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Hermès fashion house now valued higher than Société Générale

Luxury brand puts France’s second biggest bank in the shade as it is valued at €28bn on the Paris stock exchange

The fashion pack has always known a Hermès handbag is a good investment but the clamour to invest in the exclusive French handbag-maker has given it a new wow factor: the super-luxury group is now valued far more highly than France’s second biggest bank, Société Générale.

The firm behind the famous Kelly and Birkin bags, which can easily cost more than a car, and the Queen’s favourite headscarves is now valued at more than €28bn (£24.5bn) on the Paris stock exchange, while SocGen is worth €18bn. The disparity means the nimble fingers of an Hermès artisan, who spends up to 24 hours painstakingly stitching a bag with one long waxed thread, are valued 30 times higher than the moneymaking brainpower of a SocGen investment banker.

“It is extremely demanding to turn 700-odd bits of leather into a useful bag,” says Pierre-Yves Gauthier, head of research at AlphaValue, who says that with a fraction of SocGen’s staff and turnover, Hermès’s market capitalisation equates to €3.3m per employee.

Luxury goods sales have bounced back from the hiatus caused by financial crisis thanks to the growing ranks of the super-rich in emerging markets such as China who are shopping till they drop at home or abroad. This week Hermès said its sales jumped 22% to €1.3bn in the first six months of the year as consumers in important markets such as the US, which were battered by the recession, rediscovered their taste for the finer things in life.

Indeed such is the demand for the firm’s coveted handbags that Patrick Thomas, chief executive, warned of a shortage that would stifle sales in the coming months. “We can only make so many bags,” he said, adding that Hermès had hired 400 new staff to raise production of leather goods by nearly 10%.

With 174 years of experience under its buttery leather belt – and still 73% owned by about 60 members of the sprawling founding family – luxury experts put Hermès in a class of its own. Thomas told one interviewer recently: “We try to do poetry and we get excellent economic results.” That poetry comes at a price: the Birkin bag, for example, which is named after singer Jane Birkin, starts at £5,400 but can cost as much as £100,000 in exotic skins such as saltwater crocodile.

In the company’s main workshop in the Paris suburb of Pantin, time has stood still. There, 340 craftsmen and women spend 18-24 hours handsewing each bag. Only the zipper and inside pocket are finished by machine. Orders can be delayed for several years as the company scours the globe for the right colour of crocodile.

Harrods managing director, Michael Ward, says the waiting list is “the new VIP pass” and after what can be an 18-month wait for a Birkin the store performs an “opening ceremony” when the box arrives: “The last person to touch the bag was the artisan and when [the customer] opens the box she is the next one to touch it.”

María Eugenia Girón, a professor at Madrid’s IE business school and author of Inside Luxury, says customers will pay for expert craftsmanship that has been passed down through six generations of the business, founded in 1837 by Thierry Hermès, a French harness-maker who supplied the royal houses throughout Europe. “Hermès has the magic combination of tangible and intangible brand values,” says Girón. The craft skills make its handbags unique but there is the stardust sprinkled on products such as the Kelly, named after Grace Kelly, which imbues them with the qualities of the princess famed for her style and beauty, she explains.

Girón says Hermès has never made sunglasses because it does not believe it has the rigorous level of manufacturing expertise that would enable it to make “unique, authentic products”. You get the picture when you learn that the material for its famous coloured scarves is woven in Lyon from silk raised on its own farm in the mountains of Brazil and the fragrance Un Jardin sur le Toit, launched earlier this year, was concocted by Hermès’s own perfumier in Grasse, the world’s perfume capital in the south of France.

Pierre Mallevays, a former head of M&A at LVMH, who now runs boutique advisory firm Savigny Partners, says much of Hermès’s current success is down to the “brand vision” of Jean-Louis Dumas who took the helm in the late 70s. Dumas relaunched the Kelly in bright colours and introduced the bigger Birkin after a chance meeting with the actress on a Paris-London flight. Birkin told him her Kelly bag was not big enough. “Hermès owns that unique “artisan” space where it can charge a fortune based on the perception that its products are the ultimate degree in craftsmanship and use of the best materials,” says Mallevays.

Hermès shares are up 70% this year, closing the week at around €270, turbocharged by the unexpected – and unwanted – arrival of the predatory LVMH luxury group on its shareholder register. The Krug-to-Kenzo group, overseen by Bernard Arnault, France’s richest man, has snapped up a 21% stake in Hermès, saying its intentions are friendly.

The Hermès family and Thomas are determined to retain the company’s independence with the latter memorably telling a press conference this year that: “If you want to seduce a beautiful woman, you don’t start by raping her from behind.” Rather more politely, the company has said of LVMH: “[There is] an intruder in the garden but we don’t want him in the house.”

A merger, Thomas added recently, would “kill” Hermès: “You would keep the brand and keep the name, but Hermès would be dead.” © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds