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Hermes defies Hong Kong turmoil as Chinese demand buoys sales

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Hermes defies Hong Kong turmoil as Chinese demand buoys sales
FILE PHOTO: The front of the Hermes store is seen along Madison Avenue in New York, U.S., March 20, 2017. REUTERS/Shannon Stapleton/File Photo   -   Copyright  Shannon Stapleton(Reuters)
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PARIS (Reuters) – Thriving demand in mainland China drove sales higher at luxury brand Hermes <HRMS.PA> in the third quarter, helping the Birkin-handbag maker offset a slowdown in Hong Kong, and the company said on Thursday that the momentum had carried into October.

Several months of pro-democracy demonstrations in Hong Kong, which descended into clashes earlier this week, have forced France’s Hermes and other luxury goods labels to temporarily shut stores and lose out on business in a key shopping hub.

Hermes said sales growth in Hong Kong had slowed in the July to September quarter but did not fall, without giving further details.

At LVMH <LVMH.PA>, owner of brands like Louis Vuitton, revenues contracted by around 25% in the period in Hong Kong, while others like Germany’s Hugo Boss <BOSSn.DE> were hit even harder.

But for Hermes, which like Vuitton and Kering’s <PRTP.PA> Gucci has stood out as one of the industry’s better performers in recent years, growing demand in mainland China more than made up for the hit.

Sales growth across the broader Asia region expanded by 20.1% in the third quarter on a comparable basis, accelerating from the previous three months.


Hermes shares were up 2% in early trading.

“The very favourable trends in mainland China continued into October,” Hermes’ Financial Chief Eric du Halgouet told reporters.

Du Halgouet added that the brand’s e-commerce business in China, launched a year ago, was helping drive sales, and that it was attracting a new generation of young shoppers there.

Not all luxury brands are managing to lure consumers within China to the same degree, and are battling it out by investing in social media marketing campaigns and by opening stores.

Overall, Hermes said revenue rose 18% to 1.7 billion euros ($1.89 billion) in the third quarter.

On a like-for-like basis, which strips out currency swings and the effect of shop openings, sales were up 15%, accelerating from the 12.3% posted a quarter earlier, and coming in higher than some analysts had expected.

Hermes’ silk business recovered slightly from a lull, while its core leather handbag division grew steadily.

The company – which trades off its “Made in France” cachet and sells high-end bags like the Birkin for over $10,000 – said it was opening three new leather goods workshops in the country between 2020 and 2022 to keep up with demand.

Kering and Italy’s Moncler are due to report Q3 sales later on Thursday. ($1 = 0.8983 euros)

(Reporting by Sarah White; Editing by Christian Schmollinger and Deepa Babington)

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