiment of this art and whimsy that we’re talking about. The silks that they use are the finest silks in the world. It takes 300 silk moth cocoons per scarf, as they will readily tell you to produce these things. But the designs on them, the artwork on them are whimsical like we said.
The first design, the Jeu des Omnibus et Dames Blanches or the white ladies at play, I guess you could translate that, is based on a woodblock engraving that Robert does. This is what an artist this guy is. He’s about to become CEO of Hermes, but he’s making woodblock engravings and then making silk scarves out of them. That’s the first design that they put out there, and quickly they become a huge, huge phenomenon with Hermes clients.
Ben: Yeah. Fast forward all the way to 1988, when Axel Dumas has his very first internship with the company, this is crazy. Silk was 55% of the company’s sales. Leather was only 9%. You compare that to today, it is a completely different story. Leather is 43% and silk and textiles is 7%. There was a run. This was introduced when, David, the 30s?
David: 1937.
Ben: 1937 through probably the 1990s, these silk scarves were the Hermes franchise. The reason this took off is it almost became part of the French woman’s uniform to have an Hermes scarf as a part of your outfit.
David: It’s funny you say the French woman’s uniform. Yes, that is entirely true, but the woman who really popularizes them around the globe is a British woman, specifically Queen Elizabeth.
Ben: I didn’t realize that. Really?
David: Yeah. This is so iconic, Queen Elizabeth. She starts wearing them as head scarves in the 1940s. Queen Elizabeth, she’s queen of England for 60, 70 years, and she’s wearing these scarves, these whimsical, playful scarves on her head as the queen of England.
Ben: Fascinating. This is a good time to talk about how these silk scarves are made. I was going to do this later when we talk about their modern day production process, but it turns out that their modern day production process is not that different than it used to be. Here is how Hermes scarves are made today. They are first sourcing the finest silk that they can find, which is now from their owned farms in Brazil. That’s where the silk comes from. Only 20 new designs are created every year and they retire old designs. There’s a Disney vault aspect to this.
David: They’ll bring them out of the vault.
Ben: Yes. The pipeline to get a new design into the customers hands is two years. You might be asking yourself like, come on, why is this taking two years? That’s a ridiculous thing. Here is the process. They screen print every single scarf by hand.
David: Yeah, there’s no digital process here. It’s not like you’re going to custommake.com and ordering up some Hermes scarves.
Ben: Right. Some of the design does seem like it involves computers now. If you watch documentaries about the craftsman at Hermes, which there’s a couple of good ones we’ll link to in the show notes if you want to just watch Hermes crafts people at work, they do seem to be translating designs off of a computer, but it’s not like they’re hitting command P. That’s not how this works. Every single color. of the scarf is screen printed using its own mask, or basically a stencil. If your scarf has 20 colors, it has at least 20 masks that they then squeegee the ink over, and the precision is perfect.
David: This is like EUV lithography.
Ben: Yes, I was looking at my wife’s twilly scarf, the little wrist or hair tie scarf that we got in Aix-en Provence. I don’t know how you do this by hand, and I don’t know how you do it by hand 20 times over and over and over for every single layer. If you’ve ever been to an Hermes store or you own one of these, you just can’t believe that this is done by hand without any of the layers being out of alignment. Because if any of them are out of alignment, you ruin the whole thing and you have to start over.
If that’s not enough, the masks are also hand etched by a craftsperson. Their entire job is to know how to translate a design into all the different color layers, which they then hand etch. The pipeline is designer, engraver, that’s an engraver of each mask, colorist, weaver, printer, and then someone to do the finishing.
David: All of which are extremely hard to replicate and involve both extreme craftsmanship and extreme taste. The competitive barriers to the Hermes scarf, I think they’re way higher than the bags, honestly, even though the bags are a bigger business now.
Ben: The skills are completely non transferable. This process doesn’t really exist, certainly not at scale at any other company. Actually, I was talking to my wife about this. She brought up the idea that it’s like Disney imagineers or almost like Pixar employees, where you specialize in this one crazy little piece of the production process that no other company has your same production process. The attention to detail is so staggering that once you enter the Hermes universe, then you’re in that universe for the rest of your career because that is where your trade is still practiced.
David: I think also, as a client too, at least in scarves, if you entered the Hermes scarf universe, you’re not buying any other scarves.
