Hermes is the iconic luxury brand started in 1837 in Paris by the hand of Thierry Hermes and over the years the company has outstretched its business peripheral across 45 countries with 306 stores (Hermes.com, 2022). The luxury brand is a magnificent example of exquisite craftsmanship blended with a rich heritage engaged in the manufacturing of leather goods, lifestyle accessories, furniture watches, jewellery, saddler and ready-to-wear products.
The company’s involvement with the sustainability strategies also checked for gaining deep insight into the organisational practice and performance in the competitive market environment. This assignment will evaluate the success through strategic analysis, leadership contribution, strategic focus and recommendations for the brand Hermes briefly.
2. Measures of success
Hermes is an independent and family-run brand which has achieved perceived success through its high brand reputation and exclusive products of luxury goods. In the year 2021, the company made revenue of £8,982 million which grew 40.6% more than the previous year. On a specific note, the prime strength of the brand is differentiation through high-quality products, limited accessibility and premium price.
Financial years
Revenue earned (in € millions)
Recurring operating profitability (%)
Net income (in € millions)
2017
5,549
34.6
1,221
2018
5,966
34.8
1,405
2019
6,883
34.0
1,528
2020
6, 389
31.0
1,385
2021
8,982
39.3
2,445
Figure 1: Financial results of Hermes from 2017-2021 (Freecaster, 2022)
The luxury brand Hermes is only focused on the brand quality and product range which defines luxury in fashion statements. The competitors of the brands are Gucci, Prada, Louis Vuitton and other international brands. Specifically, Louis Vuitton has ranked far ahead in the luxury fashion brand product in comparison with Hermes whereas the opponent brand has broadly diversified its product range other than fashion goods.
It may be argued that, amid the high market uncertainty in accordance to growing market share and brand recognition, Louis Vuitton is in a better position than Hermes where the Hermes brand is simultaneously designing luxury brands and competitively making a high profit with a growing market share and brand reputation.
Financial years
Revenue earned (in € millions)
Recurring operating profitability
2017
42,636
8293
2018
46,826
10,003
2019
53,670
11, 504
2020
44,651
8,305
2021
64,215
12,151
Figure 2: Revenue generation by Louis Vuitton (LVMH, 2022)
Performance management and measurement typically enhance the brand efficiency through improved service to the customer, product quality, authenticity and uniqueness helping the brand to become accountable to stakeholders (Yeboah, 2019). Critically, success measurement is crucial for the organization to keep track of the progress of the business mission, vision and strategy in its market operation.
It may be stated that challenges are related to the adaptation of industry 4.0 in the growing aspect of digitization regarding flexibility, cost along with knowledge constraints (Masood, 2022). Other challenges associated with success measurement are sustainability challenges through the social and environmental threshold and standards (Nikolaou, 2019).
3. Reason for Success
The brand success of Hermes is due to several reasons which have equipped the brand with a competitive advantage to gain market proliferation and easy generation of revenue from the global market. Excellent craftsmanship, smart pricing, global recognition, and quick merger and acquisitions are some of the reasons behind the business success of the brand Hermes (Wang, 2021).
On a brief note, the marketing strategy and high focus on market target also paved the business success for the Brand to gain a large profit share from the global market. Accommodating the customer choices in the product also increased the company’s revenue with more customer-friendly business relationships with the high-income category people.
3.1 Excellent craftsmanship
Exquisite craftsmanship in the Hermes product has led the organization to satisfy the consumer with the unique and distinguished design and peripherals of the product. Collaboration of art and culture through the engagement of international artists helps to promote the art in different countries through craftsmanship and helps the business process to grow and sustain (Masè, 2020).
3.2 Smart pricing
The smart pricing of the Hermes product following the other brand product has helped the c company to gain business success through the high pricing practice to influence the population for high quality and brand loyalty (Alegria, 2019).
3.3 Product innovation
Product innovation is an interesting aspect of growing business success where Hermes has adequately engaged in the development of new product lines to accompany the changing fashion trend of the market (Xu, 2020).
3.4 Quick merger and acquisitions
The company has engaged with the franchises to enter into the foreign market while after a brief period the company has merged or acquired the franchise partners and become the entrepreneur of the business to achieve a high success ratio (Kuivamäki, 2021).
