Hermès: How a Family of Craftsmen Built a $200 Billion Luxury Empire by Refusing to Mass-Produce

Hermès makes some of the world's most desirable handbags, yet having enough money to buy one does not guarantee that a customer can obtain it.

That unusual relationship between demand and availability helped turn a Parisian workshop founded in 1837 into a luxury powerhouse valued at more than $200 billion when the Acquired podcast examined it on February 20, 2024.

The company had survived the disappearance of horse-drawn transportation, changing fashions, two world wars, an international takeover attempt and six generations of family leadership. Its greatest commercial success came not from abandoning traditional craftsmanship but from finding a way to expand it.

By 2025, Hermès was generating €16 billion in annual revenue and €6.57 billion in recurring operating profit, a margin of 41%. The company continued to grow even as parts of the luxury market struggled. Its October 22, 2026 trading update reported €12.26 billion in revenue for the first nine months of 2026, up 5.5% at constant exchange rates.

finance.hermes.com

Hermès Finance

+1

Those figures present a striking contradiction. Hermès manufactures physical goods using expensive materials, highly trained craftspeople and production methods that can take years to master. It deliberately limits manufacturing scale, maintains selective distribution and generally avoids selling its most coveted bags through ordinary online checkout.

Most companies would consider these restrictions obstacles to growth. For Hermès, they form much of the reason customers are willing to pay so much.

Its history shows how that system developed, why it is so difficult to copy and where the company's commitment to exclusivity creates genuine problems.

1. From a Paris Harness Workshop to the Automobile Age

Thierry Hermès: An unlikely founder of French luxury

Thierry Hermès was born in 1801 near Düsseldorf, in what is now Germany. His father was French, his mother German, and his family operated an inn.

According to the family history recounted by Acquired hosts Ben Gilbert and David Rosenthal, Thierry lost his parents and five siblings during the Napoleonic era, through a combination of war, famine and disease. By approximately 1821, he was the family's only survivor.

He moved to Normandy and spent around 16 years learning leather craftsmanship under a master specializing in equipment for horse-drawn carriages.

In 1837, Thierry opened his own workshop on Rue Basse-du-Rempart in Paris. He made harnesses and carriage fittings for wealthy customers who expected extraordinary quality.

Horses occupied a position that automobiles would later inherit. They provided transportation, but the quality of a carriage and its equipment also communicated the owner's wealth, taste and standing.

Thierry became known for exceptionally fine work. Hermès's own company history records that his harness-making earned recognition at the 1867 Universal Exhibition.

His background was remarkably similar to that of Louis Vuitton, born in 1821. Both came from modest circumstances, became craftsmen serving the wealthy and eventually created businesses associated with the highest levels of French luxury.

Their products, however, faced very different futures. Vuitton's trunks would remain useful as railways, ships and automobiles transformed transportation. Hermès's original business depended on horses.

Napoleon III and the changing meaning of status

Thierry arrived in Paris during a period of profound social and physical transformation.

Under Napoleon III, Baron Haussmann rebuilt much of the city, replacing narrow medieval streets with grand boulevards, monumental buildings and open public spaces.

These changes created opportunities for wealthy people to display their possessions and social standing. Carriages that once traveled along crowded streets could now be seen prominently in an increasingly theatrical urban setting.

The social meaning of wealth was changing too. Inherited aristocratic titles remained important, but achievement, money, professional success and public office increasingly provided other routes to status.

Luxury objects helped communicate those positions.

The relationship between political influence and craftsmanship was especially visible through Empress Eugénie, Napoleon III's wife. She became a customer of both Hermès and Louis Vuitton. Hermès supplied carriage equipment; Vuitton supplied trunks, luggage and packing services.

For two craftsmen who had begun without aristocratic connections, serving the imperial court provided exceptional commercial credibility.

The second generation creates the equestrian foundation

Thierry died in 1878, leaving the company to his son Charles-Émile, who had already spent approximately two decades learning the trade in his father's workshop.

Charles-Émile expanded into saddlery, allowing Hermès to serve customers who rode horses themselves rather than simply traveled in carriages.

In 1880, he moved the workshop and store to 24 Rue du Faubourg Saint-Honoré.

That address, known within Hermès as le Faubourg, became the company's iconic headquarters and flagship. The surrounding district developed into one of the world's foremost luxury-shopping destinations.

The move also established a practice that later generations maintained: the people responsible for the business were expected to understand the objects being produced.

Charles-Émile's sons, Adolphe and Émile-Maurice, continued this tradition when they inherited the business in 1902 and renamed it Hermès Frères.

Émile-Maurice had already demonstrated considerable ambition. In the late 1890s, he reportedly traveled to Russia with miniature samples of Hermès products, secured access to the Tsar's court and obtained orders substantial enough to require additional workshop capacity.

That willingness to travel, experiment and pursue unfamiliar customers would become important when the automobile threatened the company's entire market.

The saddle bag that became more important than saddles

Around the turn of the twentieth century, Hermès introduced the Haut à Courroies, a large leather bag intended to carry saddles, riding boots and other equestrian equipment.

It was originally an accessory to the principal business, not an attempt to enter the fashion market.

Yet its construction contained features that would become central to Hermès's most valuable handbags: a trapezoidal body, belt-like fastening and turn-lock closure.

The original bag was much larger than a modern Kelly or Birkin because it needed to accommodate riding equipment.

Its commercial importance became clear only later.

The company had unknowingly created a product that could survive the disappearance of the transportation system it was designed to serve.

Émile-Maurice meets Henry Ford

During the First World War, Émile-Maurice traveled to North America as a French military officer studying industrial production.

In 1916, according to the episode, he visited Detroit and met Henry Ford.

Ford's production system was unlike anything associated with traditional European leather workshops. Model Ts reportedly emerged from assembly lines approximately every three minutes, while annual production approached half a million vehicles.

Émile-Maurice recognized what such capacity meant.

Automobiles would become accessible to an expanding population. The wealthy would increasingly travel by car rather than carriage. Continuing to manufacture only horse equipment would eventually leave Hermès serving a shrinking market.

He also recognized valuable lessons in American manufacturing. Hermès did not reject industrial efficiency altogether; it adopted selected improvements while preserving individual craftsmanship.

That distinction remains important. Hermès's operating philosophy is not simply opposition to technology. Its preference is to use technology where it improves the product without destroying the qualities for which customers value it.

The zipper and the disagreement that changed Hermès

During his North American travels, Émile-Maurice also encountered an innovative fastening mechanism known as the close-all, an early zipper.

He recognized its potential for clothing and leather products.

The episode associates the discovery with the 1916 journey and describes a two-year exclusive French license. Hermès's official chronology provides a useful distinction: it dates the acquisition of exclusive rights to 1922 and identifies a military vehicle's cover in Canada as the inspiration.

Hermès became an early adopter of zippered clothing and accessories, including a leather golf jacket associated with the future Duke of Windsor. The fastening reportedly became known in France as the Hermès fastener.

The more important innovation was organizational.

Adolphe wanted to preserve the traditional equestrian operation. Émile-Maurice believed that Hermès needed to make products for a changing world.

In 1919, Émile-Maurice bought out his brother, obtaining the freedom to redirect the business.

Rather than abandon leather craftsmanship, he reportedly asked what the company's existing artisans could make that contemporary customers would want.

The answer increasingly involved bags.

Automobiles created demand for smaller, more practical luggage and accessories. Émile-Maurice's wife reportedly complained in 1922 that the existing saddle bag was too large for convenient use with a car.

Hermès developed smaller handbags, introduced ready-to-wear clothing and expanded into jewelry in 1927 and watches in 1928.

A company legend attributes its clothing expansion to a customer complaining that his horse was better dressed than he was. Whether or not the anecdote is accurate, it captures the direction of the business.

Hermès was moving from outfitting horses to outfitting the people who owned them.

It also developed relationships with specialist watchmakers, jewelers and other manufacturers. Not every product needed to be made entirely within Hermès workshops; the company could combine its designs and customer relationships with outside expertise.

Selling luxury wherever wealthy people traveled

The 1920s brought increasing international travel. Wealthy Europeans and Americans encountered one another in hotels, resorts, railway stations and passenger ships.

Their luggage became part of their public appearance.

Unlike today's Hermès, the early company could not rely on universal recognition of its name. Its products needed to impress through their materials, construction and visual quality.

Retail expansion followed existing customers to places such as Cannes and other fashionable destinations.

Stores serving French travelers also introduced Hermès to wealthy visitors from other countries.

As the company developed internationally, that strategy changed. Rather than opening stores primarily where established customers vacationed, Hermès began selecting cities with affluent local populations large enough to support their own boutiques.

The underlying principle remained the same: understand where the customer lives, travels and uses the product.

2. How Art, Silk and Color Became Part of Hermès

Robert Dumas brings imagination into the business

Émile-Maurice had four daughters, one of whom died young. Under the succession conventions of the period, management eventually passed through his sons-in-law rather than directly to his daughters.

This created the Dumas, Guerrand and Puech branches that remain important to Hermès family ownership.

Robert Dumas, one of the sons-in-law, became particularly influential in shaping the company's artistic identity. He formally took over leadership in 1951, although his creative contributions began decades earlier.

Hermès's original products were beautiful partly because of their precise construction. Robert added another dimension: humor, imaginative design and a willingness to transform ordinary observations into distinctive objects.

He developed the Sac à dépêches in 1935, refining earlier Hermès leather designs into the handbag later known as the Kelly.

