Economic Performance of the Group during the 2008- 2011 Global Financial Crisis
Economic scholars and other analysts in this field agree that the recent global economic crisis affected almost all markets and industries worldwide. These included the banking industry, the construction industry, and the real estate industry, among others. Earnings and investments in these industries were eroded by the effects of the crisis.
It is noted that the fashion industry was not spared from the crisis (Pareto 41). Hermes House is one of the players in the industry with investments in luxury designs and such other products. The company was also affected by this economic crisis that hit every aspect of the global economy. Most of the luxury and fashion houses were forced to cut down on their price tags to avoid scaring the customers away. In addition to this, the players in the industry were also forced to cut down on the prices so as to maintain positive growth in the company (Pareto 45).
Hermes House is an international partnership that was formed under French law with international branches. It has branches and subsidiaries in many countries around the world. It has earned itself a slot in Euro List’s compartment A (“Hermes of Paris, Inc.” [Hermes of Paris] 47). The company operates within all ethical regulations that apply to any given company in the world. With all these regulations in place, the company finds it necessary to make available the financial statements that show its general performance on an annual basis. Financial analysts have been attracted to this company assessing its financial performance. An analysis of the company’s financial performance will show that it has generally performed well. Some departments and sectors in the company have performed exceptionally well.
The recent global economic crisis compelled the Hermes House’s price control units to cut down on their prices so as to lure customers to the store and encourage them to stick to their products. In the years between 2005 and 2007, the Hermes House’s customer base was tremendously growing. This, however, changed with the onset of the 2008 financial crisis. The customer’s affiliation with the Hermes House’s products decreased and hence the need for the price cuts. It is noted that the company was not immune to the effects of the crisis as it engulfed the entire global economy rendering most sectors vulnerable to financial losses. Hermes House has different sectors and branches across the globe, as already indicated. It is noted that the impacts of this crisis were felt differently by different sectors. The different sectors posted different results according to the magnitude of the crisis (“Annual Report Overview and Review Operations” [Annual Report] 81).
The financial results of this company have been availed to the public and approved by the executive committee after a thorough review by the audit committee. This is during the annual general meeting. According to the financial reports, quite a number of setbacks were experienced during the global financial crisis. With the onset of the crisis in the year 2008, the managers at Hermes fashion house started noticing a difference in the financial statements of the company. The negative effects were expected to hit most of the sectors in the company as the crisis took root. The company had put mechanisms in place to shield itself from being affected by the looming crisis. The managers at Hermes House have struggled to improve its operations in spite of the persisting economic crisis in the world. Business organizations in different parts of the world were affected differently by the financial crisis. The crisis elicited different reactions from different players in the global economy. The main worry among the business entrepreneurs was the financial tensions that sent many financial institutions back to the drawing board. Many analysts agree that the financial crisis affected the operations of the Hermes House’s business as well.
Hermes House has a range of 14 products in its stable. These products are marketed through a network of 304 outlets throughout the world. The products include leather items, which takes a larger percentage of products among the various divisions. Other products by this company include scarves, footwear, men’s and women’s wear, among others (“Hermes of Paris” 61). Some of these products are manufactured using raw materials are acquired locally in the countries and regions within which the company is operating. Some of the raw materials are imported from different parts of the world. With the onset of the crisis, the cost of the imported commodities went high, and this, in effect, affected the price of the finished products. The price of the final products went high, and this affected the sales volume as customers were unable to purchase Hermes products.
The American section of Hermes House has over 20 outlets of fashion and design subsidiaries. The management in this company is of the view that this was the most affected section of the company, especially given the fact that the crisis started in the United States due to the subprime mortgage bubble. This is together with the collapse of the Lehman Brothers’ Company (Pareto 52). The crisis saw the fluctuation of foreign currencies across the globe, which affected the prices in all sectors of the economy. However, it is noted that some of the sectors posted tremendous results during the crisis as they took advantage of various developments that were taking place. The economic growth in most of the sectors drastically slowed down. The last three years of the 2008- 11 crises were dramatic for the Hermes House’s business operations. This is especially so in terms of currency fluctuations in the world. Products by this company are delivered to international destinations where each is subjected to different price regulatory mechanisms. This is as a result of the differences in the currency exchange rates. This development is a disadvantage to the Hermes House’s business operations (“Annual Report” 109).