Ben: Totally, and you really like all the lore. Part of what makes Hermes Hermes at this point is their callbacks to their own history. They have a hundred and eighty seven years of history to call upon, and they do so over and over and over again. They remix and they name things after stores that used to exist at certain addresses. It’s a universe.
David: Yeah. I remember growing up and my mom is half British. I’m a quarter British. To the Queen Elizabeth thing, my mom’s Hermes scarves were and are among her most treasured items. You’ll note all of this that’s happening, Robert, the innovations, these new products, the art, the whimsy, he’s doing all this in the 1930s. This is the Great Depression era. This tells you about Hermes and Hermes clients. They are unaffected. They keep buying. This carries through right to this day. I don’t know that there is a more recession insulated business than Hermes.
Ben: You’re exactly right. Twelve months now after we did the LVMH episode, we’re finally on the tail end of this pandemic bubble of luxury, and we’re seeing a lot of these brands take a hit. Hermes is the most insulated of all the luxury brands, where they have the least cost sensitive clients.
David: After this, there’s World War II. Famously, before the war, Hermes products came in cream colored boxes. Robert was very meticulous about the packaging that his crafted items and his art would come in, and it was cream. It had to be cream. During the war, there’s a shortage of packaging materials, they can’t get cream. The only color that is available to them in the quantities that they need is orange. That was designed for patisseries, for bakeries.
Ben: Is that what the orange ones were used for?
David: That’s why there was an excess of it because it was used for bakeries, and bakeries weren’t baking as many croissants and pain au chocolat during the war, et cetera. There’s all this orange packing material. Robert embraces it, and the Hermes orange box is born. This is crazy. I didn’t know this till research. Hermes owns this color. You cannot get Hermes orange anywhere else. Pantone does not list it in their colors.
Ben: It’s interesting you say Hermes owns this color. You are correct that Hermes has selected a non Pantone color, but what Hermes tries to do is say, well, we own orange. We can’t be nailed down by a Pantone specific code, we own orange more broadly. They’ve actually gone head to head with the EU. This has gone to court where it’s been determined that no, you can’t own orange. You can’t just own all the oranges.
David: Amazing.
Ben: What they’ve done is they’ve actually leaned into this, where there is a classic Hermes orange, but it presents differently on each of the leathers. They have 10 different leathers or something like that that they work with. When they die those leathers, it presents a little bit differently. They have this, sure, there’s a digital perfect representation of the color of classic orange, but there’s this whole spectrum of the way that it shows up on leather. They’ve even further winked at all of us by creating five or six other oranges.
They have Hermes fue, which is the fire. They have Hermes sanguine, which is this red hot orange like lava. Or they have the Hermes moutarde, which is their mustard. Each of these is a little bit of, I think it’s to continue to assert that we own the whole spectrum of oranges, but it’s definitely to be able to stay current, stay present, encapsulate the theme of a season, because every year they pick a theme, so they play with their oranges a little bit to evoke the whimsy that they want from this year’s theme.
David: Yeah. There’s this metal level or corporate level playfulness to this too, of we own all the oranges.
Ben: Totally. The Hermes oranges are almost to continue the Disney analogy. It’s almost like the people that go to the park and look for the hidden Mickeys. It’s a way to even more deeply participate in the Hermes universe.
David: A few other things that Robert adds over the years, he adds the men’s silks métiers, aka ties. The legend behind that one is pretty great. Supposedly a number of gentlemen were refused entry to the casino, thus went to the neighboring Hermes shop next door, and said, can you take some of your beautiful silk scarves that cut and tailor them into ties for us so that we can enter the casino? I’m sure that’s apocryphal, but adds to the legend here.
Ben: They are these patterns. They’re just as intricate as the scarves. There’s less storytelling that happens in the tie. The scarves tend to be something you could frame, put on the wall, look at in 16 different ways, and the story behind it. When you look at it, you can’t believe that it was hand screen printed.
David: Totally. After World War II, Robert decides that Hermes needs a logo. Taking inspiration from the 19th century painting, le Duc Attele, Groom a L’Attente, which means Hitched Carriage Waiting Groom, the famous Hermes logo is born. The logo is the callback to the carriage. It’s the nobility. I find it really interesting, especially at that point in time that Robert decided. You could imagine a galloping horse or something like that would be the appropriate logo.
