A Fairy-tale in Orange

 

They wrote fashion history with their iconic bags, and are one of our time’s richest family-businesses. Hermès has built an empire over 175 years with a turnover equal to half the Swedish defence budget. But one autumn day, in October 2010, the French company’s future was suddenly in question.

 

“Do you see? her stitching leans a little more than the others, like on this bag for example. All craftsmen have their own style,” says François Dupuy, comparing two Kelly-model handbags with each other.

Hermès’s studio, in the tightly-packed immigrant suburb of Pantin outside Paris, is foreman François Dupuy’s kingdom. He makes sure that 28 craftsmen have what they need to make the label’s leather and travel goods. The components are delivered in small, flat cardboard boxes, one for each bag. In the boxes are the pre-cleaned pieces, ready to be sewn, glued and polished.

The atmosphere in the studio is reminiscent of a library.

Here only the rhythmic tick-tick-tick of the sewing machines is heard and the occasional hammer as it carefully strikes a copper nail. It smells of leather and wax.

The contrast between the rolling billions of the global luxury industry and the quiet work in Pantin feels huge.

Every bag which leaves the studio is sold for a price higher than the average Swedish salary.

“Our craftspeople make everything by hand, from A to Z,” continues François Dupuy. “The advantage is that every worker is then completely responsible for the product which he or she makes from beginning to end. You don’t feel the same responsibility for a product if you sew just inner pockets every day.”

Isabelle Arnadi, who is responsible for the leather products department, nods eagerly in agreement. Every Hermès product is unique:

“The handle’s shape and curve are different depending on who made the bag,” she says and shows a handle that hasn’t been sewn up yet. Its insides are filled with four layers of leather, which give it the right shape. Some of the pieces in a handbag are sewn with a machine, but the places where the bag will be put under strain, the handle for example, are always sewn by hand. One meter an hour, on average.

A seamstress shows how she oils the thread with beeswax. The golden-yellow and honey-scented wax, that resembles soap, makes the thread water-proof and prevents it fraying from friction with the leather during sewing. No detail is neglected.

“The wax comes from a small family-business in South Africa that we’ve worked with for decades. We are as a rule very loyal to our suppliers,” says François Dupuy.

It’s often over suppliers that different fashion-companies are now fighting.

It is, for example, difficult to find good crocodile skin, Isabelle Arnadi tells us, and points to a Polochon – a simple tube-shaped bag with two handles. The original was made in 1925. This example is now sewn in porosus skin, from freshwater crocodiles.

“It’s about finding skin that has as regular a pattern as possible and that isn’t scarred. Crocodiles tend to fight and bite each other. The older they are the more scars they have on their skin. At the same time, Crocodile breeders are reluctant to sell the skin before the animals are grown,” says Isabelle Arnadi.

Sometimes she can wait months for an especially fine crocodile skin, and this in turn has consequences for profit margins.

So no one wants to put too much pressure on the craftsmen in Pantin when they’re working the skin. A miss-stitch can make the material unusable. It concerns precise movements, only the craftsmen being able to feel how fast to proceed.

It’s these kind of tensions in the raw-materials market that have pushed prices through the roof and caused the fashion giants to want to safeguard supplies.

In October 2010, the fashion world’s largest firm, Louis Vuitton Moët Hennessy, bought up Crocodile-tannery Heng Long on the Singapore stock exchange for 830 million Swedish krona. Heng Long produces a few hundred-thousand porosus skins a year.

Worldwide there are only four or five tanneries of this size. The family firm’s turnover increased by 50 percent in 2010 and profits doubled. This type of company are the real winners as the players of the luxury-industry struggle for global domination.

And in this struggle, just over a year ago, the control of Hermès itself was suddenly at stake.

Louis Vuitton Moët Hennessy (LVMH) turns over 927 billion Swedish krona annually and is owned by Bernard Arnault – the world’s fourth richest man, according to Forbes. Arnault began his career in the ’70s and ’80s by investing his family’s fortune – made in the building industry – into brands then in crisis, like Christian Dior and Louis Vuitton.

