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Friday, November 19, 2010

How will the LVMH Hostile Stake Affect Hermes Fragrances?

It's no news that Louis Vuitton Moët Hennesy (LVMH) acts as a real-life Pacman, trying to eat all pac dots, i.e. luxe companies, through the maze of the international luxury market, digesting them into an undistinguishable mush which tends to divest them of their artisanal roots and top-notch quality control in lieu of creative bean-counting and super profits for crass product that screams "look at me".

Their latest desire to impose a hostile takeover at Hermès International (or at least the deciding majority of votes at board meetings), as announced at the end of October 2010, poses some serious problems and lots of opposition, no less from the heirs of the late Jean Louis Dumas. Of course with Hermès set to report another revenue increase, a 30% for the third quarter 0f 2010, it’s easy to understand why LVMH CEO Bernard Arnault ~whose own profits have slipped in the last year~ has such a keen interest in the company! "The family has clearly and unanimously told Le Figaro that the French mogul is to back off: "If you want to be friendly, Mister Arnault, you need to withdraw," Bertrand Puech, a fifth-generation descendant of founder Thierry Hermes, was quoted as saying. The family owns about 73% of Hermès' share capital, and its partnership structure means no change in contral can take place without family agreement. Afterall, it's family-run which cemented both their heritage and their endurance during the international economic crisis. With Arnault banging down the door, "will class be turned to mass", as Newsweek wondered?

It is not widely known however that LVMH had already acquired some shares at the beginning of 2008 through societies which belonged to them (equity shares), but it was the announcement on Reuters of 17,1% retaining of the total capital of the rue du Faubourg Saint-Honoré house which sparked the flames, especially since it was reported to the saddle-producing house only hours before going on air: Actually it was 5% and 10% of the capital of Hermès on October 21st and 15% on October 24th, to be more precise. According to the same source "LVMH said over the weekend it had acquired its Hermes holdings at an average price of 80.5 euros a share, or a 54 percent discount to Hermes' closing share price prior to the announcement, raising questions as to how it had secured such a price."

Women’s Wear Daily reports that the company used a number of stealth maneuvers, including cash-settle equity swaps and use of several cannily named LVMH subsidiaries, to increase its stake in Hermes by over 14% without identifying itself as a competitor to Hermès brass! [quote] Is Bernaud Arnault the Anti-Chirst? Meanwhile, the group will await the French market regulator's decision on whether LVMH's stake purchase happened legally.

The fiercest competition and the heavyweight fight concerns handbags, the two competitors owning the top prestigious manufacturing of coveted luxury handbags in the world. But since they also own some of the best known and respected fragrances sectors respectively the questions does enter the scope of the Perfume Shrine.

Hermès is a peculiar case and merits its own analysis, because it's the last ultra-traditional, ultra-refined, top-notch recognisable luxe company with fragrances in its portfolio standing on French soil still. The historic house of Guerlain has been already taken-over by LVMH several years ago and the effects have been somewhat less than satisfactory for those of us who appreciate history, family-held tradition and minute attention to quality controls and artistic concepts. The flux of the the behemoth's money benefited the refurbishing of the perfume mecca that is the flaship store at Champs Elysees, yet it has resulted in dubious reformulations, an avalanche of questionable releases priced for Arab shieks with a penchant for showing off French insignia and the reliquinshing of the firm's control by the last heir, Jean Paul Guerlain.
Parfums Dior have suffered an even worse fate in the hands of LVMH, lowering the quality of the vintages and repackaging blatant lies with the same names on the tags but half the soul. Givenchy, the former bastion of restrained elegance under Hubert de Givenchy, became the producer of myriads of mainstream fragrances for men and women who dare not differ from their fellow commuters on the train to work.
Chanel, on the other hand, although still independent, stirred surely by the Wertheimers, has profited by a long-held respect and almost awe which it doesn't wholly deserve nowadays. Although the Les Exclusifs move was one of quality, albeit also of impressionalism and opposite awe towards Hermes who had just issued the Hermessences before them, the latest releases ~from the shampoo-formula trite Chance Eau Tendre to the uber-bland and predictable masculine Bleu de Chanel~ point to a downspiral fall which is echoed through the halls of Rue Cambon and its mirrored staircase in no uncertain terms.