He also created the Chaîne d'ancre bracelet, inspired by anchor chains he had observed on the Normandy coast.

The bracelet demonstrated a design philosophy that went beyond attaching a recognizable logo to an expensive object.

Its shape was the identifying feature.

Hermès eventually organized its product categories around the French term métiers, meaning trades or crafts. At the time of the episode, the business had 16 such categories, emphasizing the specialized knowledge behind its products rather than presenting them merely as corporate divisions.

Silk scarves become the company's most important product

In 1937, Hermès introduced its first silk scarf, Jeu des omnibus et dames blanches, drawing on artwork developed under Robert Dumas.

Scarves offered a different expression of luxury from saddles and leather bags.

They combined fine materials, color, illustration and wearable art. Their designs could be whimsical or historical while remaining useful accessories.

Queen Elizabeth II helped popularize Hermès scarves internationally, wearing them as headscarves from the 1940s onward.

For many traditional French women, the Hermès scarf became an enduring wardrobe item. It could survive changing fashions because the designs were not entirely dependent on seasonal trends.

The scale of the business is easy to underestimate today.

In 1988, silk generated approximately 55% of Hermès sales, while leather accounted for only 9%.

The modern image of Hermès as principally a handbag company therefore overlooks several decades during which scarves were more commercially important.

Why a silk scarf can take two years to produce

The hosts describe an unusually elaborate production process that remains central to Hermès's textile identity.

The company sources high-quality silk through Brazilian operations. A single scarf reportedly requires silk from approximately 300 silkworm cocoons.

Creating the artwork is only the beginning.

Traditional screen-printing involves preparing individual screens for the colors in a design. A scarf containing 20 colors can require at least 20 carefully prepared and aligned screens.

The artwork must be separated into individual color layers. Specialist engravers prepare the screens, colorists develop the palette, and printers apply successive layers with considerable precision.

Designers, weavers and finishing craftspeople complete the process.

A misaligned layer can spoil the finished textile.

The hosts reported that Hermès introduced approximately 20 new scarf designs each year and that a design could take about two years to reach customers. The company also periodically reintroduces patterns from its archives.

These production methods create a less obvious competitive advantage than the famous handbags.

Independent leatherworkers can still learn and practice traditional saddle stitching. Hermès's combination of textile printing, color expertise, archival design and specialist production at substantial commercial scale is much harder to reproduce.

It requires an entire network of skills rather than one exceptional craftsperson.

The orange box was an accident

Hermès's orange packaging is among the most recognizable elements of its identity, but the familiar origin story begins with wartime shortages.

Before the Second World War, the company preferred cream-colored packaging.

When supplies became scarce, orange packaging material reportedly intended for bakeries remained available. Robert Dumas adopted it, and the color eventually became permanent.

The company later developed several distinctive shades, including orange feu and orange sanguine, accommodating different materials and finishes.

The hosts discuss Hermès's efforts to protect orange as a brand identifier and the legal limits on claiming a broad color family.

A company may protect distinctive commercial uses of a color under appropriate circumstances, but that does not amount to exclusive ownership of every shade.

The orange box became particularly effective because it made the brand recognizable before the customer even saw the purchased object.

A historical carriage becomes a modern logo

Hermès adopted its horse-and-carriage emblem after the Second World War, drawing inspiration from a nineteenth-century image associated with the painter Alfred de Dreux.

The logo commemorated a world that modern transportation had largely replaced.

That historical connection mattered. Hermès had genuinely supplied the era of private carriages and European aristocracy. A newer luxury label could imitate equestrian imagery, but it could not reproduce the same commercial history.

Robert's artistic approach also extended into the stores themselves.

Annie Beaumel and later Leïla Menchari developed elaborate window installations for the Faubourg Saint-Honoré flagship, drawing on theatrical scenery rather than conventional product displays.

Menchari's work became an important part of Hermès's visual identity. The company's history records her involvement from the 1960s and her leadership of the displays from 1978 until 2013.

Men's silk ties provided another extension of the textile business. A company story attributes their introduction to visitors in Cannes who needed ties to satisfy casino dress requirements; Hermès dates its first tie to 1949.

Across handbags, scarves, jewelry, ties, packaging and storefronts, Hermès created a consistent world of recognizable design.

Its history could be reused without simply being repeated. Old motifs became new products, archival patterns returned in contemporary colors, and practical accessories acquired emotional meaning through their associations.

That distinction helps explain the difference between a premium product and a luxury product.

A premium item may cost more because it performs better. A luxury object may also perform exceptionally well, but much of its additional value comes from aesthetics, history, identity and social meaning.

Hermès combines both forms of value, often with branding discreet enough to be recognized mainly by people already familiar with its products.

3. Jean-Louis Dumas Revives a Brand That Had Become Too Traditional

Grace Kelly gives a handbag international fame

The Sac à dépêches became internationally famous after the American actress Grace Kelly married Prince Rainier III of Monaco.

In 1956, photographers captured the new princess carrying the Hermès bag against her body, reportedly attempting to conceal her pregnancy.

The photograph associated the product with one of the world's most admired actresses and a European royal family.

The hosts connect its publication with Life magazine but could not verify the frequently repeated claim that the photograph appeared on the cover. Hermès's own history confirms the photograph's international significance without establishing that particular cover-story detail.

The company formally renamed the bag the Kelly in 1977, although the association with the princess had existed for more than two decades.

This publicity was especially valuable because Hermès had not needed to pay for a traditional celebrity endorsement.

Nevertheless, the Kelly remained an expensive product for a small market.

The hosts cite a price around $900 in the 1950s, equivalent to approximately $10,000–$12,000 when their episode was recorded. Very few households could justify such an expenditure on a handbag.

Prestige alone was not enough to make leather goods the company's dominant business.

A luxury institution loses touch with younger customers

During the 1960s and 1970s, Hermès faced a different threat from the one that had nearly destroyed its equestrian business.

Its products remained exceptionally well made, but their cultural associations were aging.

Younger customers increasingly preferred contemporary fashion, counterculture and designers whose collections reflected changing social attitudes.

Dior, Yves Saint Laurent, Gucci and Chanel offered compelling alternatives.

Hermès, by contrast, remained closely identified with traditional French elegance, aristocratic taste and designs intended to last for decades.

Its origins in saddlery produced a different approach from a conventional fashion house. A saddle or harness needed to perform reliably over many years. Changing its appearance every season offered little value.

Former Gucci CEO Domenico De Sole described this conservatism to the hosts as both an advantage and a disadvantage. It protected Hermès's identity but could make the company less relevant to changing consumer preferences.

By the late 1970s, consultants reportedly advised the company to modernize through familiar commercial measures: outsource manufacturing, close expensive workshops, expand product offerings and reduce prices.

Such changes might have improved short-term efficiency. They would also have weakened the production model underpinning the company's reputation.

The experience reportedly contributed to Hermès's deep skepticism toward outside management consultants.

Jean-Louis changes the customer rather than the product

Jean-Louis Dumas became the fifth-generation family leader in 1978.

He had spent time learning traditional craftsmanship but had also encountered modern American retailing, including work at Bloomingdale's.

His wife, Rena Dumas, was an architect who had trained with I. M. Pei in New York. She later influenced Hermès stores and production facilities around the world.

Jean-Louis understood that the company needed younger customers. His answer was not to replace traditional Hermès products with fashionable alternatives.

Instead, he changed their presentation.

A 1979 advertising campaign featured young Parisian women wearing Hermès scarves with jeans and styling them in unconventional ways.

The scarves remained essentially the same products. Their social meaning changed.

Rather than being accessories for an older, aristocratic woman, they could become part of a modern wardrobe.

The campaign initially faced resistance within the family, but it demonstrated an important commercial possibility: Hermès could participate in changing fashion without redesigning every core product to follow it.

Jean-Louis also benefited from enormous growth in the global population of wealthy consumers.

A product that had previously appealed to a relatively small group of European customers could now reach affluent Americans, Japanese consumers and, eventually, customers across China.

French heritage itself became an exportable source of prestige.

Hermès already had a history that newer brands could not quickly reproduce. Jean-Louis recognized that the business could introduce that history to entirely new markets.

He expanded internationally while remaining committed to craftsmanship, establishing the conditions for leather goods to become far larger than silk.

The results were substantial. According to the hosts' estimates, Hermès revenue was below $100 million when Jean-Louis took over, approached $500 million by the end of the 1980s and reached approximately $2 billion by his retirement in 2006.

Their estimate of roughly fortyfold growth depends on an approximate starting figure of $50 million rather than a verified historical revenue number.

The scale of the achievement remains clear even allowing for that uncertainty.

4. The Birkin: How an Ordinary Travel Problem Created an Extraordinary Luxury Product

Jane Birkin wanted a practical bag

One of Jean-Louis Dumas's most consequential product ideas came from an accidental encounter.

In the early 1980s, he sat next to British-born actress and singer Jane Birkin on a flight between Paris and London.

Birkin had become an influential cultural figure in France, known for a more relaxed and unconventional style than the formal elegance associated with Grace Kelly.

She frequently carried a wicker basket instead of a traditional handbag.

It suited her appearance but worked poorly when traveling with children. According to the familiar account, the basket caused difficulties during boarding and some of its contents, including baby bottles, spilled out.

Birkin explained that she needed a larger bag that could carry everyday belongings and close securely.

Jean-Louis began sketching a design.

The result combined the relaxed practicality Birkin wanted with the leather craftsmanship Hermès had developed over generations.

Unlike the more formal, single-handled Kelly, the Birkin had two handles and a roomier construction.

Yet it retained a clear connection to the original Haut à Courroies saddle bag.

Both iconic handbags therefore emerged from practical problems associated with motherhood: Grace Kelly's bag became famous partly through a photograph linked to her pregnancy, while Jane Birkin's developed from the everyday needs of traveling with children.

The Birkin was not an immediate success

Hermès introduced the Birkin in 1984.

The hosts estimate that its original retail price was around $2,000 and that meaningful commercial momentum took approximately five years to develop.

Hermès did not immediately abandon the product because demand was disappointing.

The company allowed its reputation to grow gradually.

Over time, the Birkin became associated with wealthy collectors, celebrities and the difficulty of purchasing one through ordinary retail channels.

A 2001 episode of Sex and the City helped spread the idea of the Birkin waiting list. Samantha Jones attempts to obtain one by using a celebrity client's identity, highlighting a product that supposedly could not be bought immediately even by someone able to afford it.

The handbag became culturally recognizable beyond its actual customer base.

People who had never seen a Birkin could nevertheless understand its name as shorthand for extreme luxury.

Some collectors acquired large numbers. The hosts cite Victoria Beckham as an example and discuss rare bags reselling for approximately $500,000.

The resale market also introduced an unusual financial dimension: purchasing a sought-after bag directly from Hermès could create an asset immediately worth more than the amount paid.

Jane Birkin's original bag sells for €8.6 million

A subsequent development provides striking evidence of the importance of history and provenance to this market.

On July 10, 2025, Sotheby's sold the original Birkin created for Jane Birkin for €8,582,500, approximately $10.1 million.

The auction attracted nine bidders, with the final price dramatically exceeding ordinary retail and previously established handbag-auction records.

The prototype, created in 1985, differed from later production models and had been used by Birkin herself.

Sotheby's published the sale details, including the object's history and record-setting result.

www.sothebys.com

Sotheby’s

The result should not be interpreted as evidence that ordinary Birkin bags are worth millions. It was a unique historical object with exceptional provenance.

Its significance lies elsewhere.

A bag originally designed to solve a practical problem had become valuable as a cultural artifact. The commercial story, the woman who inspired it, and its position in fashion history were part of what the buyer acquired.

That is an extreme expression of the value Hermès has spent generations cultivating.

5. The Craftsmanship That Makes Hermès Difficult to Scale

Why Hermès still uses saddle stitching

The physical construction of a Birkin or Kelly remains closely connected to the company's equestrian origins.

Traditional saddle stitching uses a single length of thread with a needle at each end.

The craftsperson passes the needles through prepared holes from opposing directions, producing interlocking stitches with a distinctive diagonal appearance.

A leatherworking clamp, sometimes called a stitching horse, holds the material in place. Awls and other specialist tools help produce consistent spacing and alignment.

This technique originally mattered because riding equipment experienced substantial physical forces. A failed seam could be dangerous.

The method also produces highly durable and repairable goods.

Unlike many conventional machine seams, a broken saddle stitch does not necessarily cause an entire line of stitching to unravel.

For a handbag intended to survive decades of use, that durability remains valuable.

Hermès does not maintain the technique merely as a historical ritual. Axel Dumas has argued that the company uses hand stitching because it delivers the required quality; if machinery could produce a better result, the appropriate technique could change.

This is an important qualification to the idea that Hermès rejects manufacturing innovation.

It uses modern equipment and processes where they serve its standards. What it refuses is the assumption that a faster process is automatically a better process.

One person makes one bag

The hosts describe a Kelly as containing approximately 36 individual pieces of carefully selected leather.

A craftsperson must match the components for color, grain, texture and consistency, preferably using compatible leather from the same hide where possible.

One artisan then takes responsibility for constructing the bag, including stitching, fittings, assembly and finishing.

The hosts estimate approximately 20 hours of direct work for a Kelly, although the production process can extend across several weeks.

Training is equally demanding.

An artisan requires approximately two years of initial preparation, and producing the most coveted Birkin and Kelly models may demand additional experience.

Hermès identifies leather products through small blind stamps that can include information about their production year and maker.

The system links the finished object with the human expertise behind it.

Savoir-faire becomes a corporate asset

The French term savoir-faire describes practical knowledge: knowing how to perform a skill, not merely understanding its theory.

For Hermès, it encompasses selecting leather, preparing materials, forming seams, finishing surfaces and recognizing subtle defects.

The hosts counted 133 appearances of savoir-faire in one annual registration document, interpreting the repetition as evidence of how central specialist knowledge is to the company's operating philosophy.

This expertise cannot be acquired instantly.

Training materials, tools and equipment can be purchased. Judgment and manual proficiency require repeated practice.

The company's repair system demonstrates the same principle.

At the episode's recording, Hermès reportedly operated approximately 15 dedicated repair workshops handling about 120,000 objects annually.

Craftspeople restoring old products can examine how materials and construction techniques have performed after years of use.

A former artisan may occasionally encounter an object they originally made, creating an unusually direct connection between production quality and long-term performance.

Hermès's official strategy explicitly describes objects that should last, be passed between generations and remain repairable.

The service network contributes to the product's value because customers are buying not just the object but the expectation of continuing maintenance.

What Béatrice Amblard learned inside Hermès

Béatrice Amblard, a former Hermès leather artisan interviewed during the podcast's research, offered an unusually personal view of the workshop culture.

She entered the Paris operation under Jean-Louis Dumas and remembered Hermès as one of the few major employers still practicing traditional leatherworking at that level.

She also worked alongside Pierre-Alexis Dumas during his teenage apprenticeship.

That experience illustrated the company's expectation that family successors learn practical craftsmanship rather than enter management without understanding production.

Amblard later relocated to San Francisco to provide repair services for Hermès customers on the American West Coast.

In 1997, she left the company and established April in Paris, her own high-end leatherworking business, while continuing to teach traditional techniques.

Her recollections of Jean-Louis were notable for their personal details. He reportedly knew workshop employees by name, acknowledged her departure and later sent her a newspaper article about her business accompanied by a handwritten congratulatory message.

The example also exposes the difference between independent craftsmen and luxury brands.

An experienced artisan can produce leather goods of exceptional quality. What an individual workshop usually cannot reproduce is Hermès's combination of global recognition, distribution, extensive service arrangements and nearly two centuries of accumulated history.

Independent makers such as April in Paris, Chester Mox and Milito offer meaningful alternatives for people primarily seeking craftsmanship.

They do not necessarily offer the same social recognition or institutional continuity.

Growing horizontally instead of building giant factories

Hermès faced a difficult problem as global demand accelerated.

It needed to increase production without abandoning the small workshops and individual manufacturing methods that distinguished its products.

Its solution was to replicate workshops.

Rather than concentrate thousands of workers in enormous facilities, Hermès developed smaller production sites, usually employing approximately 250–300 craftspeople.

Management believes that this scale preserves relationships among workers and allows the working environment to remain recognizably artisanal.

The company had moved much of its leather production from central Paris to Pantin in 1992, creating room to expand while retaining connections to its historical home.

Under Axel Dumas, workshop expansion became increasingly systematic.

The hosts describe approximately 31 artisan production facilities across France at the time of recording, a wider category than the number of dedicated leather-goods workshops.

Hermès targeted around 7% annual capacity growth, requiring approximately 500 additional artisans at the workforce scale discussed.

That represented an extraordinary change from the late 1980s, when the company reportedly employed only about 250 craftspeople and recruited very few additions annually.

The comparison resembles horizontal scaling in technology infrastructure: replicate a proven unit rather than allow one unit to grow indefinitely.

But each new Hermès unit needs skilled people.

Hermès builds schools because competitors cannot supply its workforce

Most large luxury businesses do not maintain Hermès's particular manufacturing methods at comparable scale.

Consequently, the company cannot simply hire thousands of fully trained workers from competitors.

It must help create the labor supply it needs.

Hermès developed its own training programs, often locating workshops and training opportunities in French regions where skilled employment could support local communities.

In September 2021, the company formally opened the École Hermès des savoir-faire, providing pathways toward recognized French leatherworking qualifications.

Its official training information confirms government-recognized qualifications and training delivered alongside working artisans.

The hosts reported exceptionally high completion rates, describing a system committed to helping students master the required skills rather than simply eliminating weaker candidates.

Graduates could pursue employment at Hermès without being obligated to join the company.

At the episode's recording, the hosts described an artisan workforce averaging approximately 30 years old and consisting of roughly 80% women, reflecting a major change from the historically male-dominated workshops.

By the end of 2025, Hermès reported 12 regional training schools and more than 20 leather-goods workshops organized around 10 regional centers of expertise. The company opened its 25th leather-goods workshop in Loupes in April 2026 and has planned additional sites through 2030.

finance.hermes.com

Hermès Finance

+1

The training network transforms a fragile collection of traditional skills into an organizational capability that can expand across generations.

Yet it still imposes a real limit on growth.

Hermès cannot double its artisan workforce overnight merely by spending more money.

Low employee turnover protects the investment

The company reported approximately 6% employee turnover during the period discussed in the episode, including roughly 4.5% voluntary departures.

That compares with the hosts' cited figure of approximately 24% for LVMH in 2022, although differences in workforce composition and measurement should be considered.

