Dethronement in the luxury world: Hermès overtakes LVMH

The luxury industry is no stranger to economic anxiety

LVMH, which owns iconic brands such as Louis Vuitton, Dior, Tiffany & Co. and Sephora, reported a 3 percent drop in sales in the first quarter. American consumers have cut back on beauty spending while China continues to show weak demand, severely affecting the company’s model of focusing on the lower-end luxury segment.

LVMH has been the undisputed leader in the sector, but it is sensitive to market fluctuations, as it is “more exposed to changes in consumer sentiment and purchasing power,” as Yelena Sokolova, Morningstar’s chief equity analyst, put it.

Hermès: fewer products, more exclusive customers

In contrast, Hermès’ business model seems stable and crisis-resistant. Birkin and Kelly bags, which cost a minimum of $10,000, are symbolically and financially out of reach for the average buyer. The brand relies exclusively on the ultra-bohemian, ultra-rich class, and generates 6-7 percent annual growth almost automatically.

“Hermès’ market penetration is very telling in the post-Covid world,”

– says Flavio Cereda, an expert at GAM fund management. According to him, LVMH has reached a wider audience, but at the same time it has become much more vulnerable.