He slowly bought up fashion house after fashion house, and in his hands they became gold mines. The 1990s’ trends for top models and star designers has much to thank him for. His jewel in the crown at LVMH is Louis Vuitton, a business that today has around 400 shops in over 50 countries. In 1977 Louis Vuitton had two.

Sonja Prokopec is responsible for the special LVMH-chair, an MBA tailor-made for the luxury industry, at the Essec business school in Paris. Prokopec sums up the firm’s expansion over the last 30 years.

“LVMH was the first to have an extremely sophisticated business organisation and a global strategy. They have never hesitated to recruit managers with experience from the mass market, like Unilever for example. They’ve dared to combine the same tools for the marketing of mass market products, adapted for the luxury industry.”

All this while preserving and developing the luxury industry’s own special talents.

In autumn 2010, it became apparent that LVMH had bought nearly every fifth share in Hermès. Without Hermès itself realising.

This knotty affair can be summarized as follows: Bernard Arnault, via equity swaps and investments in tax havens, was able to discretely buy securities that he could then, on 23 October 2010, exchange for actual shares in Hermès, before regulators suspected a thing.

The affair caused an outcry in the smart salons of the luxury industry. French politicians debated intensely how laws and financial rules should be changed to prevent something like this happening. Arnault began with a 17 percent share, but has since gradually but clearly increased it to 22 percent.

“We’re not intending to walk away from the company now that we’re actually here. I intend to be a peaceful owner, but not passive,” explained Bernard Arnault to the financial press.

At Hermès they feared that the multi-billionaire didn’t intend to be satisfied with less than full control.

“This encroachment is not peaceful! This isn’t a financial struggle, but a struggle between two cultures. Of course we would be able to double our profits in five years, but Hermès would die a slow death at the same time,” said Patrick Thomas to La Figaro Economie in one of their first statements after the affair. He is chairman of the board at Hermès and represents the roughly seventy shareholders from different branches of the same family.

With these two cultures, Thomas is referring – according to Sonja Prokopec – to the companies’ different views on growth.

“Hermes has always been more conservative when it comes to growth. If you want to cause lots of growth then you need to make more, reasonably-priced products. The risk with this, is that Hermès will in the long run lose it’s exclusive caliber,” she explains.

A caliber that the firm has worked towards for 174 years.

Many of the roughly-seventy French Hermès heirs are today billionaires. The long road there started in a small shop on Rue du Faubourg Saint-Honoré in Paris in 1837. It was there that saddle-maker Thierry Hermès opened a studio and shop that grew over the years. The arrival of the automobile, barely a hundred years later, could have killed the saddling business, but Thierry’s heir was shrewd enough to broaden into travel-goods and fashion.

One much talked-about milestone was in 1956 when princess Grace Kelly of Monaco hid her pregnant belly behind her Hermès bag. The bag became so popular that Hermès renamed the model from Sac à Dépêches to Kelly, after the princess. Hermès is still proud of being one of the world’s best saddle-makers – with a studio at the same address since 1837. But with the help of its clothes, scarves and perfumes the company has grown and today is three times larger than automobile manufacturer Renault on the Paris stock exchange.

The family empire that Patrick Thomas leads employs 8,300 people and turns over 22 billion Swedish krona, which is equal to half Sweden’s defence budget.

When Hermès shows its men’s spring and summer collection for 2012 it’s a warm summer evening in what was formerly a cloister, then a faculty of medicine, in Paris’s Latin quarter. The models march forward in a courtyard in the botanical garden under the stern gaze of marble-busts. It is elegant and stylish.

At Hermès, luxury is almost a dirty word:

“I prefer to talk about quality,” Hermès’s managing director Patrick Thomas tells Icon.

Hermès is growing so fast that it’s creaking, and its motto is to want to “be bigger, but not fatter.”

“We already find it difficult to supply our current shops with products and to produce on time. We can’t make unlimited amounts,” says Patrick Thomas.