They also compared Hermès with Costco and broader American labor markets, where annual turnover can be substantially higher.

The key relationship is between retention and training.

When a craftsperson requires years to become fully productive, frequent departures are especially expensive.

Hermès benefits from offering a career environment that relatively few employers can match: traditional leather craftsmanship supported by a prestigious global business.

Employees have opportunities to develop and practice specialist skills without leaving the company.

The skills, the workshop culture and the company's reputation therefore reinforce one another.

Hermès can invest heavily in training because it retains workers. Workers stay partly because Hermès offers unusual opportunities to practice the trade.

That relationship is considerably harder to imitate than a handbag design.

6. Scarcity, Resale Prices and the Business of Not Selling More

How a handbag becomes a Veblen good

In ordinary consumer markets, higher prices usually reduce demand.

Some luxury products behave differently.

A Veblen good is a product whose high price can contribute to its desirability because the expense itself communicates exclusivity and status.

Birkin and Kelly handbags exhibit some of these characteristics, although their demand also reflects craftsmanship, design, heritage and cultural recognition.

A customer may be wealthy enough to afford a Birkin but still be unable to purchase the preferred model directly from Hermès.

Limited availability becomes part of what distinguishes ownership.

The company benefits from this relationship without relying solely on artificial scarcity.

Its production methods genuinely limit supply, although management also makes conscious choices about workshop growth, distribution and the pace of expansion.

Why Hermès does not simply double handbag prices

Some Birkin and Kelly bags sell for substantially more on the secondary market than they cost at retail.

That difference suggests Hermès could capture additional revenue by increasing prices.

It generally avoids raising the prices of established models as aggressively as some competitors.

The hosts estimate that a standard Birkin originally sold for approximately $2,000 in 1984, equivalent to roughly $6,000 after inflation at the time of their 2024 episode. They compare this with an entry-level retail price around $12,000 decades later.

Prices had certainly increased in real terms, but the hosts argued that Hermès had not pursued the maximum immediate price that demand might support.

They made a revealing calculation.

An estimate attributed to The Wall Street Journal suggested combined annual Birkin and Kelly production of approximately 120,000 bags in 2020.

If Hermès raised the average price across that volume by $8,000, the mathematical increase in revenue would be approximately $960 million.

That is close to $1 billion annually.

The example is illustrative, not a realistic revenue forecast. It assumes unchanged sales volume, product mix and customer behavior, and Hermès does not publicly disclose exact Birkin and Kelly production totals.

Nevertheless, it shows the scale of pricing power potentially available.

Resale prices strengthen the brand's promise

Why might a company avoid capturing that additional money?

One explanation is that predictable pricing protects customer trust.

Someone purchasing a $12,000 handbag wants confidence that Hermès will not suddenly flood the market, introduce substantial discounts or repeatedly change the product's perceived standing.

A strong resale market reinforces that confidence.

Customers may regard a bag as something that preserves value, similar to certain collectible Rolex watches or rare automobiles.

The hosts compared Hermès with Nike's limited-edition strategies but emphasized that the two companies occupy very different markets.

Nike can generate resale premiums while maintaining accessible retail prices for some releases. Hermès positions the entire buying experience within a more exclusive luxury system.

Scarcity also helps sell products beyond handbags.

Customers interested in the most difficult-to-obtain bags may purchase scarves, clothing, jewelry and accessories while establishing relationships with sales associates.

That relationship can produce genuine appreciation for the wider brand, but it also creates questions about how purchase opportunities are allocated.

A US lawsuit tests the Birkin purchasing system

Those questions eventually reached an American federal court.

In 2024, consumers filed an antitrust lawsuit alleging that Hermès effectively required customers to purchase other products before being considered for a Birkin.

The plaintiffs characterized this as an unlawful tying arrangement: access to one desired product allegedly depended on purchasing additional goods.

Hermès contested the allegations.

On September 17, 2025, US District Judge James Donato dismissed the amended complaint with prejudice.

The court concluded that the plaintiffs had not adequately established the relevant product markets, market power and competitive injury necessary to support their antitrust theory.

The federal court's dismissal order distinguishes the allegations about purchase histories from the requirements for proving unlawful conduct.

docs.justia.com

Justia Dockets & Filings

The decision did not establish that every account of Hermès's allocation practices was false. Nor did it establish that customers have a legal right to purchase any particular bag.

It demonstrated that difficult access, preferential treatment and a history of buying other products do not automatically amount to an antitrust violation.

The distinction matters because Hermès's retail practices serve two purposes: limiting the commoditization of its rarest products and developing long-term relationships with customers.

Those goals can support its luxury positioning while remaining frustrating or opaque to prospective buyers.

7. Bernard Arnault's Attempt to Take Over Hermès

Going public creates a problem for the family

Under Jean-Louis Dumas, Hermès became an increasingly valuable international business.

That success created a challenge for its ownership structure.

After several generations, shares were spread among numerous descendants of the original family. Many had no operational involvement, but significant portions of their personal wealth depended on the company's value.

The shares were also relatively illiquid while Hermès remained private.

In 1993, Hermès listed on the Paris Stock Exchange.

The family sold approximately 19% of its shares to public investors while retaining around 81%, apparently preserving a comfortable controlling position.

The listing provided liquidity, valuation and access to public capital markets.

It also made shares available to investors outside the family.

As descendants gradually sold holdings, the public float increased.

One individual eventually recognized the opportunity created by that arrangement: Bernard Arnault, the chairman of LVMH.

Arnault recognized a valuable business with vulnerable ownership

Arnault had previously attempted to acquire control of Gucci, encountering determined resistance from executives including Domenico De Sole and Tom Ford.

Hermès presented a different opportunity.

It possessed extraordinary heritage and brand recognition. Its production model was difficult to replicate, and rising international wealth created substantial growth potential.

Yet its shares were dispersed, and the company was approaching a significant leadership transition.

Jean-Louis Dumas was preparing to retire. His son Pierre-Alexis was emerging as artistic successor, but overall executive succession was less settled.

Pierre-Alexis had studied at Brown University, initially considered computer science and later graduated in art history. He joined the family company in 1992.

His cousin Axel Dumas took a different route.

Axel grew up around Hermès, where his mother was involved in production, and completed practical apprenticeships. He nevertheless began his professional career in investment banking, working internationally, including in China and New York.

Jean-Louis brought him into Hermès's finance department in 2003.

Axel subsequently managed jewelry in 2006 before taking responsibility for leather goods and saddlery in 2008.

The gradual progression exposed him to both financial operations and the company's principal commercial division.

When Jean-Louis retired from executive leadership in 2006, Hermès appointed Patrick Thomas, its first non-family chief executive, while Pierre-Alexis assumed artistic direction.

The hosts suggested that this separation of artistic and executive leadership might have made the company appear more vulnerable to outside influence.

That interpretation should not be confused with evidence that the succession itself was failing. It describes how an experienced acquirer might assess the available opportunity.

Nine years of accumulating shares

Arnault initially acquired approximately 4.9% of Hermès in 2001, according to the episode.

The hosts believed that position was structured to remain below a relevant French disclosure threshold.

LVMH then built further exposure through equity-swap derivatives.

Such arrangements can give an investor economic exposure to the movement of a share price through contracts with financial intermediaries, without the investor initially taking direct ownership of the underlying shares.

For an acquirer, the distinction can become strategically important.

The financial exposure may grow before the public fully understands how much of a company the investor is positioned to acquire.

The episode describes a process lasting approximately nine years.

Arnault began investing when Hermès was worth a fraction of its later valuation, reportedly below $10 billion during the early accumulation period.

He could benefit financially if the shares appreciated, even without obtaining control.

But control was also potentially attractive.

Hermès possessed valuable assets and established customer demand. Arnault believed there was room to improve its commercial performance.

Some of his criticism concerned what he regarded as inconsistent product decisions.

The hosts discuss an unverified anecdote involving a relatively inexpensive Hermès canvas beach bag sold in Japan. The story claims that strong sales prompted management to discontinue the product and destroy remaining inventory rather than turn Hermès into a mass-market beach-bag retailer.

They could not verify the incident through the family's own accounts.

Even if the story occurred, it raises two distinct questions: whether discontinuing the product protected the brand and why it had been introduced in the first place.

Leica and Shang Xia test the limits of diversification

Hermès had also invested beyond its central brand.

Some acquisitions and minority investments involved suppliers of specialist components, materials and traditional luxury products. These could be justified as ways to protect production capabilities.

Other investments were more difficult to connect to Hermès's expertise.

The company acquired a substantial minority interest, reportedly around 30%–35%, in German camera manufacturer Leica.

The two brands shared associations with precision, design and high-quality materials.

But cameras are technology products. Their manufacturing, competition and product-replacement cycles differ substantially from traditional leather goods.

Hermès eventually exited the investment.

Another experiment began in 2009 with Shang Xia, a Chinese luxury brand developed around traditional Chinese craftsmanship.

The idea was to apply principles similar to those that made Hermès successful in France: specialist workmanship, cultural heritage and lasting design.

The hosts questioned whether the strategy underestimated the importance of French provenance.

For some wealthy Chinese consumers, part of the appeal of Hermès was precisely that it represented established Parisian luxury. Creating a Chinese counterpart did not automatically transfer that status.

Hermès later divested its controlling interest in Shang Xia, which became associated with investment interests linked to the Agnelli family.

These examples illustrate the difference between supporting the core business and attempting to reproduce its prestige in unrelated categories.