Ben: No, it’s so genius.
David: No, it’s the carriage.
Ben: Yes, it’s to intentionally ground the brand in history in something that they were a part of that is only theirs, because nobody else starting today is going to have that as a part of their history. They’re leaning into the thing that makes them unique, special. The almost defensible durable asset that they have is that they participated in that era that has a nostalgia about it.
David: And no longer exists.
Ben: Yes.
David: Horses in the equestrian world still exists. It’s obviously not what it once was, but it still exists. The carriage world is gone. It’s just a dream these days, and that’s what Robert is so good at, this dream. The other thing we have to talk about are the window displays. You referenced this a little bit earlier.
He hires first, Annie Beaumel, and then she’s soon joined by the legendary Leila Menchari. Specifically, these two women come from theater set design just to design the window displays at the Faubourg at the flagship store on the Rue du Faubourg Saint-Honore. There are whole museum exhibits just dedicated to these window displays.
It’s not like, again, you walk by XYZ other store, even the most prestigious brands and it’s like the products are there. Here are the products, here’s the brand you’re buying, here’s the LV, et cetera. These displays, it’s a dream. There are probably some Hermes products in there, but it’s like a museum exhibit. It’s artwork.
Ben: Yes, and art is exactly the right way to put it. There is no utility to these displays. These displays, much like any advertising that you see of Hermes today, it’s not about the product, it’s about how you feel. I think this is an interesting place to revisit this idea that we talked about on the LVMH episode of luxury versus premium, where premium means you pay more and you get more utility out of a given product.
I pay for a bigger storage space on my iPhone and I get more utility out of that. I can store more photos. Luxury means you pay more literally because it doesn’t create more utility. It is either more pleasing to you intrinsically for the feeling, or it’s an extrinsic signal where you are signaling to others that you have the means to spend on this item, even though it doesn’t provide more utility. It’s a despite rather than a because.
Art does fall on this spectrum. Art is like luxury taken to its logical extreme. It has actually zero utility. A Birkin bag is a piece of art, but at least it also carries your stuff around. Luxury products are this interesting midpoint between extreme functionality but also artwork. When you buy an air mass product, you aren’t just buying the product, you’re buying a piece of art a piece of their heritage, a feeling that connects you to the maker and the place it was created.
You’re trying to buy a piece of Hermes’ heritage and reputation, and hoping to adopt it as a part of you, as a part of your identity. You are seeking whether it’s conscious or not to let other people know about this too. You’re not necessarily trying to signal it to everyone, but you do want to signal it to the right people who would appreciate it.
David: There’s this genius aspect to what Hermes is doing and what Robert’s doing with the arts like these window displays. The Luxury Strategy book talks a lot about this. When you’re selling luxury items, they can’t just be art. They need to have some utility to them. You will never see any of these brands, Hermes included, become art galleries. They’re not selling paintings, but it’s critical for luxury brands to have a connection to the arts.
I think you realize this before anybody of like, the windows in our stores are these portals into this world of dream and art. You’ll come in and you’ll buy a scarf that you’ll wear. You’ll buy a bag that you’ll use. Maybe you’ll buy a tie, maybe you’ll buy a wallet, homewares, furniture, or any of the other things over time that they sell. That will have utility, but it’s connected to this dream.
Ben: Yes, you’re taking a piece of that dream with you, and it’s almost a daily reminder of the dream that you’re now participating in. The key insight is that by adopting art as a critical piece of the bundle that is your product. It enables you as the seller to completely switch tracks to disconnect from any evaluation of value.
David: Right, or features.
Ben: Exactly. You’re out of the feeds and speeds world. You are not being comped against, well, this other purse is much cheaper and serves the same function. Now, we have bundled in the function of the object and an unevaluatable…
David: Priceless feeling.
Ben: A priceless feeling. Now, we can sell the goods for whatever we want, because it’s impossible to know the value of that second component that we’ve bundled in.
David: Yeah, totally. Speaking of dreams, we’re now in the 1950s in the post World War II era, the most amazing, unbelievable, fantastical dream of the 1950s happens to Hermes in real life. That dream is Princess Grace Kelly.
