With only about 300 stores, including a website — the only official place online to shop for its products — Hermès relies on a “very limited distribution strategy” to keep its products hot, the company’s president and CEO for the Americas said Friday at the Skift Global Forum in New York City.
“People want things that not a lot of people can get,” Hermès’ Robert Chavez told Skift President Carolyn Kremins. “That’s what it is like in the luxury world. Once something becomes very saturated, that luxury customer doesn’t want it anymore.”
Hermes has chosen not to pursue expansion strategies other luxury retailers sometimes favor, such as adding stores in secondary cities, putting boutiques in department stores, or even licensing brand names to hotels. Bvlgari Hotels & Resorts, for example, has properties in Shanghai, London, Bali and Dubai, among other places.
Hermes has been approached about similar partnerships, he said. But while the hotel deals can be profitable for the brands, the strategy can be risky.
“No, you won’t be sleeping in a Hermes hotel soon,” Chavez said. “Once you start to stray from your core business, we think you take the focus away from what you do best. We don’t think it’s the right place for us.”
He said the company prefers to work with hotels, which can send their best customers into Hermes boutiques. The stores, he said, can offer private experience to a hotel’s elite guests before the shops open or after they close.
“We love nothing more than to give your top customers a private appointment,” Chavez said, speaking to hotel operators in the audience. “We view it as opportunity.”
At its core, Hermès is still mostly an old-style retail operation that focuses on the human element.
It still does much of its business in-person and each store has a slightly different inventory, chosen by the store’s director, who flies to Paris a couple of times per year to choose it. Face-to-face communication with customers is so important Hermes won’t hire an applicant who doesn’t smile through the interview process, Chavez said.
Still, the online business is improving fast, he said. Last year, the company redesigned its digital experience to focus on mobile, and after that “business just skyrocketed,” he said. Internet sales are Hermes’ fastest growing business segment, he said.
Hermes sells everything online customers can find in stores — with one exception. The nearly impossible-to-get Birkin bag is only sold in stores.
“You have to give people reason to keep coming into the store,” Chavez said.
Read Full Edited Transcript of Interview
Skift: For the first half this year, Hermès’ revenues totaled $3.3 billion globally. And the best is that the stock hit its record high in May this year. So speaking of investments, it’s been said that one of the best investments to make is in a Birkin bag which, for those of you who don’t know what that is, it’s the best. It’s on the top of my bucket list, and it’s better to invest in a Birkin bag than it is in gold or the stock market. So Bob why don’t we start there? If you could tell us a little bit more about what a Birkin is and then, more importantly, the breadth of products you sell at Hermès.
Bob Chavez: Sure. The Birkin bag was created in 1984. It continues to be one of our best-selling products. Highly desirable. The demand continues to be much higher than the supply, which is why so many people talk about it as a great investment, but it’s something that people continue to appreciate and they know that it will continue to increase in value, but also it’s something that you’re going to pass on to the next generation and even the generation after that.
Skift: Let’s talk a little bit about retail. So you sell everything in the world of Hermès right? You’re selling everything from saddles to all the way to perfume, scarves, and I was in this store in Las Vegas and I saw like a $70,000 couch. But let me ask you about the brick and mortar part of the business, the retail part. You hear nightmare stories that just brick and mortar retail is trying to survive and yet, in contrast, at Hermès you have about 300 boutiques worldwide now. And you have so many more in the pipeline, so you’re doing something right there. So the question is what are you doing right in brick and mortar that keeps your business vibrant and fresh and is there something that we in travel can borrow a page from?
Chavez: I would say first and foremost that we have a very limited distribution strategy, especially if you look here in the United States. In the U.S. we have only thirty stores including our website, so people talk about limited distribution, but in today’s world with all the connections on the internet, you can’t fool people anymore and they know whether you’re being authentic and truthful or not.
Our strategy of keeping a very limited distribution has really worked very much in our favor. People want things that not a lot of people can get. I mean, that’s what it’s like in the luxury world and continues to hold true. Once something becomes very very saturated that luxury customer doesn’t really want that anymore. They want what’s a little bit more special, that’s a little bit more unique, and that’s definitely worked in our favor by keeping our distribution very limited.
The other thing that we have not done like most of our competitors is that you will not find Hermès shops inside of other department stores. You see a lot of luxury brands that have shops in Neiman’s and Nordstrom and Saks. We made a strategic decision about fifteen years ago that we did not want to be in that business. It made people a little bit nervous at first about what were we going to be doing to our strategy but it’s worked very much in our favor and the best example I would give is if you all remember what happened ten years ago. That holiday season of 2008 was a complete disaster and I remember walking into some of the department stores and I saw luxury brands sitting inside of tub tables with 50 percent off signs on them and we were spared that debacle only because we had already decided not to be in that business.