They also help explain why Arnault might have considered Hermès commercially underdeveloped without being correct that it needed an entirely different operating model.

The 2010 announcement shocks the family

In October 2010, LVMH disclosed that it had accumulated approximately 14.2% of Hermès.

The announcement followed the settlement or exercise of derivative positions developed over preceding years.

Arnault publicly defended the investment partly by invoking the protection of French luxury heritage from other potential acquirers.

Hermès management was furious.

Patrick Thomas responded through unusually confrontational public statements, portraying the approach as unwelcome and inappropriate.

Karl Lagerfeld, then a major figure at Chanel and also associated with LVMH-owned Fendi, argued that companies wishing to avoid takeover attempts should not be publicly listed.

His criticism pointed to a genuine structural vulnerability: listing shares introduces ownership rights that management cannot simply ignore.

By December 2011, LVMH had accumulated approximately 22.6% of Hermès, according to the episode.

The family continued to hold roughly 73%, but those shares were divided among many individuals.

Arnault did not need every family member to sell.

If enough relatives accepted sufficiently attractive prices, his position could become more influential.

The public acquisition of shares also reduced the available trading supply, potentially contributing to higher prices.

That created an uncomfortable incentive for individual family members.

Selling could convert an enormous paper fortune into immediate cash. Remaining invested carried the risk that other relatives might sell first, potentially changing both the company's future and its valuation.

H51: The family chooses independence over liquidity

The family's response was to place a majority of the company into a collective holding structure.

In December 2011, more than 50 relatives finalized H51, contributing shares representing approximately 50.2% of Hermès's equity.

The arrangement created a controlling block that could not easily be dismantled through individual sales.

Family members accepted long-term restrictions on their ability to sell the contributed shares.

The significance was enormous.

An acquirer could potentially purchase every share outside H51 and still fail to acquire a majority of Hermès.

The structure converted a collection of personal investments into a binding commitment to common ownership.

Julie Guerrand, a family member with investment-banking experience at Rothschild, helped lead the effort.

Some family members, including Bertrand and Nicolas Puech, did not contribute their holdings directly. Instead, the episode describes rights of first refusal allowing relatives the opportunity to purchase those shares before outsiders.

The hosts estimated that these additional arrangements could cover a substantial minority block, although their precise calculation was uncertain.

They also mentioned unresolved reports that Nicolas Puech intended to leave a large holding to a former gardener. That inheritance story was not presented as a completed transfer.

H51 proved much more decisive than any public exchange of criticism between Arnault and Hermès management.

The December 2011 Reuters account confirmed the creation of the 50.2% holding company.

www.reuters.com

Reuters

The family later reinforced its commitment. In April 2022, the company announced an extension covering approximately 54% of its capital through H51 until at least 2041. This is a more precise documented date than the mid-2040s extension suggested in parts of the episode. Vogue reported the family commitment.

www.vogue.com

Vogue

Hermès's current shareholder information continues to identify H51 and the family governance structure as central to control.

French regulators examine the derivatives strategy

LVMH's method of accumulating exposure also attracted regulatory scrutiny.

French authorities examined whether its derivative arrangements had allowed it to avoid disclosure requirements intended to ensure transparency in financial markets.

In June 2013, France's financial markets regulator, the Autorité des marchés financiers, imposed an €8 million penalty on LVMH for disclosure failures.

The timing matters: the regulatory penalty occurred in 2013, not in 2014.

The decision concerned how the stake had been accumulated and disclosed, rather than establishing that investors were generally forbidden from acquiring Hermès shares.

The 2013 regulatory decision described failures to inform the market about the development of the position. The €8 million sanction was financially modest relative to the value of the shares involved.

www.labase-lextenso.fr

La Base Lextenso

The 2014 settlement ends the takeover conflict

The decisive settlement came the following year.

On September 2, 2014, Hermès and LVMH reached an agreement under the supervision of the Paris Commercial Court.

LVMH agreed to distribute its Hermès shares to its own shareholders. Christian Dior, then a principal shareholder of LVMH, would distribute the Hermès shares it received to its shareholders.

The parties also agreed to a five-year restriction on further purchases by LVMH and certain Arnault-controlled entities.

The joint settlement announcement of September 3, 2014 anticipated that Groupe Arnault would hold approximately 8.5% of Hermès after the distributions.

LVMH's December 17, 2014 distribution announcement confirmed the extraordinary distribution in kind and described its financial and tax treatment.

www.globenewswire.com

GlobeNewswire

+1

Hermès remained independent.

But that did not mean Arnault lost financially.

Arnault benefits despite failing to acquire the company

Arnault had acquired exposure to Hermès when its valuation was far below the level it eventually reached.

Those holdings appreciated substantially.

The subsequent movement of Hermès shares through LVMH, Dior and Groupe Arnault also created opportunities to reorganize Arnault's wider luxury interests.

In 2017, the Arnault family announced transactions involving Christian Dior and LVMH.

The restructuring used a combination of cash and shares, including Hermès shares, to acquire minority interests and consolidate the ownership of Dior's fashion business within the wider group.

Analysts estimated that the transactions increased the Arnault family's economic ownership of LVMH from approximately 36% to 46%.

The Financial Times reported the ownership implications in April 2017.

www.ft.com

Financial Times

The episode emphasizes that share exchanges can defer or alter immediate taxation, although specific consequences depend on the entities, jurisdictions and transaction structures involved.

It would be inaccurate to conclude simply that every participant paid no tax.

The larger point is that Arnault transformed a failed acquisition attempt into a substantial investment and restructuring opportunity.

Hermès shareholders also benefited from enormous appreciation after 2010.

The result was unusual: Hermès successfully defended its independence, while the would-be acquirer still obtained considerable financial benefits.

The conflict also strengthened Hermès's long-term governance.

With majority ownership secured and family leadership increasingly settled, the sixth generation could concentrate on improving the business without the immediate threat of another hostile takeover.

8. Axel Dumas Turns Traditional Craftsmanship Into a Global Growth Strategy

The sixth generation takes control

Axel Dumas became chief executive in 2013, working alongside his cousin Pierre-Alexis Dumas, the artistic director.

Their responsibilities represented a departure from earlier generations, when one family leader often combined commercial and artistic authority.

Axel brought experience in banking, finance and international operations. Pierre-Alexis brought formal artistic education and long practical exposure to Hermès craftsmanship.

Together, they inherited a valuable business whose ownership had been protected but whose commercial potential remained substantial.

Axel's approach to strategy draws partly on the work of Harvard professor Michael Porter.

A company, he argues, must choose what it intends to do differently from competitors. Meaningful strategy requires accepting tradeoffs.

If Hermès chooses individual craftsmanship over industrial production, competitors may be able to manufacture more handbags at lower unit costs.

That disadvantage is part of the choice.

Trying to match competitors on every measure would undermine the differentiation that makes the company valuable.

Revenue grows much faster than production capacity

Under Axel, Hermès accelerated significantly.

The company generated approximately €3.5 billion–€4 billion in annual revenue around 2013, rising to roughly €6 billion in 2018 and €7 billion in 2019.

Revenue declined during the COVID-19 pandemic but recovered strongly, reaching approximately €9 billion in 2021 and €11.6 billion in 2022.

When the Acquired episode was published in February 2024, the hosts described trailing revenue approaching €14 billion.

They estimated approximately 15% annualized revenue growth over the preceding decade.

That was substantially greater than the company's approximate 7% annual production-capacity expansion target.

The hosts suggested that pricing contributed roughly 7%–8% annually to revenue growth.

That estimate should not be treated as an official breakdown. Revenue also depends on product mix, geographic demand, sales volumes outside leather goods and other factors. Leather-production capacity cannot be compared directly with total company revenue.

Nevertheless, the central observation is valid: Hermès increased sales far faster than would have been possible through proportional growth in the number of leather artisans alone.

Its established products became more valuable to a larger international customer base.

The economics resemble software more than traditional manufacturing

Hermès's profitability became exceptional.

At the episode's recording, the hosts described approximately $14 billion in revenue, $5.7 billion in operating income and an operating margin around 44%.

They compared those margins with successful software companies.

The comparison is striking because software can often serve an additional customer at relatively low marginal cost.

Hermès must buy physical materials, employ craftspeople, maintain workshops and transport products worldwide.

Its costs are real and substantial.

Yet its selling prices reflect much more than manufacturing inputs.

According to Hermès's 2025 financial results, annual revenue reached €16.002 billion, with recurring operating income of €6.569 billion and a 41% operating margin. The gross margin was approximately 71%.

www.globenewswire.com

GlobeNewswire

Those figures confirm that the profitability discussed in 2024 was not simply a temporary phenomenon.

For 2025, the company reported approximately €4.52 billion in net profit attributable to shareholders, €5.61 billion in operating cash flows and €3.88 billion in adjusted free cash flow.

It also held more than €12 billion in net cash.

That creates an unusual management problem.

Hermès does not lack the money to build more factories.

It must decide whether building more production capacity is desirable, and whether the necessary craftspeople can be trained without compromising quality.

Dividends help preserve family control

Axel reportedly described dividing annual profits into three broad uses: shareholder dividends, capital expenditure and additional cash reserves.

The hosts summarized the principle as roughly one-third for each.

This is not a fixed accounting rule, but it captures the company's priorities.

Hermès invests in workshops, training and distribution while maintaining substantial financial reserves.

Dividends serve another purpose.