Most of the companies playing a significant role in the global economy, including fashion houses such as Hermes House, had their revenues decreased. In the year 2011, most of the companies were recovering from the aftershocks of the crisis. It is noted that the growth of the global economy declined by almost 2.9% during this time. In the year 2010, Hermes House, together with all her 14 divisions around the world, was in a pre-crisis expansion mood. The American divisions were the most affected by the crisis, as already indicated elsewhere in this paper. However, the robust growth in demand for these products in America is bringing everything back on track, and the recovery from the crisis is taking shape (“Annual Report” 119).
From a general perspective, the Hermes House and Company were resilient as it responded to the 2008- 10 global economic crisis. According to the macroeconomic recovery report, it is obvious that the fashion house remained firm in its growth and economic performance as compared to other companies in other industries. The International Monetary Fund forecasts an increase of 4% in global GDP (International Monetary Fund [IMF] 103). This is good news to the luxury industry and specifically for players in the industry such as Hermes Fashion House. They are likely to make profits out of such developments.
There are three traits that help the Hermes range of products remain famous in the international market. These three factors are analyzed below: First, the products have a global presence and dominance that makes it hard for them to just fade from the international, regional, and national markets. Secondly, the network of retail outlets is very extensive, and as such, the products of the company are widely known. As such, it is noted that many customers are going for particular products from Hermes Fashion House around the world. Third, pure leather products give Hermes an upper hand even in times of crisis. This is especially so considering that not many companies are able to produce pure leather products such as shoes and bags in times of crisis (Bain and Company 54).
Analysis of the Competition’s Performance
The Hermes House is recognized globally for its prestigious products such as silk, which are renowned the world over. The company embraces creativity with endless styles bestowed upon their products. The master designs have earned the Hermes Company global recognition. The success is attributed to a unique and uncontested strategy that cannot be matched by the rest in the luxury industry (Bain and Company 59). There are a number of factors that explain the reasons why the Hermes Company is dominating the global luxury scene in spite of the recent global economic crisis. As the title of this paper indicates, the performance of this company was exemplary during this period. While other companies and institutions such as the Lehman Brothers were collapsing under the onslaught of the recent global economic crisis, other companies such as Hermes were recording growth and were stable. Perhaps individuals who were facing economic hardships were finding comfort in buying luxury goods with the little money they had saved.
The Hermes Company faces very stiff competition in the existing markets worldwide. Having noticed this trend, the managers have resolved to venture into the emerging markets as the developed market is slowing and cooling down, and the only remaining option is to exploit the emerging economies. In the current luxury world, the emerging economies are doing well with promising results as they are the main consumers of luxury products. The Hermes House exploited this fact better than the rest of the companies in the industry which have not yet noticed this important market (Euromonitor International 21).
The figure below shows the envisaged growth for the luxury industry in the world:
Another factor that is putting Hermes on the lead is the fact that the dominant in the international market with boutique outlets all over the world. In the event of currency fluctuation, the Hermes financial strategy adopts the standard price that is equal in all outlets saving the company from substantial losses. This is quite a feat when compared to other players in the luxury industry, which incur huge losses due to currency fluctuations (“Hermes Still on the Saddle” 14).
China is an emerging market with the potential to be the economic hub and powerhouse in just a few years to come. Having noticed this fact, Hermes House has opened various outlets in China to take advantage of the robust economy of the country. Additionally, the company has adjusted the master designs to accommodate all cultures in the world. China is a good example here, given that it is an emerging tourist destination. To tap into this, Hermes introduced products that reflected different cultures, including that of the Chinese people. It is estimated that China consumes 30% of the UK’s luxury products, and Hermes wanted to get a portion of this cake. This strategy has earned Hermes substantial profits from emerging markets, unlike other luxury companies in the world. The consumers in these markets are unique, as already indicated. Their behavior and psychological orientation are not similar to that of the consumers in the developed nations. Multinationals should be aware of these differences if they are to make headways in these new markets. Hermes appears to have identified these differences and addressed them effectively.
The Hermes Challenge in Terms of Products: Is the Product Mixing Optimal?
Analysis of the Product Mix Adopted by Hermès vs. the Product Mix of Competitors and their Profitability
It will be important for the author to provide an illustration of the concept “product mix” before embarking on its significance to Hermes Company. The product mix is a term used to describe the different range of products as well as the individual products that are sold in one shop or produced by one company (Burr 15). Hermes Fashion House, as well as the competitors, had adopted this approach. The product mix is incorporated using the four Ps, which are product, price, place, and promotion. Some outlets sell just a few products, especially the men’s shops. The volume of sales varies from one shop to the other. It also varies from one product to the other. It is noted that shops that stock a wide range of products generate more profits as compared to outlets with one product line.
The paper will embark on an analysis of each product segment as far as product mixing is concerned. Different products lead to different sales volumes resulting in large profit margins. For example, Hermes has different distribution channels around the world based on two distribution segments. These are the Hermes exclusive network and specialized network. Each segment has specific goods that are sold through it. The goods sold through each segment will be put into perspective.
Hermes Exclusive Network
Hermes has 304 exclusive network segments around the world, which deals with four major product lines. These are leather products and saddler, clothing and other related goods, silk, textile and Hermes products. Each segment has different profit margins, with this segment accounting for 84% of Hermes’ total revenue.
Under leather and saddler, there are many products which include bags, luggage, equestrian products as well as other related products. The leather product line generates higher revenues. For example, the 2011 annual report indicates that the line generated revenues amounting to 936.1m Euros representing 50.6% of Hermes total revenues.
Another important product line is made up of clothing and related products. Like the leather goods, this line has a wide range of goods produced under it, for example, men and women ready-to-wear products. Related products in this line include enamel, shoes, jewelry, hats, and many others. The 2011 annual report indicates that the line posted 315.9m Euros, which is 18.9% of total revenues (Dryansky 43).
Silk and textiles are the third product line, which includes ties and scarves. The company made a profit of 180.1m Euros, which is 10.8% of the company’s total revenue. Other business lines include jewelry and other arts such as necklaces, decorative objects, and gifts. In 2011 this line recorded total revenues amounting to 54.6m Euros or 3.3% of the total revenues (“The Hand Bags to have” 14).
Hermes Distribution via Specialized Outlets
Products mixed in this segment include watches, perfumes, and tableware. There are many types of watches in this product line for both men and women. Watches include the Clipper, Cape Cod Moon, and many others that suit the preference of many customers. The watches alone recorded 76.1m Euros or 4.6% of total revenues.
Different perfumes and tableware are at the disposal of the customers. This line encompasses different perfumes for both men and women. The sale of perfumes contributed 105.4m Euros representing 6.3% of total revenues. Tableware, on the other hand, contributed 28.6m Euros or 1.7% of total revenues.
The company’s product line comprises of other external goods such as John Lobb shoes. Other products are mixed in this specialized outlet that generated an income of 60.8m Euros, which was 3.6% of Hermes’ total revenue.
There is a close relationship between different product lines that are put together in one shop. Such products are likely to attract different types of customers with different needs that have to be addressed differently. The products are meant to address the different needs of consumers in the market. For example, men’s shops can be set up to address the needs of male clients ranging from footwear to other outfits like ties and such others. Ladies’ boutiques can also be introduced to address the demand for lady’s wear. Alternatively, all the shops can serve both men and women clients, depending on the demand of the market in that location.
Other companies in this field also apply this principle, and at the end of the day, higher profit margins are realized. For example, LVMH has adopted a product mix, and this can be seen as one of the reasons why it is one of the leading companies in the market. Gucci is also an expanded fashion house in the world with multiple products throughout the world.
The following Graph illustrates the product mix depending on a particular product line. 2012 is a forecasted period.
Analysis of the Future Demand for Hermès Product’s Portfolio
Future demand, in general, is an expanding phenomenon in the world today. The lifestyle of people in the world today is changing, and as a result, they are not buying the products. Instead, they are buying a lifestyle (Ellena, 29). With this in mind, it is noted that the buying trend is going to be high in the future, and as such, the future of products availed by Hermes is certain. In other words, the future market of the company is assured.
In the preceding section of the paper, the author is going to provide an analysis of the future trend of the Hermes’ products:
Hermes House has a bright future full of potential that can be exploited. First of all, there is the emerging market which is growing at a very fast pace as already indicated elsewhere. The company can take advantage of this and venture into these new markets. In the next five or six years, emerging markets like Brazil, China, Russia, and Taiwan are expected to post positive results with potential growth of about 10% (Colino 36). The emerging markets are providing high returns to the investors and, in general, raising the living standards of the populace. This means that the citizens’ earnings have increased, and as such, they are able to spend on luxury goods. This is triggered by the surge in population growth, improved living standards as well as the changing preferences on the part of the customers evident in the emerging markets. All these factors put together will increase the demand for Hermes’ luxury products. As such, the company should take advantage of the emerging market to increase its growth.
The increased incomes of consumers in the emerging markets are changing the buying patterns in these regions. Financial and economic forecasts show that India for example is estimated to post a 30 percent growth in the consumption of luxury commodities in the next three years. It is also expected to emerge as the fifth largest market in the world in terms of number of consumers in about ten years’ time. China’s economic growth on the other hand is also estimated to rise and reach the 22% mark as far as the luxury products are concerned (IMF 89). The two countries are said to contribute significantly to the growth in this industry as they boost the luxury market that is estimated to account for 25% of revenues in Hermes.
It is noted that online trading is the way to go in contemporary society. People are busy with many goals to achieve and this makes online shopping the only option for such people with tight schedules. Online shopping is advantageous to both the customer as well as Hermes Company. A 58.8 percent growth rate was achieved in 2010 alone which was 18% higher than the previous year. This is a sign that online shopping is taking shape and Hermes has no choice but to tap into this important channel of trading (Tompkins 64). Online shopping will help Hermes compete with other companies like Apparel and also do away with the middlemen who pose a danger to the company.
The future growth of Hermes Company is also pegged on product innovation. Innovation has been a priority for the company giving it an edge over its competitors. To avoid playing the catch up trend against its competitors, Hermes has to continue investing in product innovation to launch new and unique products for the customers. The company was started in 1837 and this gives it an upper hand in the market. Customers need an array of products and Hermes has over 50,000 items for the customers to select from. With continued innovation, Hermes is going to reach many customers in the world (“Annual Report” 179).
The expansion strategy that Hermes is putting in place is intended to address the customers’ demands across the globe. With the opening of multiple stores in the world the company will meet the demands of the clients. Hermes has a total of 304 stores around the world and dozens of other retail outlets that meets the demand for luxury products. Future demand is also taken care of given that Hermes is planning to open new outlets in strategic points such as airports to address the demand for its products. The company is venturing in new markets like Philippines and Turkey where demand for the products is anticipated to increase. Men are interested in Hermes products and many shops exclusively have been opened to cater exclusively for their needs. For example the masterfully designed silk tie is just one of the great items found in Hermes shops (“Annual Report” 181)
Is a Change in the Product Mix Necessary/Advisable in the Short-Term/Long-Term?
The company must have a healthy profit margin for it to survive in the competitive market. Different customers need different products. As such there is the need to avail different products in to the customers in the market. The author has analyzed the different product lines that Hermes has incorporated the two selling points, the exclusive as well as the specialized outlets. Hermes is a big company that is facing stiff competition in the market from companies that are offering similar products. Adopting product mix will be appropriate as customers will not switch to the competitors to satisfy their needs. All products needed that are needed will be provided in one shop to meet the demand (Slesin 15).
Mixing is a strategy adopted by companies that are operating in the global market. Global competition is very high as customers are attracted to different products. Product mixing can be used to win the war. Product mix will be effective if the company provides a variety of goods that addresses the needs of the customers (Aizenman and Parischa 109). The strategy operates well if the width, length and consistency of products is maintained. In other words, product mix can be accomplished easily by big companies like Hermes which is not the case for start-ups that are short of these elements. The important thing to take into consideration is the fact that product mix should go hand in hand with the demand for products failure to which the products will become redundant affecting the sales volume in the business.
Product mix should be determined by considering the role of each product in the market. The strategy involves different products owned by the same business. It is noted that a problem might occur as a result of products competing against each other. To avoid this, market research should be carried out to determine the demand in the market so that products that complement each other are mixed. Cheap commodities may put the company at the risk of losing the premium and quality of the product (“The Hand Bags to have” 18).
Figure 4 showing the competitors performance in percentage of the total revenue.
The Hermes Challenge Regarding the Markets and the Targets: Are the Emerging Economies and China an ‘Incontrovertible’ Vector of Growth?
Analysis of the Demand for Luxury Products in Emerging Economies – Have they Become Essential to Prosper?
The demand for the luxury products in the developed parts of the world is not as it used to be in the past. The demand appears to have tapered off. However analysts are of the view that there is potential in the emerging markets across the globe. For example countries like China, Russia, India and Brazil (collectively known as the BRIC) are some of the emerging markets in the world with growing demand. Research shows that the emerging markets consume a larger percentage of the products from the world’s luxury industry. The sales volume in the developed market was only 6% of the total luxury goods sold while the emerging markets accounted for a significant 43% of the luxury goods sold. This translated to $30 billion in revenue which is a sign that the emerging market is a potential market for the Hermes products (Gandee 23).
China has a vast economy which is growing at a very fast rate and that has uplifted the lives of the people. Chinese are now beginning to extend their consumption trends to include expensive luxury products especially those from the Hermes Fashion House. Continued awareness regarding the presence of the world’s most prestigious fashion brands is evident in the emerging economies China included. There are various reasons as to why the emerging markets particularly that of China is the best avenue to expand in the luxury industry. The growth in expenditure is estimated to surpass the 30% mark as there is increasing spending power among consumers in China. This is given that it is a fast growing global market (Gandee 24).
Improved Lifestyles
China’s surging economy has improved the life of its citizens and this gives Hermes an opportunity to expand its growth by tapping the potential of this economy. This will enormously increase profits and it will ensure that Hermes becomes famous in the international fashion industry. It is argued that people are not buying goods but on the contrary they are buying a lifestyle. It is noted that the Hermes products are categorically tailored for all lifestyles and this gives it an opportunity to exploit the Chinese market and take advantage of the country’s surging economy. The company has an obligation to use China as an avenue to sell its products in the emerging markets. The new lifestyle in China is characterized by youngsters and youths who are financially stable making use of their income to purchase valuable and luxurious products. Hermes steps in to realize the dream of these consumers by availing the products to them. There are also the working class women who are also extensive consumers of the luxury products especially from the prestigious brands like that of Hermes (Gandee 24).
Established Consumer Based Power House
As the emerging markets like China are taking root in the world economy, there is need to establish stable markets and manufacturing companies in such places. This will ensure that the economy continues to grow and Hermes House will in effect grow in tandem with it. Emerging markets have also become popular tourist destinations in the world. Established brands in countries such as China and India can take advantage of the surge in the number of tourists to increase their revenues (Tompkins 34).
China and such other emerging markets can be used to expand a brand’s image as the exposure is extensive. The emerging economies are becoming the centre of attraction given that even the developed economies are paying attention to them. The forecast market experts contend that in a decade’s time, China will become the largest luxury market in the world. This is an opportunity that Hermes cannot afford to lose. The company should initiate strategies to tap into the Chinese vast economy and even other emerging markets like India which also appear promising (Gandee 25).
The figure below vividly illustrates the drivers for luxury products in the emerging markets. Hermes can identify and take advantage of such drivers.
Similarities and Divergences between the New Targets and the old Targets
Divergences
There are some differences which are evident between the emerging and the developed markets in the world today. To start with, the author of this paper is going to expound on the differences that creates a gap between the two as far as the developed and developing markets are concerned. According to financial reports, one such difference lies in the demographic patterns in the economies. In this case the developed market is characterized by consumers with ages that range between 40 and 45 years or there about. This is evident in countries like German, the UK, Italy and such others. On the other hand, the ages of the consumers in the developing markets are much lower as compared to that in the developed world markets. For example in China, the average age is about 34 years with India having a much lower age of 25 years (Euromonitor International 83).
This age difference is significant to international businesses especially players in the luxury industry. Companies such as Hermes can fashion their global business trend along these demographic patterns. This will ensure that the company is moving in a positive direction.
Another important difference between the two markets is the psychological orientation of the individuals. In the emerging markets, people tend to be aspirational and they tend to buy anything as long they have money to cater for the purchase. On the other side of the continuum, people in the developed and established global market tend to be frugal especially as a result of the recent global financial crisis that hit these markets. They prefer to save than make unnecessary purchases. This is especially so if other products can serve the same purpose as the intended product (Euromonitor International 71).
At this point in time, the psychological orientations leads to another difference between the two market segments which is based on the brand’s image and the weight it holds in the mind of the consumers. Consumers in the emerging markets are choosy given the fact that they tend to go for the most famous brands as opposed to the less known ones. Irrespective of prices, consumers in the emerging markets go for the widely known brands. This being the case, Hermes has a chance to exploit this psychological orientation to win over customers in the emerging markets as well as the developed markets.