3.5 Experiential branding
The experiential branding of the luxury product of Hermes is the carrier of content, emotion, values and experiences. However, experiential branding engaged with the consumption culture to connect and satisfy the customer through evolved brand culture (Batat, 2019). In addition to that, the prices of the Hermes Product are highly expensive and tend to attract the wealthy young adults t with a trendy and attractive design which differentiate the product from other brands and wealthy people used to buy Hermes product with its quality and offer of premium pricing.
3.6 Option of customization of the product
The brand Hermes is well known for its unique way of customer relationship management where the c company offers the product customization process to engage with developing products as per customer choice and preferences. It may be asserted that for generations Hermes has adopted a customer-centric brand culture which is driven toward handmade customization of different products (Xu, 2020).
3.7 Exclusive distribution network
The exclusive distribution network of Hermes also allowed the company to quick market outreach and gain business competence with increasing sales margin. Generally, global brands for their distribution network rely upon retail stores across the globe where more control over the distribution network helps the company to optimise its turnover and gain business success (Brun, 2022).
4. Strategic analysis (AVC +VRIN)
Adapted Value Chain
Primary activity chain
The primary activities of a value chain involve the 5 most imperative aspects and those are inbound logistics, operations, outbound logistics, sales and marketing and service.
Inbound logistics (P1)
The concept of inbound logistics refers to the relationship that a firm maintains with its suppliers and different activities regarding storing, receiving and disseminating inputs. In the context of Hermes, Paris, the company attains that by relying on some fundamental principles. One of them is maintaining a long-term relationship with the suppliers to preserve secure services and supplies and also to avoid unfair practices of purchasing (finance.hermes.com, 2022).
Moreover, the inbound logistics practices at Hermes Paris are also conducted by controlling the cost of the operations and their fundamental purchasing policy is dependent on 3 fundamental principles such as care, transparency and high standards (finance.hermes.com, 2022).
Operations (P2)
The operational activities within the company to transform the inputs into outputs might be conducted by complying with the technique of VCA which is also known as Value Chain Analysis (VCA). According to research, VCA is known to view a firm as a significant part of the value chain regarding a specific product and the value chain of a product is a practice that begins from the procurement of raw materials to the handling of after-sales services (Simatupang, 2017).
Figure 1: Adapted Value Chain (Simatupang, 2017)
The practices regarding outbound logistics consist of different activities that are performed to help the finished goods reach the end customers and to achieve the most cost-saving and sustainable practices regarding the given practice, the company has opted for technological innovations such as an automated sorting system. According to research, the aspect of the automated sorting system has become one of the most important components within the majority of supply chains due to features such as same-day or next-day delivery, the potential to handle large shipments and so on (Boysen, 2019).
Marketing and sales (P4)
Research states that the approach of category segregation is extremely vital for the strategy of the company and the company mostly sells products such as bangs at a relatively high-price range compared to other products such as scarfs at a reasonable price range to aspirational consumers (Sherman, 2018). Moreover, from a marketing perspective, it may be stated that the company did not need to advertise their products, however, they have been able to maintain a steady growth of sales which has facilitated Hermes to save a substantial amount on publicity (Wang, 2021).
Services (P5)
One of the most significant services that the company provides to their customer for enhancing the consumer journey experience is the service of restoration, repair and total polishing of all Hermes products even after a purchase has been made (Hermes.com, 2022). Such approaches help the company to maintain an effective approach regarding the aspect of customer relationship management which further enhances the market value of the company.
The aspect of positive customer relationship management is extremely important within today’s business environment as it helps corporations to maintain an effective relationship with their potential and present customers (Soltani, 2018).
Supporting activities
Firm infrastructure (S1)
The internal infrastructure of the firm is significantly positive as the company has a substantial amount of human resources along with vast financial resources and by existing within the luxury industry for decades Hermes has also created a unique brand reputation, especially for their Birkin bags. The company has declared to open three new factories to keep up with the increasing demand for their Birkin and Kelly bags and they will also open new factories in 3 towns in France in 2024 to increase the speed up the production process of these bags (theguardian.com, 2022).
Human Resource Management (HRM) (S2)
For almost six-generation, the company has managed to keep a significantly high standard of working conditions for employees to enable the workforce to develop relevant skills and achieve their full potential with the help of Hermes’s HRM. The executive committee of the organization supervises all the activities executed for the benefit of the company employees and a group ethics committee has also been developed to offer relevant recommendations on the company’s ethical and cultural practices to manage any alert (finance.hermes.com, 2022).