Many family shareholders possess considerable wealth through holdings that they have committed not to sell.

Regular distributions allow them to receive cash without weakening collective ownership.

Consequently, profitability, capital discipline and the H51 ownership arrangement reinforce one another.

A family can more easily maintain its long-term commitment to independence when shareholders receive meaningful financial benefits without selling their shares.

9. How Hermès Became a Global Business While Remaining French

Leather overtakes silk

The balance of Hermès's business changed dramatically.

In 1988, scarves and other silk products had represented 55% of sales, compared with only 9% from leather.

By the episode's recording, leather goods and saddlery generated approximately 43% of revenue.

Ready-to-wear and accessories represented around 27%, while silk and textiles had declined to approximately 7%.

Perfume and beauty contributed roughly 4%, as did watches.

These percentages show how completely the company's commercial identity had changed.

Hermès continued making iconic scarves, but leather goods had become its principal revenue engine.

The same pattern remained visible in 2025.

Hermès's published financial results show:

Source: Hermès 2025 Full-Year Results. Shares are rounded.

The figures reveal that Hermès is no longer dependent on one narrowly defined product.

Although Birkin and Kelly handbags attract exceptional attention, the group also operates substantial clothing, accessory, jewelry, homeware, textile and watch businesses.

Outside analysts have estimated that the Birkin and Kelly together generate approximately 25%–30% of company revenue.

Hermès does not separately disclose their sales, so this remains an estimate rather than a verified official figure.

Japan helped establish Hermès as an international luxury leader

Jean-Louis Dumas's international expansion was supported by successive waves of wealth creation.

Japan became particularly important.

In 2006, Japanese customers accounted for approximately 27% of Hermès revenue, exceeding France's contribution of around 19%.

Asia-Pacific excluding Japan contributed another 17%.

The balance subsequently shifted toward China and the wider Asian market.

By the episode's recording, France represented approximately 9% of revenue, Japan 10%, and Asia excluding Japan roughly 48%.

The hosts estimated that Japanese consumers spent about twice as much on Hermès per person as Chinese consumers.

That comparison reflects Japan's long-established luxury market rather than suggesting that its total market was necessarily larger.

China's young wealthy customers change the audience

The hosts reported that approximately 80% of Hermès customers in China were younger than 40.

This was a significant departure from the image of traditional French luxury as something principally purchased by older European customers.

Affluent younger Chinese consumers were buying objects associated with an old Parisian institution.

The relationship also explains why Hermès's effort to build Shang Xia was commercially difficult.

Some of the appeal of Hermès in China comes from its authentic French history. Establishing a separately branded Chinese luxury company did not automatically provide the same social meaning.

Hermès proved relatively resilient during the luxury-market slowdown that followed the post-pandemic boom.

Wealthier customers were generally better positioned to continue spending during periods of economic pressure, while controlled product availability helped protect the value of established purchases.

But resilience is not immunity.

By October 2026, growth is slower and more uneven

Hermès's latest available figures provide a useful test of the strong growth story told in 2024.

For the first nine months of 2026, the company reported €12.26 billion in revenue, increasing 5.5% at constant exchange rates.

Its third-quarter revenue grew 4.3% at constant exchange rates, reaching €4.096 billion.

The regional picture was mixed.

The Americas grew strongly, Japan continued expanding, and Europe outside France performed well.

Greater China, however, remained broadly stable in a more difficult market. The Middle East recorded declining sales.

Leather goods and saddlery remained comparatively strong, with third-quarter growth of approximately 10.8% at constant exchange rates. Ready-to-wear and accessories were weaker.

The October 2026 official report also confirmed the opening of the company's 25th leather-goods workshop and plans for three more by 2030.

This is an important development.

Hermès continues increasing leather-production capacity even as growth in some other categories slows.

Its traditional products remain a source of strength, but the company operates within the same global economy as its competitors.

Weaker consumer confidence, changing currencies and regional economic conditions can still affect results.

Keeping production close to its heritage

At the episode's recording, Hermès employed approximately 21,000 people worldwide, with roughly one-third described as artisans.

About 62% of employees worked in France.

The company maintained approximately 54 French production sites across its different activities.

The hosts reported that around 76% of products were manufactured in the company's exclusive workshops, while the remainder involved various external manufacturing arrangements.

That figure should not be compared directly with every later percentage without checking how production is measured.

Hermès's 2025 reporting states that approximately 55% of objects were made in exclusive in-house workshops, while around 75% of production occurred in France.

The categories and measurement bases differ, so the figures do not independently establish a major shift toward outsourcing.

By the end of June 2026, Hermès employed 27,107 people, including 16,656 in France, according to its official financial figures.

The company's identity remains closely linked to French employment and manufacturing despite the overwhelming majority of customers living outside France.

It is therefore not simply selling products made in France.

It is selling the internationally recognized value of French craftsmanship.

10. The Store Is Part of What Hermès Sells

Why the most famous handbags are rarely on display

Hermès stores contain enormous ranges of merchandise.

Customers can browse clothing, scarves, belts, furniture, jewelry, home accessories and countless other products.

Yet the Birkin and Kelly, arguably the company's most famous commercial creations, may be entirely absent from public displays.

The hosts visited several boutiques and described seeing no such bags available for ordinary browsing.

Customers typically cannot choose a model from an open shelf and complete a straightforward purchase.

Instead, access to highly sought-after handbags may involve sales-associate relationships, appointments and private presentations.

The experience can be time-consuming and difficult to understand for a first-time customer.

That creates frustration, but it also distinguishes the transaction from conventional shopping.

For some buyers, the attention of a knowledgeable associate and the experience of being offered a particular bag become part of the purchase's emotional value.

Personal service can make small purchases memorable

The hosts described contrasting experiences inside Hermès boutiques.

Ben Gilbert visited the Aix-en-Provence store with his wife during their honeymoon.

He purchased a belt, while she bought a small silk scarf.

Neither purchase approached the value of a Birkin, yet they reportedly received around 90 minutes of attentive assistance.

The experience made relatively modest purchases feel important.

David Rosenthal described a less immediately welcoming experience at the Palo Alto store while seeking an Apple Watch strap.

His experience improved after developing a relationship with an individual sales associate.

The contrast shows that service standards can vary even within a carefully controlled luxury network.

Hermès's commercial proposition depends partly on the quality of human interaction.

When that interaction succeeds, customers can remember the experience for years.

When it fails, exclusivity may feel more like unnecessary obstruction.

Podium gives local stores control over merchandise

Hermès operates a distinctive merchandising system known as Podium.

Store managers participate in twice-yearly buying events where they review products and select merchandise appropriate to their customers.

Headquarters does not simply require every boutique to carry identical inventory.

Managers have meaningful discretion over designs, colors and categories within their budgets and broader merchandising requirements.

The hosts believed that stores were expected to represent the company's different métiers while retaining flexibility over individual selections.

This helps explain why boutiques in different cities can feel genuinely different.

A customer shopping in Paris may discover objects that are absent from a local American or Japanese store.

The resulting unpredictability encourages exploration.

It also makes Hermès less vulnerable to straightforward product comparisons.

Restricting inventory information reduces convenience

The hosts described stores discouraging customers from checking product availability at other branches.

They also discussed restrictions on photographing merchandise in some locations.

Such measures can make shopping less convenient.

They may, however, reduce the ability of professional resellers to gather inventory information and identify opportunities to acquire scarce products.

That matters because the resale market is part of Hermès's broader commercial environment, even though the company discourages speculative purchases.

The company wants customers to value relationships, objects and experiences rather than treat every boutique as an interchangeable source of inventory.

E-commerce introduces customers without selling the rarest bags

Hermès has embraced online retail for many categories.

Customers can purchase scarves, jewelry, accessories and other goods through its website.

The Birkin and Kelly remain outside conventional online checkout.

The hosts reported that approximately 70% of Hermès's online customers were new to the brand.

That makes e-commerce an important customer-acquisition channel even without the products attracting the most public attention.

Airport boutiques serve a similar function.

A traveler unfamiliar with Hermès may find an airport location less intimidating than entering a prestigious flagship.

The company has also developed digital experiences that help customers discover practical ways to use products, including scarf-tying applications.

Meanwhile, Hermès has increased its control over physical distribution.

Company-operated stores reportedly represented approximately 56% of the network in 2003 and about 74% two decades later.

By 2025, Hermès reported 294 boutiques in 45 countries, with its modern strategy emphasizing directly controlled stores and locally selected merchandise.

The company's published strategy identifies creation, craftsmanship and an exclusive distribution network as its three central pillars.

Each reinforces the others.

The store communicates the value of the product, while the product justifies the unusual store experience.

11. Why Hermès Spends Relatively Little on Traditional Advertising

The product carries much of the marketing burden

Hermès does advertise.

It organizes events, produces campaigns, supports artistic projects and invests substantially in customer communication.

But its approach differs from luxury companies that depend heavily on conventional advertising and paid celebrity campaigns.

The hosts describe Hermès as an organization where marketing responsibility is distributed across product creation, merchandising, service and design.

The company does not depend on one traditional marketing department to manufacture consumer desire independently of the product.

Its goods, stores and customer relationships carry much of that responsibility.

At the episode's recording, the hosts compared selling and marketing-related expenses of approximately 23% of revenue at Hermès with more than 33% at LVMH.

They estimated direct Hermès communications expenditure near 4.5% of revenue, compared with approximately 12% in advertising and promotion at LVMH.