Similarities between the Two Markets
The author of this paper has noted the differences between the two markets in the international market. At this juncture the author will look at the similarities between them.
It is noted that there are very few similarities between the developed and the developing markets. First, there is the tendency of consumers in both markets to recognize the fact that all the commodities exist and they have a choice to make when buying. The challenge is for the company to convince consumers on both sides of the importance of their products.
Analysts are of the view that in both cases, the demand for the luxury goods is increasing at a higher rate than ever before. This is good news for the Hermes Company and it should motivate the fashion house to continue investing in both extremes of the world economy. In both cases, there is notable selective spending sending a message to the product manufacturers that there is a need to improvise and come up with alternative marketing strategies. This is for example online marketing and shopping which targets consumers in the developed world more than those in the developing world.
In both cases, consumers are becoming vigilant and they are buying high quality products as opposed to those non durable commodities which may compromise their spending power. This trend is significant as it allows the investor to dwell more on the quality of the product which is the policy adopted by many luxury producers such as the Hermes Company (“A boutique where you don’t just Buy” 140)
How to Adapt the Products Offered and the Communication Strategies for the New Targets
There are quite a number of strategies that can be used by the company to adapt to the new market and specifically the emerging markets. There is the importance of taking into consideration the cultural background of different countries around the globe. Experts refer to this strategy as glocalization which simply means a process of adapting to local tastes in order to fit in with the local people. This is the most important factor to take into consideration when determining the adoption of products in a foreign country. For example there are several elements that constitute the culture of the people and they include the language, institutions, materials as well as the symbols used. All of these should be taken into consideration (Van- Dyke 18).
There is also what is referred to as product standardization which is applicable to the international market for products such as those from the luxury industry. Hermes House cannot change the face of the international market but it can change the face of its products by adopting the standards employed in such countries. Hermes House can sell their commodities without altering the international market patterns. As a result of this the company is faced with the challenge of modifying the products to fit into the different regions of the world. For example China has a vast economy but the country is also culturally rich. This can be addressed by incorporating Hermes products such as leather, clothes, bags and such others into the Chinese culture. This can earn the company substantial growth in the emerging markets such as China and India (Van- Dyke 21).
Another strategy to get into the new and emerging markets as far as Hermes House is concerned is by innovating and introducing new products that are unique to the foreign and emerging markets. Product standardization is important in adapting the Hermes products to the emerging economies. Caution should be taken when introducing or launching Hermes products in other countries. This is given the fact that the products need to be assimilated into the culture of the target community. The approach adopted should be recognized globally. These products are not like chemicals or other such products that need less attention when introducing them to foreign countries.
Hermes Challenges Regarding the Distribution Channels: Sales through Internet
Are the Sales through the Internet and the Luxury Industry Compatible?
The relationship between the brands and those distributing the products has been damaged in the recent past especially after the global financial crisis. Availing and opening of new outlets in the markets has been a challenge for Hermes Company. For Hermes to continue conquering the luxury market there must be an effective way to avail products in the market. There are several strategies through which this can be achieved and one of them is through the internet or what is famously known as e-commerce.
There are various benefits associated with the use of online shopping as a distribution channel. The wholesalers have been a threat to Hermes as there are many cases of counterfeit products that have been reported. Online shopping guarantees Hermes a strategic growth that cannot be matched by others. As the paper has noted it is important for Hermes to pull away and avoid mixing with other products sold under the same roof. This suppresses its brand and it has to use its own outlets. With its own outlets, Hermes can move to the next level of shopping in this case online shopping (Berman 17).
Hermes products are compatible with the online trend which ensures that when a customer asks for a particular product, the nearby store will deliver without delays. This is the most effective model to embrace particularly in the emerging markets as well as the developed markets. Consumers in the developed markets are the largest users of online shopping and reports indicate that they have reduced their consumption of luxury products especially after the recession. To attract them, online shopping which encompasses advertising can be used.
The developing market is also a suitable place in which to use online shopping. Since consumers here recognize famous brands in the world they will prefer them over others. It will be strategic for Hermes to develop websites that are accessible to all consumers across the globe. By doing this there will be fewer chances of counterfeit products being sold to the customers. The previous method especially mixing of the products was characterized by a lot of uncertainties including counterfeiting and loss of brand’s name. Potential distributors could not sell Hermes products without including other products from the other companies. This is a threat and it may kill Hermes’ brand if not controlled. At the end of the day the company may lose a lot of income (Berman 26).
