In the second quarter of 2013, Hermes published an operating profit of 584 million and shares grew instantly by 3 percent. At the same time, Hermes also announced that they will increase prices next year due to the many risks involved that could lead to increase in costs.
According to many brokers, Japan is the most important market of Hermes as it accounts for one fifth of the sales. While that might be true, the volatility of the currency markets and mainly the weak yen compared to the euro has forced Hermes to find new ways to compensate the losses. ‘We hedge ourselves one year ahead, but the decrease in the yen will have an impact for us in 2014’ said Dumas, Co-CEO Of Hermes.
There are several ways in responding to the weak yen, one is to increase the prices. But Hermes will look for other options too.
No price increase in 2013 Yet
Even though the weak yen has already impacted a lot of luxury brands, making it evitable to raise prices, Hermes was the only brand that did not took the similar step. They had fully hedged the euro, but that doesn’t take away the risk involved next year.
Birkin More Demand Than We Can Produce
The prices of the Hermes Birkin and Kelly bags varies between €6.000 to €30.000 EUR. They are all handmade and only the finest materials has been used. Hermes is not planning to back up, they will keep applying the highest quality materials. This is also the core of their brand. The downside is that there are more demand than they can produce.
Rising cost in Silks and Calf Leather
Another risk taken in projecting the price increases is the silk and calf leather that keeps getting more expensive. The demand are huge because other luxury brands also consuming for their own production. The market of luxury goods is still growing while the supply of calf leather is decreasing due to the drop in consumer demand for veal.
Increase Volume to Compensate
So far Hermes hasn’t decided to increase prices yet. This was mainly because they increased their volume in the beginning of the year. Their growth was driven by more sales.
What do you think about Hermes price increase next year?