Technology development (S3)
From a technological point of view, it has already been mentioned that technological innovation such as automating sorting systems has been implemented within the company to ensure the fastest-delivery possible along with acquiring the capability to handle large volumes of shipments. Hermes is regarded as a company that has leveraged the full potential of digital technology and has been curating unique content across different channels (forbes.com, 2022).
Procurement (S4)
For their procurement, Hermes has ensured to diversify their range of suppliers to ensure that the company never runs out of raw materials required for curating their products effectively. Therefore, it has already been stated that the management of the corporation attempts to keep a long-term relationship with its suppliers and maintains an ethical standard to procure the best sustainable material possible.
From the given framework of the AVC-VRIN analysis of Hermes Paris, it has been established that the brand reputation of the company is regarded as their most valuable asset and it is also not substitutable. It is safe to say that Hermes has created such a reputation by existing within the market for almost 6 generations and creating remarkable luxury products such as the Kelly and Birkin handbags. In addition to that, it may also be implied that although their supply chain, performance and financial resources are on the positive side, they may be imitated quite easily by their competitors such as Chanel, Dior, Louis Vuitton and more.
5. Leadership contribution
Leadership Attributes or Styles
The leadership style in Hermes followed the democratic leadership where the Supervisory board consists of 12 members used to exercise control in company management which indicated that the active partner is combined liable for the company debts. It also stated that the supervisory board may suggest the active partner invoke or revoke the powers of the executive chairman in Hermes. The leadership contribution has made the organisational culture effective to coordinate the luxury fashion strategy to proliferate the market area with product innovation, unique selling propositions and culturally compatible products to win and engage with foreign customers actively.
The leadership style is distributed where the supervisory board has the authority to oversee, measure and control the management practice of Hermes governing body intended to eliminate the misconception and calculation over the management practice and brand decision making. On the contrary, the leadership style in family-based organisations has accommodated the role of facilitator on the eve of organisational conflict whereas the democratic leadership style helps to gain success through the decision-making on behalf of organisational success (FAKHRI, 2021).
Figure 2: Democratic leadership (FAKHRI, 2021)
Organisational Culture
The leadership has influenced the organisational culture into a co-creative and friendly atmosphere in the workspace of Hermes where employees are collaboratively functioning to meet the business objectives with appropriate engagement with the team and leaders. The organisational culture is based on the strategy of creative freedom where employees design the product to surprise and amaze the consumer through pragmatic design innovation.
The organisational culture is largely dependent on the family values, beliefs and practice which shapes the company’s culture to set the employee attitude in the global market for increasing business portfolio. Furthermore, communication-based organisational culture has been witnessed in the workspace of the Hermes organisation where the interaction between employees led to better structure design and innovation of new product lines to satisfy the consumer with its craftsmanship and quality product.
Employee wellbeing and development are also taken care of by the organisation to motivate and align the employee perspective with the organisational business objectives and target. The employees are often busy with a collective adventure to go through the business requirements and development. It is quite a good experience having been able to be a member of team Hermes and collectively participate, interact and innovate the craftsmanship for better business proficiency and employee job satisfaction.
Decision-making Theory
Decision-making theory is relatable to organisational leadership which has been reflecting the business process through the risk and uncertainties in the market environment. Moreover, uncertainty may be defined through the states, actions and consequences in the business environment or market operation and have better implications on consumer behaviour and influence the sales margin through strategic decisions. The theory of internationalisation is concerned with organisational boundaries which encompass the external environment of the organisation, the boundary of the company and its internal structure.
The decision-making theory is integrated into the business environment and coordinated through competition in the external environment and cooperation in the internal structure for better decision-making to gain business success (Buckley, 2019). On a specific note, the Hermes brand relied upon democratic leadership which followed decentralised decision-making to propagate the business process through risks and uncertainties. Along with that, the supervisory board often has the authority to check the decision-making on behalf of organisational effectiveness and market penetration to achieve a business advantage through collaborative craftsmanship.
6. Strategy focus
Sustainable strategy
Sustainability of the brand is highly required for its long-term business viability where the ethical and environmental concerns along with the Corporate Social Responsibility (CSR) activities are organising the brand sustainability. The Hermes brand is on the threshold to complete its two hundred years of market journey and is readily equipped with sustainable strategies to cope with the rapidly evolving concerns of the people, perspectives and trends.