Internet retail is the way forward and it can realize many operations including show casing all kinds of products. Social sites are used to reach out to those in need of the commodities and this creates a direct contact with Hermes when the customers create online shopping networks. E-commerce is flexible in such a way that it can reach many people around the world without incurring unnecessary costs except for the shipment cost when there are no physical shops in the region.
This paper will analyze the importance of online shopping and the question will be; can Hermes House do without ecommerce whether long term or short term?
Can the Hermès House do without this Channel in the Short-Term/Mid-Term/Long-Term?
Online shopping is the most recent and modern way of doing business and which Hermes as an international company cannot afford to ignore. The paper has discussed the problems faced running the other outlets across the globe especially when involving the middlemen who ends up manipulating Hermes products. For Hermes to remain on track and continue tapping into the luxury market, online shopping is the way to go (Aillaud 10).
Advertising is the most efficient way of promoting the products that are new in the market. For a global company like Hermes, it is difficult to carry out promotion for all outlets in the world. It is indeed expensive and tedious but promotion has nonetheless taken place thanks to online shopping. Hermes cannot do without this strategy via since there is always a need to carry out online promotion. Online promotion has shortened the distance between production and distribution to the end users (Aillaud 14). This has led to a large number of potential customers in return.
Another thing that Hermes should be acquainted with is the fact that people in the world today spend a lot of time in front of computers whether desk tops, laptops, smart phones or such other devices. 43% of transactions are carried out online as people are spending a lot of money on the internet to get goods. Businesses that are not using the online platform are wasting opportunities in capturing customers and sales. Hermes can harness the internet for both middle and long term processes to increase revenues. They can increase the number of customers from hundreds to thousands and even millions.
The following statistics released as true and reliable figures show how important online shopping is to any business and to Hermes in particular.
- In the United States alone, more than 200 million people are using internet. What about the rest of the world?
- Globally, reports indicate that 80% of individuals aged between 32- 44 years use online services (Euromonitor International 121)
- Also individuals who are between 45 and 54 years spend money amounting to $647 after every three months to shop online.
- In 2011, $27 billion was made from e-shopping during the holiday season alone (Euromonitor International 124)
- Reports estimate that by 2015, 90% of all shopping will be done via the internet (Euromonitor International 125)
In light of these factual figures, Hermes has to embrace online strategy for future business operations. If 200 million Americans are using online services, how about the rest of the world? The potential to capture a large number of customers is evident and Hermes need not lose sight of this.
Having discussed the importance of online shopping for short, middle and long term operations, it is important for the author to touch on the appropriateness of the channel and how the brand image is going to be affected.
How to use this Channel without Negatively Affecting the Brand Image of Hermès House – Ideas and Recommendations
There are various ways in which products are channeled from one selling point to the other. The most widely used method is the wholesale and retail trade involving middle men. Others include stores owned by Hermes scattered all over the world. All these channels have effects on the image of the company. To this end, the author is going to discuss the use of internet channel and how it is going to protect the company’s image.
Some customers are shy to approach the physical shopping sites and with online shopping, such customers can find products of their choice so long as they recognize the brand. Hermes can use this medium to attend to such customers. What they need to do is to promote the brand image by viral process and any other means of advertising the brand so that they are known to all shoppers.
Online shopping has been known to control and regulate prices as well as preserve the image of the company as opposed to other channels of product distribution. If correct mechanisms are put in place, there will be reduced counterfeiting as the customers will directly order from Hermes Company unlike the other avenues where products pass through many channels and at the end of the day several cases regarding improper product quality occurs. Through online shopping such cases may occur but at very minimal rates.
Some products are well suited to online shopping. This is for example clothing and foot wear products which are popular online commodities. Research has shown that a large percentage of online shopping is attributed to designer clothes and footwear. Hermes annual reports indicate that most of the sales are made from outstanding cloth designs as well as the pure leather foot wear and bags. Online marketing increases revenues given that the products are showcased and attracts a large number of customers than before.
Retail trading accounts for a large percentage of the losses that are incurred through discount allowances which are given to most customers affecting the physical distribution channel. At the end of the day this reduces the profit margins for the company. Online shopping will avert unnecessary discounts and many shops will be opened throughout the world to add to the available outlets.
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