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LUXURY FOREVER

At the Hermes original flagship store at 24, rue du Faubourg St-Honore, in the heart of Paris, slim saleswomen dramatically unfurl silk scarf after silk scarf for clusters of Japanese shoppers and chic Parisiennes. Tailors take measurements for made-to-order suits and millinery experts size up chapeaus to be worn at the next big wedding or horse race. On the mezzanine, jewelers fit watches or help select the perfect pair of cuff links. In the back, saddlers take orders. To be measured, however, customers must make their way upstairs, where they straddle a leather sawhorse--just as clients have for more than a century--as the man in the worn cowhide apron takes out his tape measure and gets to work.

That, in a snapshot, is what sets Hermes apart from its competitors in the luxury business. As its fall ad campaign, shot by the late Richard Avedon, declares: "Nothing changes, but everything changes." More than 50 percent of the products in the company's 225 stores worldwide are new each season--including, this fall, the first women's wear collection by Hermes's newly appointed in-house designer, Jean Paul Gaultier. Yet the handbags and wallets, scarves and saddles, are still made the same way: by hand. "Hermes is the ultimate luxury," says Harper's Bazaar editor Glenda Bailey. "It's sophisticated, yet not pretentious, and there is always an extreme attention to design, quality and craftsmanship."

What's given Hermes its lasting power is the fact that it's one of the last family-owned, family-run companies in the luxury business. In the 1980s and '90s, old houses such as Gucci, Fendi and Celine were swallowed up by corporate groups and made beholden to stockholders who expected increased profits with each quarter. To meet that demand, many luxury houses went downmarket and began selling to the masses. Not Hermes. "They haven't sold out," says Rita Clifton, chairman of Interbrand UK, a branding-consultant firm in London. "Hermes is a rocklike beacon in authentic French luxury."

It's in the company's blood--literally. Hermes's 66-year-old CEO, Jean-Louis Dumas, is the fifth generation to run the company. As a child, he played beneath the desk of his grandfather Emile-Maurice Hermes, who guided the firm from the tack shop his grandfather Thierry founded in 1837 to an international luxury leather-goods house. During a trip to Canada in 1914, Emile-Maurice came across the zipper, acquired two-year exclusive rights to its use in Europe, and quickly integrated it into many products, including zip-wrist leather gloves. During his nearly 50 years at the helm, he introduced silk scarves based on jockey prints, silk neckties and Hermes's first scent, Eau d'Hermes--all still staples at the house.

In 1951, Emile-Maurice's son-in-law Robert Dumas took over, and turned Hermes into the jet set's luxury brand of choice. When paparazzi snapped Princess Grace of Monaco carrying a sac a depeches to conceal her pregnancy, Robert renamed it the Kelly bag, and sales soared. Half a century later, the Kelly, at $6,000 to $12,000, remains one of the most popular items at Hermes. In 1978, Robert's son Jean-Louis became chairman and CEO.

Despite his posh upbringing, Dumas remains remarkably grounded. Like his grandfather, he explored the world; in the early 1960s, he and his Greek-born wife, Rena, climbed into a beat-up Citroen and drove down the Silk Road to India, where they experienced firsthand the wide gulf between rich and poor. Dumas has said that the trip opened his eyes and gave him a sense of spiritualism. Later, he went to work as a buyer at Bloomingdale's in New York, where he learned the middle-class retail business. It all has come together at Hermes. Today Dumas is what his co-chairman Patrick Thomas calls "rational and emotional. He dreams all the time, but at the end of the day he does his accounting."

Dumas has guided the company with careful attention to detail--and a certain degree of spontaneity. In 1984, he sat next to the actress Jane Birkin on an Air France flight. After watching her spill the contents of her purse, he asked her what would be the perfect bag. He adapted her specs to an old classic design called the haut a courroies and came up with the Birkin. Today, at a starting price of $8,000, it's one of the house's bestsellers. In 1982, he bought John Lobb shoes, and during the last decade, he has taken minority stakes in such luxury companies as Saint-Louis crystal, Puiforcat silversmiths and Leica cameras. The goal, says Thomas, is to invest in "exceptional products that have nothing in common and try to help them to grow."

In 1993, Dumas listed 19 percent of the company on the stock market, which gave Hermes some outside pressure to be fiscally responsible. The company's stock has risen steadily ever since. Four years later he hired Martin Margiela to design women's wear, and to everyone's surprise, Margiela--known for radically deconstructed clothes--turned out one discreetly elegant collection after another.

Then in 1999, Dumas stupefied both fashion and business establishments by buying 35 percent of Jean Paul Gaultier, the bad-boy French designer best-known for his conical-breasted corsets for Madonna. The cash infusion allowed Gaultier to expand his then 20-year-old company with new lines and move his headquarters into a newly restored city mansion in Paris. When Margiela's contract expired, Dumas asked Gaultier to suggest a replacement. After thinking a bit, Gaultier called back: "What about me?" Dumas agreed. "He gave me carte blanche," Gaultier told NEWSWEEK backstage after his Hermes women's wear show in Paris last week. "The only thing he told me was, 'Jean, I don't want to see logos like we see everywhere else. Hermes is about discretion, refinement and subtlety.' "

But that didn't mean the enfant terrible couldn't play. His first order of business was to create new spins on the classics, making a mini Kelly bag and a squat version of the Birkin--both of which became favorites of glossy editors. After Gaultier's wildly lauded second collection last week--light-as-air silk-scarf gowns, skintight glove-leather bodices and handsomely tailored peacoats--the fashion crowd is loudly comparing the powerful pairing to Karl Lagerfeld and Chanel. Today ready-to-wear is Hermes's second largest business after leather goods, last year accounting for 22 percent of sales, or 267 million euro.

Hermes is growing in other directions as well. Three years ago it opened a 5,600-square-meter store in Tokyo. In 2002, it launched an e-commerce site in the United States--Hermes.com. The company is developing its arts initiative, with photography and contemporary exhibits in its in-store galleries in New York, Los Angeles and Brussels, and underwriting shows such as "Carried Away: All About Bags," which opened earlier this month at the Musee des Arts Decoratifs. This year it's opening two new production sites outside Paris, adding more than 200 leatherworking artisans. "They are willing to invest time in craftsmen in order to maintain their quality," says Dana Telsey, luxury analyst for Bear Stearns in New York. "In the long-term we will continue to see growth."

That's certainly what Dumas hopes. These days he's slowing down, easing into retirement. He named Thomas, a longtime Hermes executive, as co-chairman so he could spend more time with his wife at their homes in Normandy and Greece. But with a half-dozen relatives in key positions, there will no doubt be a sixth-generation in the Hermes saddle for years to come.

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