Those figures reflect the reporting categories and periods examined during their research; they are not necessarily perfectly comparable accounting measures.

For 2025, Hermès reported €620 million in communication expenses on €16 billion in revenue, approximately 3.9%, within €3.7 billion of broader sales and administrative expenses.

hermes.fr.digital-report.net

HERMES INTERNATIONAL

Events create an imaginative world

The hosts estimated that approximately two-thirds of Hermès's communications budget was devoted to events.

That would leave a comparatively small proportion for conventional media purchases.

Hermès's activities include elaborate store openings, exhibitions, theatrical displays, product presentations and other cultural experiences.

The hosts cited a full-page advertisement in a San Francisco Ballet program as an example of targeted communication consistent with the company's artistic identity.

The company can still spend substantial sums on individual occasions, including lavish events reportedly costing around $1 million.

Low conventional advertising expenditure does not mean low marketing ambition.

It means Hermès often chooses environments where its brand can be experienced rather than repeatedly advertised.

Celebrities buy the products themselves

Hermès generally avoids the conventional system of paying celebrity ambassadors to promote its most recognizable products.

Instead, famous customers have often purchased and displayed them voluntarily.

Grace Kelly was an early example.

Later customers included Victoria Beckham, Kim Kardashian, Cardi B and Megan Thee Stallion.

These people represent very different cultures, generations and public identities.

Their shared interest in Hermès demonstrates the breadth of its appeal.

It also reduces the company's dependence on one celebrity whose reputation could change.

A paid endorsement tells audiences that someone has agreed to promote a product.

A highly visible customer's independent purchase can communicate a different kind of desirability.

That distinction is commercially valuable, although individual celebrity appearances do not establish that every purchase was entirely independent of all commercial relationships.

Social media turns scarcity into entertainment

The Birkin's buying process generates its own publicity.

Customers post videos discussing relationships with sales associates, visits to boutiques, appointments and the moment they finally acquire a bag.

Unboxing videos and collection tours attract substantial attention on Instagram and TikTok.

The company's limited availability becomes material for stories created by customers themselves.

This produces an unusual marketing cycle.

A product is difficult to obtain, so people discuss that difficulty. The discussion increases recognition and desire, which helps sustain demand for the limited supply.

Hermès benefits from the attention without necessarily commissioning the content.

12. Hermès and Louis Vuitton Built Opposite Models of Luxury

Handbags are normally attractive products because they are easy to sell

Conventional handbag economics can be appealing.

A bag generally does not require the complex sizing decisions associated with clothing.

Manufacturers can standardize dimensions, produce inventory efficiently and sell the same design to many customers.

Luxury brands can also charge prices substantially above direct manufacturing costs.

The hosts discussed approximate industry markups of 10–12 times production cost, potentially even higher for some Louis Vuitton products.

These are broad estimates, not official margin disclosures for individual bags.

Louis Vuitton has built a vast business around highly recognizable designs, industrial manufacturing capabilities and worldwide distribution.

The hosts described a Tokyo flagship where a substantial portion of sales came from monogrammed bags, wallets and related products displayed in an accessible ground-floor retail area.

That model can serve enormous demand efficiently.

Hermès deliberately sacrifices many of those advantages.

It restricts availability, invests heavily in individual craftsmanship, devotes space to private appointments and makes the customer relationship more important than immediate transaction volume.

Both strategies can succeed

Hermès and Louis Vuitton share important historical characteristics.

Both were founded by craftsmen serving wealthy customers in nineteenth-century France.

Both built internationally recognized brands around leather goods, travel and status.

Yet their modern production philosophies diverged.

Louis Vuitton emphasizes scale, distribution and recognizable branding.

Hermès emphasizes individual workmanship, limited supply and selective purchasing experiences.

Neither approach is automatically superior.

LVMH operates multiple luxury businesses and benefits from advantages unavailable to a single-brand company, including shared expertise in marketing, distribution, management and capital allocation.

Hermès has different strengths, particularly its institutional knowledge and concentrated artisan workforce.

The companies may also serve overlapping customers without always being direct substitutes.

A customer seeking an easily recognizable Louis Vuitton travel bag may not be making the same decision as someone pursuing a rare Hermès Birkin.

Hermès possesses several reinforcing competitive advantages

The hosts used concepts from Hamilton Helmer's 7 Powers framework to examine Hermès's competitive position.

Its specialist artisans resemble a cornered resource: a valuable capability that competitors cannot readily acquire in comparable quantity and quality.

Hermès also benefits from branding power.

Customers pay substantial premiums because an object comes from Hermès, not merely because it performs a practical function better than competing products.

Its operating model provides possible counter-positioning against high-volume luxury competitors.

An industrial manufacturer attempting to replicate Hermès's small-workshop structure would need to accept slower production, higher training requirements and potential disruption to its existing commercial model.

The hosts ultimately considered branding the dominant advantage.

That does not make craftsmanship unimportant.

Rather, craftsmanship gives the brand substance, scarcity protects its perceived value, and distribution turns ownership into a distinctive experience.

Together, they create a competitive position much harder to copy than any individual feature.

13. Innovation Tests the Boundaries of the Hermès Brand

Apple Watch brings Hermès into modern technology

In 2015, Hermès introduced a collaboration with Apple involving the Apple Watch.

The relationship reportedly developed through Apple's design leaders Jony Ive and Marc Newson, who helped connect the technology company with Axel and Pierre-Alexis Dumas.

Apple wanted to position its smartwatch as a sophisticated personal object rather than merely a piece of consumer electronics.

Hermès offered established luxury credibility, elegant design and a comparatively discreet brand identity.

The partnership gave Hermès a way to participate in modern technology without creating its own electronic watch.

But it raised an important question.

Traditional Hermès leather goods are designed to last for generations. A smartwatch will eventually become technologically obsolete.

The values associated with permanence and digital product replacement do not fit together perfectly.

Not every Hermès product uses the same craftsmanship

One host purchased an Apple Watch deployment-buckle strap costing approximately $540.

He observed that the packaging did not describe it as handmade.

The discussion compared the strap with other Hermès products, including a luggage tag costing approximately $640, a sweatshirt priced above $2,000 and furniture costing tens of thousands.

The strap occupied a relatively accessible position within the brand.

Hermès does not promise that every product is individually saddle-stitched.

Nevertheless, machine-sewn accessories create questions about how consistently the company should apply the craftsmanship associated with its most prestigious bags.

One argument is that an Hermès watch strap should be handmade and priced accordingly.

Another is that the company needs to address contemporary customer needs and accept reasonable variations between product categories.

For one host, the Apple Watch strap was more useful than a traditional Hermès watch because he wore his smartwatch almost constantly.

The collaboration therefore demonstrates a genuine tension between historical purity and practical relevance.

Beauty opens another entry point

Hermès introduced lipstick in 2020, expanding into beauty products that cost substantially less than its famous handbags.

Perfume and beauty products are also available through department stores and other channels beyond the tightly controlled handbag network.

They introduce younger and less wealthy customers to the brand.

The strategic problem resembles the Apple Watch collaboration.

Accessible products can widen Hermès's audience, create future customers and reflect changing lifestyles.

But excessive expansion into comparatively ordinary goods could weaken the exclusivity supporting the company's most valuable categories.

That tension is not new.

Hermès has been confronting different versions of it since Émile-Maurice decided to manufacture handbags for automobile passengers.

The challenge is to distinguish useful adaptation from growth that undermines the company's identity.

14. Sustainability, Animal Welfare and the Ethical Questions Behind Luxury

Petite H turns leftover materials into products

Hermès introduced petit h in 2010 to reuse materials that might otherwise be discarded.

The initiative works differently from conventional product design.

Usually, a designer develops an object and selects suitable materials.

Petit h begins with available scraps of leather, silk, felt and other materials, then asks what can be created from them.

The results include small accessories, luggage tags, animal-shaped objects and decorative pieces.

This allows Hermès to use high-quality remnants that are too small or unsuitable for its principal products.

The process reduces waste while preserving the standards applied to larger leather goods.

It also provides an outlet for the playful artistic experimentation associated with Robert Dumas.

Bespoke craftsmanship through Hermès Horizons

Hermès Horizons operates at the opposite end of the product scale.

The division creates bespoke interiors and objects, including leather fittings and seating for private aircraft.

Its work demonstrates how traditional Hermès craftsmanship can extend beyond handbags and clothing.

The hosts reported that Horizons may reject requests primarily seeking conspicuous logos.

A customer asking for enormous H symbols throughout a private aircraft is not necessarily seeking the particular craftsmanship that the division exists to provide.

This distinction reflects Hermès's preference for recognizable workmanship over indiscriminate logo placement.

Destroying products raises questions about waste

The company has also faced criticism for reportedly destroying goods that fail quality standards or cannot be sold through approved channels.

Destroying flawed products may prevent lower-quality merchandise from reaching customers and protect brand consistency.

But the environmental implications are difficult to dismiss.

Leather and exotic skins require substantial resources. Discarding usable materials or finished products creates ethical concerns even when the company has legitimate reasons to maintain quality.

The hosts discussed reports of products being burned, while also recognizing uncertainty around the scale and contemporary status of such practices.

Hermès has described efforts to improve material utilization, traceability and manufacturing efficiency.

Its sustainability initiatives therefore need to be assessed against measurable outcomes, not simply the prestige of handcrafted production.

Jane Birkin challenged the treatment of crocodiles

The clearest public ethical confrontation involved Jane Birkin herself.