“Hermès approaches its customers in a completely different way than, for example, Louis Vuitton. Neither Louis Vuitton or any of the other big manufacturers are even close to Hermès price level. Hermès isn’t as loud with its marketing either,” says Sonja Prokopec the LVMH-chair at Essec.

This, explains the Hermès owner, is why their handbags aren’t comparable with the competition’s products. And it isn’t anything to do with geography.

“Take this handbag, for example,” says Patrick Thomas, and points to a handbag in red, plaited leather that his wife has on her arm.

“It’s not made in France. It’s made in India, not because it’s cheaper, but because the craft-skills to be able to make this particular plaited pattern don’t exist here in France. We manufacture where the best skills are. We aren’t conservative or fixated on France,” he says and taps with his forefinger on his Swiss-made Hermès watch.

Patrick Thomas means that time is the decisive factor in the company’s growth. Nothing is done too hastily. It may seem natural that a firm that has been a textile and saddles specialist for a hundred years should start making curtains and chairs, for example. But even so, it was only last year that Hermès presented an extensive interiors collection.

“It took us time to find the right partners. And it must be able to,” says Patrick Thomas

Together with B&B Italia and Dedar from Italy, the company has begun manufacturing sofas, tables and arm-chairs, not just for well-to-do private customers but even for luxury hotels, as well as the aviation and boat industries, in the long run.

The Hermès sofas that are produced in Italy and now sold in Paris are priced at around 300,000 Swedish krona.

Hermès is globalising in its own way. They don’t hesitate, for example, to move manufacturing to China. But not for Hermès clothes and belts, instead as a chance to use the thousand-years of Chinese expertise in porcelain manufacture. In 2010 the brand Shang Xia (“Up and Down”) opened it’s first interior-decoration boutique in Shanghai. It’s the fruit of a collaboration between Hermès and the designer Jiang Quiong Er. Hermès engaged the designer to dress windows before discovering that they had much more to accomplish together.

Now the goal is to make Shiang Xia the Chinese answer to Hermès.

“It takes ten days to plait the bamboo-handle on one of our tea-pots,” says Jiang Quiong Er to Madame Le Figaro in an interview.

“Many Chinese are rediscovering their own culture and roots. I allied myself to Hermès because it’s a house that’s steered by culture, not financiers,” says Jiang Quiong Er to the newspaper Lacroix.

Like the vigour of a Chinese craftsman, Chanora Sekarumugam stands in the Pantin studio outside Paris bowing over a Kelly bag. He uses a small hammer to strike a metal pin which in turn “pearls” a copper nail.

“It’s called that because you have to make the top completely round and smooth like a little pearl,” says foreman François Dupuy.

The difficulty is striking just hard enough so that you don’t ruin it, but then there’s a point where you have to hit it properly,” says Sekar, as he calls himself. Beside him hangs a list of special orders including a Birkin handbag in fuchsia, violet and “rose shocking”. The client lives in Japan. She is prepared to wait months for her bag. And it’s not just her who’ll take pride in it.

“Two months ago, one of my bags ended up in the window display at the Hermès store on the Rue du Fauboug Saint-Honoré in Paris. I texted all my friends – “Go and look! It’s my bag,” says craftsman Nicolas Laban.

He’s 27 and has worked at Hermès for six years. He speaks quietly, with a shy voice, but is bubbling over with pride for his work. Nicolas Laban says that all his friends are envious of his work, when every day he gets to create something with his hands.

“It takes five years of training before you really know what you’re doing. Then you get to begin sewing your own bag.”

Unlike the majority of the world’s fashion companies, who’s turnover rests on equal parts perfume, accessories and clothes, half of Hermès’s sales are made up of leather products. The rest is, if not irrelevant, at least subordinate. It is leather that remains Hermès’s strength. When it comes to clothing fashion, Hermès has never been particularly avant garde, suggests Le Monde’s fashion writer Joël Morio:

“The men’s collection has been drawn for twenty years by Véronique Nichanian. She makes refined but extremely classic collections. It hardly revolutionizes fashion,” he says.