The only one left to guard Thermopylae in what seems like the last bastion of French tradition is Hermès and I for one sincerely hope it does not go down in history for a Spartan ending. In perfumery terms, that would mean a capitulation to the lowest common denominator, an eradication of everything and starting afresh (look what happened to the Italian house of Fendi parfums, which had a sudden discontinuation of ALL its perfumers upon seizure by LVMH) and a spike at prices on faux-luxury "fountain" extraits de parfum with fancy names going for several thousands of dollars...

Luxury writer Dana Thomas, who famously wrote the pithy Deluxe: How Luxury Lost is Lustre is fingering the French mogul as a fiendish money-making former property developer with no artistic sensibility and comparing Louis Vuitton to McDonald’s “A million served,” says Thomas drily. The logo is as recognisable as the golden arches. “It really is. I would certainly put it in the top 10, along with Nike, Coca-Cola...”

Hermès, to their credit, continued to be family-run in a world which moved into complex corporate circles and in a rare perceptive move hired an in-house perfumer of international renown, Jean Claude Ellena, who with his masterful, very refined palette and distinctive style imbued the Hermes fragrances with a clear signature, a refined intellectualism and a sense of true old-money luxury: not trying too hard, no gilted logos, no vulgar display of affluence, a in-the-know hush-hush acceptance of secret codes. Of course this move proved to be financially intelligent while still a continuation of the spirit of the house: The fragrance sector for Hermès bloomed to unprecedented heights and the company even considers expanding to the Asian market with a specific line geared only to them.
Would a take-over by LVMH signal the destruction of such a happy co-existence of quality and successful presence in the market?

According to a very perceptive and spot-on article in Forbes: "Unlike many of its competitors, including major French conglomerates Louis Vuitton Moët Hennessy and PPR, owned by billionaires Bernard Arnault and Francois Pinault, respectively, the brand has been able to increase sales by continuing to please its core customer, rather than aiming to attract a broader audience. At Hermès, you won’t find a $500 dollar handbag like you will at PPR-owned Gucci, or $300 plastic costume earrings, which are on sale at privately-owned Chanel. Instead, the 170-year-old company focuses on producing limited editions of their handbags, which begin at $5,000. “What’s really interesting about Hermès is that they have not followed the typical luxury model,” says Lucian James , president of Agenda Inc, a brand strategy firm in Paris and San Francisco. “When other luxury brands were reaching to a slightly bigger mass market, Hermès made a very specific decision not to do that.”

It's interesting to note, according to an interview in French newspaper Le Figaro, how the manager Patrick Thomas has since opposed the behemoth's insatiable appetite in no unclear terms, going at the root of the matter: “Hermès has absolutely no need of help, support or guardian.” “This culture (of craftmanship and strong traditions) is hardly compatible with one of a big group. It is not a financial battle, it’s a cultural battle.”

Indeed...

All opinions pronounced by Elena Vosnaki are the sole responsibility of its author and are not endorsed by any luxury house.

pics via mediairte.com, newsweek & dana thomas

14 comments:

  1. "It is not a financial battle, it’s a cultural battle”

    Totally agree. Thank you for the great post and analysis. I really got me thinking =)

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  2. Eleonore17:49

    Clap, clap, clap..I couldn't agree more...Being French I've been infuriated for years witnessing what happened to Vuitton, Dior, Givenchy and Guerlain since they have fallen in LVMH and B.A's hands...We were horrified when hearing about Hermes a few weeks ago and reassured on reading the group is fully aware of the danger caused by LVMH, they have very strong family links and the same ideal of beauty: Dana Thomas'book describes H's philosophy of luxury very well (by the way her book is fantastic!)So it seems LVMH won't win this time and won't ruin our last symbol of true luxury, thank God for that!!!!

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  3. This is certainly going to be an interesting one to watch; thanks for the write-up.

    I wonder which of today's small, family-run businesses will be the Guerlains and Diors of tomorrow... and the LVMH fodder of the day after tomorrow...?

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  4. I confess that i got deeply sad when i read this news days ago. Hermés is one of my favorite fragrance brands, and now i'm worried that LVMH take it and destroy it, using the brand to put on the market just more faux luxury things. I hope that when AB dies (and it seems that he's not that young), that LVMH dinasty ends and that no other one arrises to take their place.

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  5. Stay strong, Hermés, we don't want to lose you too!