In July 2015, she asked Hermès to stop using her name on crocodile-skin Birkin bags until concerns about animal-welfare practices were addressed.

The request followed publicity surrounding conditions at farms supplying exotic skins.

Hermès investigated allegations involving a supplier in Texas.

In September 2015, the company announced that it had identified an irregularity in slaughter procedures, warned the supplier and taken corrective measures.

Hermès also said Birkin was satisfied with its response and had withdrawn her request.

The Reuters report published by The Guardian on September 11, 2015 documents the dispute and its reported resolution.

www.theguardian.com

The Guardian

The episode's suggestion that the dispute was resolved simply by bringing crocodile farming inside Hermès was less precise than the available contemporary reporting.

The immediate documented resolution concerned Hermès's investigation, supplier warnings and stated corrective measures.

Conservation and animal welfare are different questions

Hermès has defended controlled breeding and wildlife-management practices as potential contributions to conservation.

Such arguments can involve protecting habitat, supporting regulated breeding and reducing incentives for illegal hunting.

But conservation and animal welfare are not identical.

A breeding program might support a species' population while leaving legitimate questions about how individual animals are raised and slaughtered.

The ethical question is especially significant when the final product is an expensive luxury accessory rather than a necessity.

The hosts considered cattle leather sourced as a byproduct of food production more defensible than raising animals principally for exotic skins.

Other luxury brands, including Chanel, have restricted or abandoned exotic materials.

Hermès has explored alternatives such as mushroom-based leather but has not moved toward abandoning traditional animal leather.

The company's repair philosophy and emphasis on products that last for decades provide one sustainability argument.

They do not eliminate concerns about sourcing, waste or animal welfare.

Does luxury create value beyond social signaling?

Hermès's margins demonstrate that customers value more than the cost of leather and labor.

Some of that value comes from exceptional craftsmanship and durable construction.

Some comes from personal identity, artistic appreciation, scarcity and social recognition.

The hosts acknowledged criticism that expensive luxury goods may absorb substantial consumer spending without delivering corresponding improvements in practical utility.

A handbag carrying everyday possessions does not become hundreds of times more functional merely because its price rises.

But Hermès also preserves forms of specialist craftsmanship that are increasingly rare among large manufacturers.

Its products provide a tangible form of skilled work, backed by repair services and an institution that customers expect to survive.

The social value of that combination remains open to debate.

The economic value, however, is measurable through the company's sales, profitability and long-term customer demand.

15. The Long-Term Business Strategy Behind Six Generations

Family ownership changes the definition of success

Hermès has remained controlled by descendants of its founder for six generations.

That does not establish that family members possess some hereditary talent for luxury management.

The hosts instead emphasized practical knowledge, apprenticeship, culture and continuity.

Family successors often grow up around the company's products, workshops and commercial discussions.

They learn how the objects are made and why specific standards matter.

This can produce an unusual depth of institutional understanding.

It also creates limitations. Choosing leaders from a family narrows the available talent pool, and inheritance does not guarantee managerial ability.

Hermès's governance must therefore combine accumulated family knowledge with capable professional management.

The succession involving Patrick Thomas, Axel Dumas and Pierre-Alexis Dumas illustrates that development.

Independence makes unusual choices possible

A company controlled by long-term family shareholders can pursue priorities different from those of investors seeking the highest possible earnings over the next few years.

Hermès can choose to expand workshops gradually, maintain predictable pricing, invest heavily in training and reject acquisition opportunities.

It can also tolerate products that need several years to build recognition.

The Birkin's slow commercial development is an important example.

A company evaluating every product primarily through immediate sales performance might have abandoned it.

Hermès allowed demand and cultural recognition to develop.

That does not mean unsuccessful products should always be preserved.

The distinction is whether the underlying reasons for developing a product remain persuasive, even when early financial results are disappointing.

The family appears to enjoy the business itself

The hosts suggested that Hermès's multigenerational continuity reflects more than financial incentives.

Its leaders appear deeply interested in the objects, artistic experimentation and traditional skills that define the company.

That enthusiasm shapes the culture.

The workshop, rather than the financial spreadsheet alone, occupies a central position in the company's identity.

Robert Dumas developed artwork and jewelry designs. Jean-Louis Dumas cultivated personal relationships with artisans. Later generations continued learning manual techniques despite eventually managing a business worth hundreds of billions of dollars.

This does not mean Hermès ignores financial returns.

Its profitability makes clear that it is a highly sophisticated commercial organization.

But the family has repeatedly accepted financial tradeoffs in pursuit of a particular business model.

16. What Hermès Demonstrates About Competitive Strategy

Hermès and Louis Vuitton began with broadly similar opportunities.

Both emerged from nineteenth-century France, established relationships with wealthy customers and built respected names around exceptional goods.

Yet they developed fundamentally different ways of operating.

Louis Vuitton pursued scale, broad distribution and recognizable products.

Hermès developed a system based on slower production, individual craftsmanship, selective availability and family continuity.

Both achieved exceptional commercial success.

Hermès's case is particularly revealing because activities normally described as operational weaknesses became sources of competitive advantage.

Small workshops create production constraints. Those constraints reinforce limited availability. Limited availability supports exclusivity, while the company's craftsmanship gives that exclusivity a credible foundation.

The resulting pricing power generates the financial resources needed to preserve and expand its specialist workforce.

The company also demonstrates that old practices need not be commercially obsolete.

Saddle stitching survived the disappearance of horse-drawn transportation because the technique continued to produce valuable results.

Silk printing remained relevant because the company preserved the artistic and technical knowledge required to execute it.

Handbags developed from saddlery accessories into an international luxury business because Hermès adapted their purpose without abandoning its underlying capabilities.

Yet its history also warns against treating preservation as an end in itself.

Émile-Maurice had to confront the automobile. Jean-Louis Dumas had to attract younger consumers. Axel Dumas has had to expand production, develop international markets and decide how contemporary products fit within the brand.

Each generation inherited traditions that needed defending and limitations that needed overcoming.

The question was never simply whether Hermès should change.

It was which changes would strengthen the qualities customers valued and which would gradually destroy them.

17. The Acquired Hosts' Research and Broader Business Lessons

The February 2024 Acquired episode was developed over approximately a year, with four weeks of intensive research before recording.

Ben Gilbert and David Rosenthal examined Hermès's historical development, annual reports, public interviews and their own experiences as customers.

They also consulted people with specialist knowledge of luxury and craftsmanship.

Former Gucci CEO Domenico De Sole contributed perspective on fashion-industry competition and Bernard Arnault's acquisition strategies.

Béatrice Amblard provided firsthand knowledge of Hermès workshops and its leadership culture.

Menswear writer Derek Guy helped explain traditional leatherworking and the differences between independent craftsmen and global luxury brands.

Fashion journalist Lauren Sherman contributed industry context, while Adam Pritzker provided experience from fashion investment and businesses including Assembled Brands and Khaite.

Writer Réginald-Jérôme helped with historical aspects of Parisian luxury.

The hosts did not interview current Hermès executives. Their account combined published company information with conversations involving outside specialists and former employees.

They particularly emphasized the depth of Hermès's annual reporting, describing a roughly 586-page document containing extensive information about manufacturing, strategy and craftsmanship.

Their research process also produced recommendations extending beyond luxury.

Matter was highlighted as a way to save and listen to lengthy articles, newsletters and PDFs. Perplexity AI was recommended for source-linked research, particularly when answers could be checked against original materials.

One host also recommended the compact Anker Prime 100W charger, model A2343, for travel and work.

More substantively, the hosts stressed that research tools must be sufficiently reliable for publication. Even a small proportion of unsupported answers becomes problematic when writers need to trust the information they use.

They also connected Hermès's operating philosophy with Bill Walsh's The Score Takes Care of Itself.

Walsh emphasized preparation, standards and disciplined execution rather than concentrating exclusively on immediate results.

His practice of scripting the opening plays of football games was compared with developing a carefully structured podcast episode while remaining flexible enough to respond to new developments.

The hosts applied the idea of scarcity to their own business.

Acquired produced approximately one major company-history episode each month and accepted only three sponsors per season.

That approach limited both content output and commercial inventory, allowing the podcast to emphasize quality and scarcity rather than maximizing the number of episodes or advertisements.

A separate discussion of Taylor Swift and Travis Kelce explored how audiences associated with two already-successful cultural institutions can reinforce one another.

Swift's fan base and the NFL could introduce each other to people who might otherwise have paid less attention.

The broader point was that growth can arise through complementary audiences without requiring either institution to abandon its central identity.

These discussions returned to the principle illustrated throughout Hermès's history: strong businesses do not necessarily need to imitate the growth methods used by their largest competitors.

Hermès has spent almost two centuries developing a collection of capabilities that reinforce one another.

It has survived by changing what it makes, where it sells and who purchases its products, while remaining unusually consistent about craftsmanship, quality and long-term ownership.

Its modern financial performance demonstrates that a traditional manufacturing system can support a remarkably valuable global company.

Its difficult retail experience, animal-welfare controversies, dependence on affluent consumers and slowing growth in some categories also show that the model is not free of weaknesses.

The distinguishing achievement is that Hermès has managed to expand forms of craftsmanship that many competitors abandoned.

It is still making objects through methods connected to its original nineteenth-century workshop.

The company has simply found an international market large enough, wealthy enough and interested enough to make that choice extraordinarily profitable.