WSJ.’s exclusive tour of the back rooms and ateliers of the celebrated French fashion house illustrates why Hermès is the coveted jewel that LVMH’s Bernard Arnault wants for his crown.
By DANA THOMAS
Pierre-Alexis Dumas, the creative director of Hermès, is sitting in his office at the company’s 131-year-old seat on the rue du Faubourg Saint-Honoré in Paris, talking about what it’s like to run the most respected major luxury brand in the world. “My job,” says the lean, formal 44-year-old and sixth-generation descendant of the company’s founder, “is to keep the strong creativity of Hermès alive. To nourish the rigor and the vision . . . to make these values vibrate.”
“This,” he says, “is the force of Hermès.”
Inside the Hermès Ateliers
Hermès’s tradition of superior craftsmanship has made it a coveted prize. Photographer Brigitte Lacombe takes us on a tour of the luxury brand’s bag, scarf and saddle ateliers.
Those values—the dedication to rigor, vision and creativity—are what set Hermès apart from its competitors, what company executives mean when they talk about the “culture of Hermès.” In a world of assembly-line, made-in-China handbags, Hermès still employs artisans in France to sew each of its famous Kellys and Birkins, one by one, by hand. While most of its competitors buy rolls of prefab twill from China to print their silk scarves, Hermès weaves its own in Lyon from silk raised on its farm in the mountains of Brazil. While most of its competitors subcontract perfume creation to big laboratories that also make food flavors and detergent scents, Hermès has an in-house nose who concocts each new perfume in his lab in his home near Grasse, the world’s perfume capital in the South of France.
This attention to detail and dedication to integrity have made Hermès an enduring success: Last year, sales rose 25.4 percent, to 2.4 billion euros (30approximately $3.41 billion at current exchange rates), over 2009. At the height of the financial crisis, when most major brands took a beating due to a drop in sales in the luxury sector, and several well-known companies went bankrupt, Hermès posted not only an increase but a substantial one: Sales were up 8.6 percent in 2008 and 8.5 percent in 2009; operating income was up 3.1 percent for 2009.
Today, luxury fashion is a $200-billion-a-year industry, mostly made up of publicly traded corporations. The leader is LVMH–Moët Hennessey Louis Vuitton, a group of more than 60 major brands including Givenchy, Fendi, Guerlain and Moët & Chandon that rang up a staggering 20.3 billion euros (30$28.9 billion) in sales in 2010. It is owned and run by 62-year-old French businessman Bernard Arnault, the fourth-richest man in the world according to Forbes, with an estimated net worth of $41 billion. Arnault has spent the past two decades collecting these “star brands,” as he likes to call them. Some were friendly acquisitions; many were not. His most recent—the purchase of the long-for-sale Italian jeweler Bulgari from the Bulgari family last March—was a straightforward business deal and everyone involved was happy with the result.
His other recent major investment is not going as well. Last October, LVMH announced that it had quietly accumulated 17.1 percent of Hermès’s stock (30it eventually acquired a little over 20 percent); it was later revealed that the company did this through cash-settle equity swaps, a practice sometimes used by hedge funds to wage a hostile takeover of publicly traded companies without disclosure. Hermès sees the moves as a full-frontal attack and its executives are doing what they can to defend the house.
“Hermès and LVMH are at the two extremes of the culture and industry of luxury,” Hermès’s CEO, Patrick Thomas, the first nonfamily member to run the 174-year-old company, told me over lunch in the company’s dining room at the Faubourg Saint-Honoré headquarters in June. “We are artisans and creative. We try to produce the most beautiful products in this industry. The artisans put their heart and soul in the bag and when the client buys it, they buy a bit of the ethic of Hermès. For six generations, the same family has run Hermès. That has given this company something no other company has. Our combat with LVMH is not an economic fight, it’s a cultural fight. We try to do poetry and we get excellent economic results. We must protect that.”
To understand what Pierre-Alexis and Patrick Thomas are talking about and what Arnault is coveting, you must visit the company’s main leather workshop in the Paris suburb of Pantin. There, approximately 340 artisans handcraft leather goods the same way it has been done for more than a century.
Hermès was founded in 1837 by French harness maker Thierry Hermès, a purveyor to royal houses throughout Europe. His grandson Émile-Maurice modernized the company, enlisting his friends Louis Renault and Ettore Bugatti to make trunks for cars, commissioning decorator Jean-Michel Frank to design furniture, introducing belts and couture, and expanding the retail network to fashionable resorts such as Deauville and Cannes.
Émile-Maurice had three daughters who married well, creating three new branches of the family: Guerrand, Puech and Dumas; a fourth died young. In the late 1930s, his son-in-law Robert Dumas suggested the company expand its racing silks into scarves and neckties, and Dumas designed several himself. In the 1950s, he took over the company from Émile-Maurice and ran it respectably for three decades. It was Dumas’s dynamic fourth son, Jean-Louis, however, who turned the company into the luxury powerhouse it is today.
In 1978, at the age of 40, Jean-Louis Dumas was named CEO and creative director, and with the help of his cousins Patrick Guerrand and Bertrand Puech, he shook up the old house: He relaunched the Kelly handbag in jazzy colors and designed a bag to sexy British actress Jane Birkin’s specs, naming it for her. There were hip ad campaigns, shiny new stores—many designed by his Greek-born architect wife, Rena, and her firm, RDAI, and a slew of acquisitions, including Puiforcat silversmiths, Saint Louis crystal and John Lobb shoes. In 2004, Dumas hired French bad-boy designer Jean Paul Gaultier to do Hermès women’s wear (30he had bought 35 percent of Gaultier’s namesake brand in 1999). The association of avant-garde Gaultier and staid Dumas seemed strange on the surface, but the two were good friends who worked well together. After Dumas’s death of Parkinson’s disease last year at the age of 72, Gaultier left Hermès, and was replaced by French designer Christophe Lemaire. Hermès recently sold its stake in Gaultier’s company to the Spanish beauty and fashion group Puig.
Most important, after witnessing Arnault’s drawn-out boardroom battle with the Vuitton family in the late ’80s for control of LVMH—which Arnault eventually won—Dumas made two moves to protect Hermès from a similar takeover attempt by a nonfamily member. First, in 1989, he created a partner company called Émile Hermès SARL to represent the family shareholders and that would be in charge of hiring management and deciding the strategy of the company. Second, in 1993, Dumas listed 20 percent of Hermès on the French stock market; later he listed about 8 percent more. These publicly traded shares had no management power; they are the shares that LVMH purchased.
Ever since, Hermès has flourished, primarily due to the relentless demand for its leather goods, which are considered by the fashion cognoscenti to be the best of the best. The favorites are the Kelly, which starts at $8,450, and the Birkin, at $8,850. Despite their substantial price tag, Hermès bags are not only coveted but collected: Victoria Beckham is said to have more than 100 Birkins, worth more than $2 million.
The construction of an Hermès bag begins with the leather men, who inspect and cut each skin by hand. “The quality is in the eye and the hand of the artisan,” says Axel Dumas, Pierre-Alexis’s cousin and chief operating officer of the company, during a tour of the workshop in June. “That’s what so delicate—it’s person by person.”
Axel Dumas is the 40-year-old son of Olivier, the eldest of the five Dumas brothers. Altogether, nine members of the Hermès family work for the company: Pierre-Alexis; Axel; their uncle Bertrand Puech; his son Etienne Puech, area manager for the watch division; his daughter Amélie Puech, assistant for Hermès’s saddle division; their cousin Guillaume de Seynes, executive vice president; their cousin Julie Guerrand, director of corporate development; their cousin Pascale Mussard, head of the petit h, a division of one-of-a-kind objects made from rejects; and her sister Maria Schaeffer, artistic coordinator for special orders. Several others have served on the supervisory board.
Axel began at Hermès as an intern at 14 “to learn how to sew,” he says with a laugh, adding that he wasn’t very good at it. At 18, he did a turn in the press office. After graduating from Sciences Po in Paris, he worked for Paribas bank for two years in Beijing and six years in New York. Then, he says, “Jean-Louis Dumas asked me if I wanted to join Hermès and I said yes, and he asked me what I wanted to do and I said anything but finance. So he put me in finance.” A year later, he was promoted to commercial director for stores in France. Then he spent two years as general director of jewelry and two years as general director for leather. Last May, he was named COO in charge of all métiers (30the artisanal divisions) and the retail network. As he tours the studio, he greets everyone by name and shakes their hands. “All this,” he says, taking in the studio, “all these artisans—this is our backbone.”
He stops at a worktable and looks in amazement at the skin the man is working on: a mustard-hued Porosus, a crocodile from Australia. “This is something we have been waiting two years for,” Axel explains. “We needed to find a skin light enough to dye it such a light color.” It will be used to make a Kelly 35—a Kelly bag that measures 35 centimeters at its base. “Sometimes someone will order a bag made of rare leather like this and they must wait until we find the skin.” He is quick to point out that the retail price of a bag is not based on its rarity. “One-of-a-kind you could put any price,” he admits. “It’s not the desirability that determines the price. It is the production cost.”
