Hermes to open less stores to protect luxury image

French luxury house Hermes is to open fewer new stores over the next five years to protect its high-end image from over-exposure in a retail market where being one of the most exclusive brands seems to guarantee smooth sailing through global financial turmoil.

“Given risks of brand dilution, we must be prudent. We are going to significantly reduce our store openings to renovate and expand the existing stores,” chief executive Patrick Thomas said on Friday after publication of the company’s first-half results. Hermes, which has 340 stores worldwide, still plans to open more stores in Middle East, Latin America and China but not in Europe, the CEO said. It targets a total of 350 to 360 stores in five years.

Hermes raised its annual sales growth target after reporting a double-digit increase in first half revenue and profits, targeting 12 percent annual growth at constant exchange rates, up from a previous target of 10 percent. Big-spending Asian markets like China, Singapore and Hong Kong contributed to the strong results. These markets defied slowdown fears by producing 25 percent sales growth in the first half. All product lines, from leather goods to jewelry and watches, grew at double-digit rates.

Hermes also confirmed expectations that the operating margin for 2012 would likely fail to match its all-time high in 2011 as the group invests to develop its distribution network. The retail-driven luxury industry is facing margin pressure because of unfavourable exchange rates and higher costs that companies can only partially pass on to consumers, especially in Europe. Thomas said the group had not increased prices in Europe.

Hermes, mens store New York

adapted from Reuters