Hermes, a French luxury company that has been navigating the turbulent waters of the global slowdown in the economy, is once again finding stability with its iconic handbags – the Birkin and Kelly.
It reported that sales rose by 7% in the first quarter 2025. This was just a hair below analyst expectations but confirms its position as one of sector’s strongest players.
Hermes has remained on course despite the uncertainty surrounding tariffs and China’s slowdown linked to property.
Birkin bags and Kelly bags boost store traffic, cross-category purchases and sales
Hermes’ portfolio has long been known for its Birkin and Kelly bags, named after British actress Jane Birkin. Grace Kelly immortalized the Kelly.
In recent years their reputation as status symbol has grown, and collectors are willing to pay tens or hundreds of thousands of dollar to buy them, even if they have to wait for months.
They do much more than simply sell well in a recession.
These anchor products are a great way to attract customers and encourage them to buy other items, such as scarves and jewellery.
In luxury circles, this is known as “pre-spend.” Shoppers often begin their relationship with a brand by purchasing smaller items such as silk ties for $270 or bracelets worth $40,000 in the hopes that they will be offered a Birkin.
The strategy is still highly effective.
Hermes reported growth in all regions including North America, where strong sales in March offset low inventory levels at the beginning of 2025.
The management noted that the trends have been positive since early April.
Investors remain confident despite China’s economic slowdown, tariff threats and other concerns
Hermes performance in China, a market where consumers are increasingly cautious, was subdued.
It stood out in comparison to its competitors who have all seen significant declines throughout Asia.
Hermes is confident that the Trump Administration will increase tariffs in the US on European products by 10% starting May 1.
Few luxury hotels can claim with the same confidence that they can transfer these costs to American customers.
The brand has unmatched pricing power.
Jefferies analysts stated in a report last week that Hermes was well-positioned for outperformance, calling the company a “safehaven” despite the ongoing turmoil within the luxury industry.
Analysts maintained that Hermes was “a relative preference” due to the elite clientele and constant demand.
Low production costs, high margins
Hermes’ ultra-controlled manufacturing model is a key factor in its resilience.
Each Birkin bag is handcrafted over 18-24 hours by one artisan.
Kelly bags are made with the same meticulousness, and often require 14-20 hours of labor by one leatherworker.
Hermes has maintained some of the most prestigious margins within the luxury market thanks to its artisanal methods, limited availability, and refusal to discount–even in recessions.
Hermes never discounts its bags, despite the fact that rivals such as Kering sometimes do so to get rid of stock. This reinforces their position as high-quality fashion investments.
Brands that carefully control supply maintain exclusivity and drive resale values.
Many bags appreciate in value with time, and collectors will treat them as if they were rare or expensive watches.
Birkins can be sold second-hand for 30-50% more than the original price. This is especially true if they are in rare colours and materials.
Brand protected from shocks by wealthy clientele
Hermes is a global luxury brand that caters to the elite.
Hermes has a disproportionate exposure to the top 2% luxury consumers, according to Bain & Co.
The discretionary expenditure patterns of these consumers remain stable when the economy is bad.
Hermes 2024 full year results showed that the company’s sales grew by 17% at constant rates of exchange, far outpacing its industry.
Hermes showed signs of improvement in March, even in the US where, due to speculation about tariffs, demand had weakened after February.
Luxury continues to be the quiet giant.
Hermes is focused on its core business, which remains highly profitable. While other conglomerates like LVMH are expanding into new areas and making high-profile purchases, Hermes stays true to the narrow focus of Hermes.
The brand avoids seasonal trends and celebrity-driven marketing, instead using artisanship and scarcity to draw in customers.
Investors have taken note of this unwavering commitment.
Hermes trades for nearly 45 times its projected earnings, which is more than twice the luxury industry average. It recently surpassed a valuation of EUR220 Billion and became Europe’s most valuable company behind LVMH.
Hermes, despite missing the mark in Q1, remains the north star of the luxury industry. It is the purest and longest-lasting form of luxury.
As new information becomes available, this post on How Hermes remains resilient during economic instability by relying on its most sought-after Birkin bag may change.