Each artisan is given all the pieces he needs to build the handbag from beginning to end, including zippers, locks, hardware, lining, leather string for piping. The artisans work on three or four at a time—same model, same color—and all are made by hand, inside out; only the zipper and the inside pocket are sewed by machine.
For the hand-sewing, the artisans use a classic saddle stitch that has been employed at Hermès since the 19th century: They take two needles—each on an end of a piece of waxed thread long enough to sew the entire seam—stick one needle through in one direction, the other through the other direction, and tug the stitch tight. The seams are hammered flat and the edges are shaved, sanded and polished with wax until they look like a single piece of leather.
The hardware is attached in a method called “pearling”: They put a small nail through a corner hole on the back of the clasp, the leather and the front clasp, clip off all but a millimeter or so, take an awl with a concave tip and tap the bit of nail with a hammer gently in a circle until it is round like a tiny pearl. If done correctly, the pearls will hold the two pieces of metal together forever. The bag is then turned right side out and ironed into shape. “It’s really a métier of tradition,” says atelier head Lionel Prudhomme. “When people ask me, ‘In your 30 years at Hermès, what has changed?’ I say, ‘Nothing.’ People change, but not the technique.”
Some things have changed in Hermès silk production since it began 74 years ago, but not much. Originally Robert Dumas held the design meetings for the Carrés Hermès—the house’s famous 90-by-90-centimeter silk scarves—in an office just above what is now the glove department in the Faubourg Saint-Honoré store. Today the silk studio is down the hall, but the meetings are conducted by Pierre-Alexis just as they were by his grandfather and his father. “We use the same weights to hold the paper drawing flat and we still always look at them on the floor, because my grandfather said an Hermès silk scarf should be seen from a man’s height,” he explains during a silk design meeting one recent morning. “Looking down gives you a sense of composition, which is the strength of an Hermès scarf.”
Pierre-Alexis joined the Hermès group in 1992, after earning a degree in visual arts from Brown University. He worked on the creative committee for Saint Louis crystal and Puiforcat silver for a year, then became head of Hermès in Hong Kong, Taiwan and China. After five years, he moved to London to run the U.K. division. In 2002, he became director of silks, and in 2005, he was named creative director for all of Hermès, upon his father’s retirement. “My father never told me he wanted me to be creative director,” Pierre-Alexis says. “I had to fight for it and prove by the results of my work that I was worth it.”
When you meet Pierre-Alexis, you see immediately that, while loving his job, he feels the weight of carrying on this 174-year-old company. He is not buoyant and sparkling like his father; he is calm, considerate and deeply respectful. “While working,” Pierre-Alexis says thoughtfully, “we connect with those who are gone—the dead. I worked with my father, and he died a year ago—and as I work, I find him, and have a dialogue with him, even if he is not here anymore.”
While Pierre-Alexis oversees and signs off on all creations at Hermès, the silk department is obviously his favorite assignment. He is completely engaged with the design team and taken with the work at hand—analyzing the drawings spread out on the floor, judging their colors, the balance and depth and force of the images. Usually it takes several passes to get a design right. “I know the artists, their hands and what they are capable of doing and we are there to help them get it right,” he says, adding, “It is very rare that a design is right the first time.”
Most Hermès scarves are designed by illustrators, but recently Pierre-Alexis sought out an artist named Antoine Tzapoff, whose paintings of American Indians he greatly admired. Though Hermès rarely works with artists—they generally use too many colors to reproduce on a scarf—he asked Tzapoff to design one. Tzapoff submitted a stunning portrait of an Apache warrior. Pierre-Alexis fell in love with the painting, called “Cosmogonie Apache,” and sent it to Lyon to have it transformed into a scarf.
When the painting arrived at Marcel Gandit, the 70-year-old silk-engraving company owned by Hermès since 2004, an engraving drawer named Nadine Rabilloud, who has worked there for 33 years, studied it for two days to figure out how to tackle it. Eventually, she identified 80 colors, then edited down to 60, and then to 45—the preferred maximum for the Hermès silk printing process. There are 15 colors for the face alone.
Rabilloud reproduced the face by hand on 90-by-90-centimeter plastic slides with a fountain pen and India ink while two colleagues worked on the background and border. Altogether the trio would spend 2,000 hours reconstructing the painting as a drawing.