I mentioned a little while back that one of the first things that Robert did when he came into the business was redesign the handbag and christen it the Sac a Depeches. It becomes popular, but we’re talking about leather goods, handbags, important, but that was the previous generation of the business. Now under Robert, it’s the scarves, it’s the dream, it’s all this stuff. Leather’s part of it, but a smaller part.
In 1956, Princess Grace Kelly of Monaco, this is a girl from Philadelphia, an American girl who goes on to become a movie star, who then goes on to become Princess Grace of Monaco. I can’t imagine a bigger dream for any woman or any person in the 1950s. She is photographed using the Sac a Depeches in Life magazine.
Ben: On the cover of Life magazine.
David: The legend is that it was on the cover of Life magazine, but I googled a lot of 1956 covers of Life magazine, and I didn’t find it on the cover.
Ben: Interesting. Maybe that’s been played up over time.
David: This might have become part of the lore. Regardless, big picture in Life magazine. She is clutching her beloved Sac a Depeches to her midsection.
Ben: It’s almost like as she’s exiting a building. It almost seems like it’s a paparazzi type photo.
David: It’s a paparazzi photo. Her husband, Prince Rainier of Monaco is holding the door behind her. It’s the most dreamlike thing you could imagine. It’s in black and white. The reason that she is clutching this fairly large bag, unbeknownst to the world at the time, is she’s trying to hide her pregnancy from the paparazzi. She’s pregnant with her first daughter.
This photo just becomes iconic. Everybody wants to be Grace Kelly. Everybody wants to have this bag. One of the last things that Robert does right before he retires in 1977 is he officially changes the product name of the Sac a Depeches to the Kelly bag. This is the birth of, I don’t even know what to call it. The Kelly and the Birkin are ends of ones, but these leather good products that transcend everything, that are so truly N of one. There’s no other way to describe them.
Ben: There is so much to say about these bags, how they’re crafted, the lore around them, and the supply, demand, and the econ 101.
Ben: Okay, David, Life magazine, the Kelly bag. It’s out. This thing must sell like hotcakes, right?
David: Yes and no. Certainly, this plays right into this whole dream thing that we’ve been talking about and burnishes Hermes’ already incredible brand and image. My god, Princess Grace Kelly of Monaco is carrying this bag, not just carrying this bag, but it’s her favorite bag, the closest thing to her body. But we’re still in the fifties here, so yes, it becomes incredibly popular.
Yes, I’m pretty sure it becomes Hermes’s biggest selling bag, but the market isn’t quite there yet in the way that it is today with the Birkins and the Kellys. The global rich isn’t that big of a population. I’m sure they’re all buying Kellys, but Robert probably knows all of these clients personally at this point. We’re not anywhere near the scale that we’re talking about today.
Ben: To your point, I keep saying it’s launched. It’s not really launch, they just rebrand to the Kelly bag. When the Kelly bag is formally launched, it’s really expensive. It’s a $900 handbag in the 50s, which today is $10,000-$12,000, approximately the price of a Kelly bag today. It comes out that as this thing that is completely ridiculous and inaccessible price wise, the people who are buying it are the Grace Kellys of the world, and there’s not really this stratified class below that that’s got this huge amount of purchasing power.
David: Right. The number of people who could spend the equivalent of $12,000 on a bag back then was just much, much, much smaller than it is today.
Ben: Yup, exactly. No, handbags do not immediately become a huge part of the business or I should say the dominant whatever it is today, six or seven times larger than silk part of the business right away.
David: In fact, actually, sadly, quite the opposite happens. As we head through the 60s and into the 1970s and the end of Robert’s tenure and his generation as the head of Hermes, the company starts to fall on hard times.
Ben: Which is crazy to say. I remember this moment in the Porsche episode, you’re like, no, come on, Porsche skinnied down the entire lineup to only making the 911 because they couldn’t justify any of the other products, and the whole company was a freaking mess. Hermes is not quite in those dire of straits, but they have the ingredients of Hermes that we know today. They’ve got the Kelly bag, they’ve got the orange box. They’ve adopted the logo.
David: They’ve got the scarves.
Ben: They’ve got the scarves. They have these small workshops where they make everything, but it’s not working yet.
David: It’s particularly not working because like we just talked about, that market was not that big yet. As we entered the 1970s, something really funny happens. The next generation rejects that dream. This is you and me, our parents’ generation, the hippies, the 1970s. This is democratization. Little girls don’t want to be Grace Kelly anymore. They want to be Stevie Nicks or something like that.