Hermes is renowned for its accelerating performance in the creation of employment, and strong and dedicated training and development programme for its employees here 60% of managers are women and 5.75% of employees are disabled (Freecaster, 2022). However, the company has not adequately delivered sustainability on all of its products with a low environment rating because of its incapability to use eco-friendly materials and excessive use of hazardous chemicals (Refer to Appendix 1).
The company is also facing issues regarding its waste management and procurement practice where high-quality leather is associated with the killing of innocent animals. Other than that, the sustainability strategy also faces issues regarding cost management and the use of renewable energy in manufacturing along with reduction of carbon emissions for future centric strategy focus on sustainable development.
The company is lacking the concerns for auditing the sustainability report regularly to eliminate the irregularities in the global value chain with ethical and environmental concerns. Hermes’s sustainability practice with its suppliers and distribution network lagged behind its competitor which has the potential to enforce organisational success through cost-effectiveness and accommodating ethical and climate concerns.
7. Strategic recommendation
The recommendations are as follows: –
It should be recommended that the company needs to provide more focus on sourcing environment-friendly materials which will be useful in producing eco-friendly bags for both men and women.
This strategy of Hermes needs to be more focused on a green and clean economy involving renewable energy which will ensure the sustainable competitive advantage of the company.
It is advised that the company needs to build and formulate an animal welfare policy to improve the ecological rating of the company.
The management of the company should aware of the people’s ethical concerns and perceptions about the use of environment-friendly bags for sustainable packaging and distribution
The company should implement transformational sustainable strategy which will help the company to increase the engagement of stakeholder and ensure the competitive advantage by transforming it as a unique organization. Additionally, Hermes should implement the Triple Bottom line strategy which will help the company to ensure economic, social and environmental sustainable in the upcoming years. Apart from that, reduce, reuse and recycle policy also need to use by the company as it will help the company create an ethical and sustainable image in the market.
References
Alegria, G. ( 2019). A Fashion Phenomenon. A Fashion Phenomenon.
Batat, W. ( 2019). Experiential Branding of Luxury. In The New Luxury Experience . 91-112.
Boysen, N. B. (2019). Automated sortation conveyors: A survey from an operational research perspective. European Journal of Operational Research, 276(3),, pp.796-815.
Brun, A. &. (2022). uxury Supply Chain Management. In The Oxford Handbook of Luxury Business. Oxford University Press., 127.
Buckley, P. &. ( 2019). Decision-making in international business. Journal of International Business Studies, 50(8), 1424-1439.
FAKHRI, M. S. (2021). Democratic leadership practice to construct clan organizational culture in family companies. The Journal of Asian Finance, Economics and Business,, 8(1), 803-811.
Kuivamäki, T. &. ( 2021). “Imagining a Better Future while Legitimating a Controversial Present” A Critical Discourse Analysis of Fortum’s Communication on the Uniper Acquisition.
Masè, S. ( 2020). rt and Cross-Cultural Business. In Art and Busines. Springer, Cham., 99-112.
Masood, T. &. ( 2022). Industry 4.0: Adoption challenges and benefits for SMEs. Computers in Industry,, 121, 103261.
Nikolaou, I. E. ( 2019). A framework to measure corporate sustainability performance: A strong sustainability-based view of firm. Sustainable Production and Consumption,, 18, 1-18.
Sherman, L. (2018). Hermès’ Anti-Marketing Marketing. Business of Fashion.
Simatupang, T. P. (2017). The emergence of value chain thinking. International Journal of value chain management, 8(1),, pp.40-57.
Soltani, Z. Z. (2018). The impact of the customer relationship management on the organization performance. The Journal of High Technology Management Research, 29(2), , pp.237-246.
Wang, Y. (2021). Analysis on the Marketing Strategy of Hermes. In 2021 International Conference on Enterprise Management and Economic Development. Atlantis Press, 268-272.
Xu, Q. (2020). Study of the Marketing Strategies of High-End Luxury Brands: The Case of Hermes. In 2020 2nd International Conference on Economic Management and Cultural Industry. Atlantis Press, 462-46.
Yeboah. (2019). Challenges of Performance Measurement in Public Sector.
Appendices
Appendix 1
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