Once a design’s slides are completed, each is projected onto a sheet of polyester stretched across a 90-by-90-centimeter steel frame. In the old days, these screens were made of silk pulled tightly across wood frames; later, they were nylon, like that of American parachutes from World War II, on metal frames. The screens are loaded onto an automatic printing machine and are run down 150-meter-long tables—the world’s longest—covered in silk twill. Layer upon layer of color is applied, darkest to lightest. Each color “pass” takes 15 to 20 minutes—the more ink, the more time—so “Cosmogonie Apache,” with its 45 color passes, took approximately 15 hours to print. The silk printing presses run 24 hours, five days a week.
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When the ink is dry, the scarves are put in a steam bath to “fix” the colors; washed several times until the fabric is soft; dried; applied with a film fixative to give them a shine and protect the colors; and sent to a workshop where the hems are hand-rolled and hand-stitched. Hermès does 20 new designs a year, 10 for fall-winter and 10 for spring-summer. Each has eight to 10 color variations. Today, a Carré Hermès retails for $385. When the scarves arrive in the shops, they are stored in smart glass cases and dramatically unfurled one after another across countertops by salesclerks for each discerning customer to see, touch and try out. This is yet another tradition that is part of the “culture of Hermès.”
LVMH has insisted that it has “no intention of launching a tender offer, taking control of Hermès, nor seeking board representation” and Arnault has described his move as friendly. LVMH’s vice chairman, Pierre Godé, confirmed this: “LVMH’s approach is pacific and Mr. Arnault does not envision launching a takeover bid on Hermès,” he told WSJ. in late July. Hermès executives are skeptical and have branded Arnault an unwanted aggressor. Pierre-Alexis told WSJ. that he “disapproves” of Arnault’s purchase. Pierre-Alexis’s uncle Hermès Chairman Bertrand Puech told the French daily Le Figaro, “With friends like these, who needs enemies?” And Hermès’s 63-year-old CEO Patrick Thomas said in a press conference in March, “If you want to seduce a beautiful woman, you don’t start by raping her from behind.”
The Autorité des marchés financiers (30AMF), the French stock market regulatory authority, has been looking into how LVMH surreptitiously accumulated such a large stake—in France, a company must state when it crosses a 5 percent threshold. LVMH maintains it met all regulatory compliances. “LVMH is entirely confident of the outcome of this investigation,” Godé says.
As a defense measure, the Hermès family has placed 51 percent of the 72 percent of their stake in a holding company that cannot be sold to outsiders. “It is a message to Bernard Arnault that it will be useless to pursue a takeover attempt because the family has relinquished its right to sell,” says Patrick Albaladejo, executive vice president for strategic development and image and close adviser to Thomas.
Not all family members are wholly behind the maneuver. Nicolas Puech, cousin of Jean-Louis Dumas and brother of Bertrand Puech and the largest family shareholder, with 6 percent of the company, told the Journal du Dimanche in March, “the major inconvenience in locking up our shares in a holding company would be to deprive the family shareholders of their individual power of control on the management of the company. The freedom of each shareholder is the best way to guarantee our unity in the long run.” He added that he saw no reason why LVMH and Hermès couldn’t work together, “if it is to the advantage of our company and the company maintains its free will.” He has opted out of the holding company. “Nicolas doesn’t plan to sell any shares,” Thomas says, “and if he did, he would sell them to the family.”
A lawsuit has been filed questioning the legality of Hermès’s new holding company and the French court of appeals is expected to announce its decision on the case September 15. Thomas isn’t worried. “The public ministry said there is no reason Hermès cannot create the holding company, and the AMF approved it,” he says. “We are more than confident that we will win.”
In addition to legal maneuvers, Thomas says that LVMH is still “working on the family to try to convince them to sell.” Godé calls this accusation “pure fantasy.” Whoever is right, Thomas is still not concerned. “What LVMH has forgotten is: A. The family is Protestant, and Protestants have a very different approach to money than the Catholics, and B. The family is interested in the continuity of the business. There was a rumor recently that Arnault would launch a takeover bid at a price that the family cannot resist. The thing is, he can launch a takeover bid tomorrow at 400 euros per share”—approximately double the current trading value—”and he will not get one share from the family, in my opinion. It’s not a matter of money. It’s a matter of family pride and the pride of being the sixth generation, and now the seventh.” Godé also calls this rumor “pure fantasy and without foundation.” Thomas says with confidence, “The risk of Arnault taking over is zero. In 30 years, I don’t know, but for the moment, zero.”
“Hermès is a unique business model, completely different from LVMH—that’s why the two can’t mix,” he continues. “It would kill Hermès. You would keep the brand and keep the name, but Hermès would be dead.”
The reason, he believes, is quite simple: “Hermès is a human experience.”
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