After sampling Jean-Paul Gaultiers’s bubbling creativity in the women’s collections for several years, the collaboration ended in 2010. Hermès preferred a tighter line for it’s women’s collections.

Instead Christophe Lemaire was recruited from Lacoste, recognized as a gifted designer but somewhat more pallid. Hermès delegates fashion that springs from exuberant creativity and a drop of madness to the competition.

The struggle for control over the company was won by Patrick Thomas, the first Hermès manager selected from outside the family circle. Together with a large section of the owning family he fought – till christmas 2011 – to lock a bare majority of the owners into a holding company called H51. The dispute caused share-prices to go through the roof.

And much indicates both LVMH and Hermès will be able to continue growing. Each in their own place, and paced to the increase in the number of both rich and super-rich in the world.

The global struggle, which both nations and luxury firms are committed to, isn’t to do with technical competence and advantage. Everyone can get to grips with technology these days, as former IMF chief Dominique Strauss-Kahn underlined in his first lecture after the sex scandal. We are beholding the end of a two-century long historical parenthesis during which the few could dominate the many with superior technology.

“The trend can’t be stopped. What we see today is the end of technical specialism,” said Dominique Strauss-Kahn.

The combination of creativity, perseverance and reliability is therefore something that is becoming more and more difficult to buy. This bodes well for the leather and wax scented studio in Pantin. Also for the Chinese man who painstakingly, and with ancient technique, is plaiting the handle of a teapot.

    Text Magnus Falkehed
    Foto Johan Sandberg
    HERMÈS

    Turnover: 22 billion Swedish krona

    Employees: 8,300 people

    Own shops: 193

    Strengths: Sober mark of quality. As if made for the filthy-rich in a crisis.

    Weaknesses: Circumspection that touches on slowness. A production model that can’t alter tempo on command.

    LVMH

    Turnover: 927 billion Swedish krona for over 60 brands.

    Strengths: A financial colossus that is light-footed despite its size.

    Weaknesses: The competition haven’t found them yet. Many have tried.

    THE HISTORY OF HERMÈS

    1837
    Thierry Hermès begins producing articles for horses at 24, Rue du Faubourg Saint-Honoré.

    1878
    Founder Thierry Hermès dies.

    1900
    The Haut à Courroies-bag, a bag for saddle and boots created by Émile Hermès. The origin of the Kelly bag.

    1902
    The first car show in Paris. Émile Hermès realises that the future lies more in bags than horses.

    1929
    Hermès opens a store on Fifth avenue in New York. The heavy loan and economic crash drives the firm to the edge of bankruptcy. Subsequently the company is run carefully with its own money by successor Roland Dumas.

    1930
    Sac à Dépêches, later “the Kelly bag” created by Robert Dumas.

    1937
    Hermès makes its first silk scarf and begins a long tradition of beautiful, intricate patterns.

    1951
    Eau d’Hermès, created by perfume maker Edmond Roudnitska.

    1956
    Film-star Grace Kelly photographed with a Hermès Dépêsches-bag from the 1930s. The bag hid Kelly’s pregnant stomach and the episode led to the bag being later renamed the Kelly.

    1969
    Handbag Constance.

    1978
    Jean-Louis Dumas takes over the reins. Half the turnover now comes from silk scarves. Dumas wakes up the somewhat sleepy family-firm. Porcelain and fashion-talent pick up speed at the company.

    1981
    The British actress and singer Jane Birkin sits beside Hermès’s boss Jean Louis Dumas on a flight. She gets a bag named after her.

    1989
    Patrick Thomas is recruited and becomes Jean Louis Dumas’s closest co-worker.

    1992
    Hermès begins to boom. In the following 15 years, turnover increases eight-fold.

    1999
    A collaboration with Jean-Paul Gaultier is begun.

    2006
    Jean-Louis Dumas becomes ill. Patrick Thomas becomes board chairman.

    2010
    Bernard Arnault announces that he owns 17 percent of Hermès. Shock! The family solves the question of ownership with a new company structure. Bernard Arnault now owns 22 percent and has a place on the board. Hermès takes real steps into the interior design market.