The dream of Hermes that was once so elegant and so desired by so many people but inaccessible, it certainly still got its audience, but it’s not as universal. This is when so many of the other what we now think of as luxury brands really start to come up. We talked about this on the LVMH episode, but they’re connected to fashion. It’s first Dior, and then it’s Yves Saint Laurent. This is the Mondrian dress from Yves Saint Laurent. This is the revolution. It’s Gucci. It’s Chanel in the 80s when Karl Lagerfeld takes over. What they’re selling is very, very, very different than what Hermes is selling.
Ben: This is an important distinction between Hermes and all the brands you just named. They come from the world of couture, of fashion, and of cutting edge, in your face, risky art. Mind you, by this point, they’re already 120 years old, 130 years old. They come from the world of leather, horses, durable goods that stand the test of time, and frankly, styles that stand the test of time. It’s not how creative and crazy we can be, they talk about it as responsible growth.
What’s the smallest amount that we can move from our current compass in order to do what our clientele wants while staying true to our roots? It’s a rejection of risk and an almost embrace of history. It’s super different than most other luxury brands, which as you point out come from fashion.
David: Right, and those brands are getting born or reborn right there in the 1970s.
Ben: Yes. David, this is probably a good time to share who we chatted with in preparation from this episode and his observation about Hermes.
David: Yes. This was super cool. One of the things that for me and for both of us just blows our mind as Acquired grows. We got to talk with Domenico De Sole, who was CEO of Gucci, during the fight with Bernard Arnault that we chronicled. Really, I think that was the best part of our LVMH episode.
Ben: Absolutely. When Domenico De Sole, Tom Ford, and that team rejected Bernard’s takeover and managed to not become a part of LVMH. Obviously, then Domenico and Tom Ford left to start Tom Ford after that.
David: It was super cool. We talked to Domenico. He comes from that world. Even with the heritage of Gucci, he and Tom, it was fashion first in his perspective. I think the perspective of many folks that are coming out of this 70s, 80s era of luxury, that’s what’s interesting. That’s what’s fresh.
Ben: Risk on, baby.
David: Risk on, yeah.
Ben: Let’s figure out how to break some glass in what we’re doing.
David: Grace Kelly is not breaking any glass.
Ben: Right. That Domenico helped us understand about Hermes is they have been so protective of their brand and this unbelievable steward. They’re so careful at how they’ve chosen to deploy the brand. They make sure that the mystique is always there. They don’t violate the promise. They never cut corners.
They have been above board in their brand promise and keeping that promise with customers for over a hundred years. That is a strength and a weakness. It’s a strength as long as you learn how to employ it as a strength. In the world of fashion, it’s butting heads.
David: Yeah, it’s antithetical to fashion.
Ben: Yes, exactly.
David: All this culminates towards the end of the 1970s as Robert is nearing the end of his tenure at Hermès and the end of his life. Sadly, there’s a moment. This is in probably 1977 or so, where they bring in consultants and the consultants recommend like, hey, you guys should probably do what Gucci is doing. You should probably close the atelier above the shop at the Faubourg, you should probably outsource production, and you should probably increase your number of products, your SKUs, have lower prices, and have them be more accessible.
Ben: Unbelievable.
David: That was the accepted wisdom at the time. I don’t know if it was McKinsey or who was saying that.
Ben: Today, I will tell you that Hermes has a corporate policy of no consultants, and now I know where that came from.
David: This is enshrined in the luxury strategy is anti law of marketing number 19, do not hire consultants.
Ben: Wow. The recommendation was to come in and destroy everything that makes you special and follow the playbook that everyone else is running.
David: Yeah. It’s working for them, and it’s not working for Hermes.
We explore the four pillars of effective leadership: Communication, Accountability, Resilience, and Empathy.
The Complete History & Strategy of Hermès In luxury, there’s Hermès… and there’s everyone else. Stewarded by one French family over six generations, Hermès sells
The Complete History & Strategy of Hermès In luxury, there’s Hermès… and there’s everyone else. Stewarded by one French family over six generations, Hermès sells
The Complete History & Strategy of Hermès In luxury, there’s Hermès… and there’s everyone else. Stewarded by one French family over six generations, Hermès sells