Skift: You don’t go on sale, do you? That’s like the naughty four-letter word?
Chavez: No it’s very very rare. We do have some exceptional sales. It’s only once a year and the location changes, so we sort of keep everybody wondering and scrambling, but it’s really just once a year and believe me people will fly in from all over the world once they find out where that three or four-day sale might be.
Skift: So how do you manage to keep a 180-year-old brand so modern? What advice can you give to the legacy travel brands on how they can stay contemporary? Is it a function of marketing or is it something else?
Chavez: I would say its a combination of several things. First and foremost it’s really about relevance and I know, particularly in your industry, when you look at all the things that have changed businesses so drastically. I know Chip was with Airbnb. I met him for the first time backstage, but when you look at how new businesses or disruptors are changing business, the most important thing that we think about all the time is the relevance, that we cannot become irrelevant in a fast-changing retail world.
The retail world is changing very very quickly, so how do we do that? That distribution is still very very important to us. If you look at dot com, the only authorized site for Hermès products is hermes.com. You can find Hermès products all over the internet, yes, but are they real? Are they reused products? You have no idea where they’ve come from, so that’s part of that limited distribution again, but it’s really all about how do we stay relevant in the fast-changing world?
Another element for us is our product. We change our products, we have classics of course, but every six months, our store directors, every store director from all over the world goes to Paris, twice a year, to buy the next season’s product. So why do we do that? Very few companies will send three-hundred individual store directors to Paris to buy for a week for their store. We do that because we believe that the store director is going to know their client much more intimately than anybody else is going to know that client. So they will actually buy things specifically for their client base.
What we sell in Beverly Hills is very different from what we sell in Boston, is different from what we sell in Tokyo or in Mexico City and our customers, our loyal customers have come to realize that, so if you go into Hermès and you find either a handbag or a scarf or a tie in a certain color, you know that you probably should buy it because the next store that you visit, the next city that you visit, you may not find that color. You might find that design, but you may not find that color, because it’s a different market. So product innovation, product development is what has also been very key to our success, as well as introducing new products.
We came out with a new product called a Twilly. It was a little, thin strip of silk. It came out about maybe eight years ago. We all sort of scoffed at it, thinking, “Who’s going to buy a little, thin piece of silk instead of buying the regular Hermès scarf?” Today it’s probably one of our top selling recruitment items because it brings the next generation into Hermès and then they graduate from there.
Skift: You spoke about innovation and the other side of innovation is failure. Is there anything that you’ve done that just didn’t work?
Chavez: Yeah, there’s several things that we’ve done that didn’t work. One was we were introducing chocolates about fifteen or sixteen years ago. That died after about the first week, so we know we’re not going to be in the chocolate business. We’ve had some locations which haven’t done well. In my eighteen years here in the U.S., we opened a store in Charlotte, North Carolina. Nothing against Charlotte, North Carolina, but after ten years we were still stuck at a certain level and we realized that the market really wasn’t ready for us. On the same head we’ve had other markets that have continued to thrive and then there are other products that we’ve introduced that have not been successful, but if you don’t fail then you’re not learning.
Skift: Very true. So segueing into e-commerce, you’ve been very successful. I think you were one of the very first luxury brands in the early 2000s to come out with your digital site and you would think that would be really difficult for an ultra-luxury brand to come forward with this really bold e-commerce strategy. Can you offer insights on this strategy and how you made it work for a brand like Hermès?
Chavez: Sure. We actually introduced our website in 2002 and we were one of if not the first luxury brand to sell online, and we did it for several reasons. One, we wanted Hermès to be more accessible and more approachable. One of the things that we realized is that when many of our clients came into the store for the first time, there was a big intimidation factor. The number one question at holiday time and I learned it because I spend time behind the counter every holiday season, to me, it’s very important to know what’s happening in the market and what are the customers saying or asking for.
The number one question that was whispered at the scarf counter, every holiday season, was “how much are the scarves?” They were a little embarrassed to ask the price of the scarves, so we thought that this would be a great way for us to communicate the price so the clients didn’t have to walk in and embarrassingly ask, “How much are the scarves?” Or, “What are you asking for them this year?” Those were very typical questions. So number one it was informational for customers.
Number two, we also made it whimsical. I don’t know if you remember our initial website, but our whole theme was don’t take ourselves seriously. We had small drawings, we had caricatures, we made everything much more whimsical, funny, and friendly and people were very surprised. They didn’t expect to see that, they didn’t expect to see that element of Hermès online and we sort of continued with that strategy for several years and we still do that today. It’s about how do we make ourselves more approachable and, again, not take ourselves so seriously and it’s worked.