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  6. It will be interesting to see how the French government responds to this. In the U.S. anti-regulatory climate it would be a done deal; lowest-common denominator and all that. Seems that's the way the whole world is going...thanks for clearing up some of these details, E! Shell companies in Panama? Good heavens.

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  7. Wonderful. So there are still fairy tales where good and beautiful can still win. Thank you for this post, it made my day!
    For me Guerlain story hurts most. Recently I came across a small story, a perfume shop which sells exclusive and niche and which carried for long all the old Guerlains like L'Heure Bleue, Vol de Nuit, Apres L'Ondee, Nahema etc. They won't anymore, recently Guerlain obliges them to take a certain amounts of their new products. So no more old Guerlains on around 30000 square kilometres.

    http://myscenttoday.blogspot.com/2010/10/guerlain-will-lose-shop-and-i-love-guet.html

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  8. Mitchin,

    you're most welcome and thanks for stopping by and commenting. I had to say those things or I'd burst!!!
    Hermes is everything I hold as real luxury in my mind.

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  9. Eleonore,

    it's heartening to hear a French saying so and agreeing with me on this somewhat harsh (but unbiased, I swear) judgment of this rider of the Apocalypse that we call LVMH....

    Actually I wonder whether there is some form of legislation in the French law body which disallows such hostile maneuvers, especially as they involve what the French call their cultural "patrimoine". Imagine if there was a hostile take-over of "shares" in the Louvre for instance!
    Aren't the French exporting their traditional luxury houses as a symbol of their cultural input to the world? Isn't that protected under law? (same as archaeological ruins are protected and are loaned/sold under strict specifications, or how products of designated origin of production are sold under specific license and name?)

    Does anyone here know?

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  10. Persolaise,

    that's a scary thought, right there. I do hope that the globalisation we're witnessing doesn't eradicate all artisanal houses which have recognisability.

    It's worth wondering however how Arnault doesn't have the insight to see how expanding to a wider audience hasn't exactly brought out the desired aspects of growth but only short-term profits in other houses he took under his "wing" (har, har!) Or maybe it's short-term profits he's after and then he's on to someone else, like a love-piranha, for ever on the vanguard of a new conquest, be darned with the rest?

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  11. Rick,

    thanks for stopping by and I share your disappointment and sense of anxiety. It would be very sad to live to see this happen, when Hermes has withstood so much over the years and still retained their exceptional control of the brand.

    I do fear however I'm not that optimistic about the dynasty ending with Arnault's timely or untimely demise. These are BIG businesses and there would certainly exist a board of "Chair-centaurs" to continue (That is a Greek idiom to denote people who refuse to relinquish their authority, as if they're genetically glued to the Chair/chair...)

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  12. A,

    from your mouth to Hermes's ear (and financial and legislative prowess!)

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  13. P,

    like I said to Eleonore in my response to her comment above, I do wonder whether there is specific French legislature that protects business which have come to symbolise the nation in the eyes of the world. It's like Champagne or Cognac, they're so particularly French, one can't settle for sparkly from some island off the Philippines if one is thinking in cultural symbols terms. (mind you, I have absolutely no idea if the Philippines even produce sparkly, much less whether it's any good; totally random example!).
    Is there anything comparable in the US with products/services which are considered protected under law from too much stock-market intermingling?

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  14. Maria,

    thanks for stopping by and hope you like it around here! It's always nice to hear from readers we provided some joy to their day, there's absolutely no agenda on these pages, purely enthusiasm and agony as they present themselves through the machinations of the perfumery industry.

    Regarding Hermes, I am fervently praying they have the stamina to withstand the maneuvers played around them, because they certainly have the backbone to fight and that's both admirable and beautiful.

    Thanks for directing me to your post. I know your pain..and I'm glad you managed to get your beloved. Guerlain has been featured innumerable times on these pages because I have a special affinity for many of their historical vintages, some of them very little known or as acclaimed as they should be, such as Atuana, Loin de Tout, Parure, etc.

    At any rate, for anyone who also loves guet Apens and is happening to read here now, these articles (which I presume you have read yourself) might point out that not all is lost...there is still some stock left of the comparable (and confusing) "relatives":

    Comparison of Guet Apens, No.68, Attrape Coeur, Vol de Nuit Evasion.

    Interview with Mathilde Laurent

    Discontinuation of Attrape Coeur

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