Today our internet business is our fastest-growing business. We re-launched our website last year only to make it more mobile-first. I know that it takes us a little bit longer than everybody else, but once we went mobile-first, last fall, the business just skyrocketed.
Skift: I love the one thing you can’t buy online though is the Birkin bag.
Chavez: No, you cannot. You’ve got to give people a reason to keep coming into the store.
Skift: So Hermès is the gold standard in luxury and when you walk into an Hermès store, the service isn’t good, it’s not great, it’s like beyond. So how do you train your people? In travel, we have hospitality schools. How do you train for that job? What do you look for in talent?
Chavez: I would say the first thing, it starts at the hiring process and one of the thing that we always say at Hermès is that we can teach you everything about the product, we can teach you everything about the history, we can teach you everything about the company. We cannot teach you how to smile. So if in the interview, you’re not smiling, already you’re not going to get the job because that’s a key part of the type of people that we’re looking for. In terms of the training and the development, it’s really about immersing our team in the culture of the company, so we have all types of programs.
We have product development and training programs. We have selling and service programs. We send people to Paris for intensive training. The session that I talked about, the 300 store directors that go to do the buy. We select a group of salespeople that go to actually sell to these store directors, so when they get to Paris, they’re actually selecting the merchandise, so somebody has to be their salesperson there in Paris. So that gives people an in-depth training inside of the product and also understanding how it is that that buying process works and then they have a lot of what we call “Train the Trainer” programs so that they can then go out and train their fellow colleagues in the store. So it’s multi-pronged and it’s an ongoing program that we continue to do more and more depending on the tenure of the person that’s been with the company.
Skift: So you see other luxury brands like Bulgari and Armani that have transferred their cache into hotels. Will I be sleeping in an Hermès soon?
Chavez: No you won’t be sleeping in an Hermès hotel soon. We continue, you asked me what part of our success is. It’s just staying focused on our core business. Has the subject come up? Yes, it’s come up many many times. We’ve had many many offers from many companies to partner with them, but its not our core business and once you start to stray from your core business, we think you take the focus off what it is that you do best and, again, going back to that staying relevant, we don’t think it’s the right place for us.
Skift: Let’s take some questions from the audience. The first question is “do you see travel as a competitor as younger generations invest more in experiences instead of things?”
Chavez: I wouldn’t say that we see travel as a competitor because, for us, our customers, our customer base, they’re travelers and they love to come to visit us wherever in the world that we are. We see it more as an opportunity almost and I know we talked about this earlier at our breakfast a couple of weeks ago, but one of the things that we have to offer is that we would love to welcome your clients into our stores. All you have to do is let us know that they’re coming, or let them know that Hermès is there, but we love nothing more than to give your top customers a private appointment. We’ll see them at 8:00 in the morning, we’ll see them at 6:30 in the evening so for us, we don’t view it as competitive, we view it more as an opportunity.
Skift: The next question is “how much is a scarf?
Chavez: The regular classic scarf is $395. That’s going up next year so if you’re going to shop for one you better get one for the holidays.
Skift: I want to ask you this question, how do your pop-ups help you stay relevant because, in fact, you have a pop-up right now down in SoHo and I love the strategy behind it if you could just share it?
Chavez: Yes, we have two types of pop-up shops. This is the first commercial pop-up shop that we’ve done. It’s in SoHo on Greene Street. It’s only footwear. It’s only men’s and women’s footwear. Why did we do that? We did it as a recruitment. Footwear has become a recruitment category for us in a very very big way. It’s one of our fastest-growing businesses. We are opening in the Meatpacking District next year in April, so our strategy was to introduce Hermès into the downtown market. We are picking up a lot of new clients who are visiting us, people that would never shop up on Madison Avenue, and by capturing their names we are letting them know that we will be opening in Meatpacking in the spring of next year and we will invite them all in to come in and join us.
The second type of pop-up that we’ve done is a really experiential pop-up. We just did one a couple of weeks ago in the Meatpacking District and it was called the Carré Club, “carré” meaning scarf or square in French, and it was only for four days and it was really an experience where we brought six of our scarf designers who came from Paris and actually were drawing illustrations or coloring in a specific drawing of a scarf. So if you had a favorite artist or a favorite design, you could come and meet this artist and it was overwhelming the number of people that we had there. We put a little café in, we put in a small shop, you could be photographed wearing different silk, and we also had what we called a “carré-oke” area where a lot of people were filmed singing crazy, crazy songs, but it was really just to engage and to again go back to that feeling that how do we make Hermès more approachable. That was the most important thing for us.