Hermès says credit crunch is hurting even top-drawer shoppers

07/11/2008 – The Times

They have defied gravity for the past year, selling everything from £13,000 alligator skin handbags and £395 mors de filet cufflinks to hordes of well-heeled consumers.

However, there were renewed fears yesterday over the prospects for Britain’s luxury retail sector, after Hermès, the group based in Paris, warned investors that even the upper echelons of society were now feeling the pinch from the credit crunch.

Patrick Thomas, chief executive of Hermès, said that sales growth this year would be lower than expected. His statement triggered fresh concern about the fallout from the widespread redundancies in Europe’s financial centres. Mr Thomas said: “We see a general sales slowdown in all countries. The toughest period will be between now and Christmas.”

Bulgari, the jewellery and leather goods maker, was one of the first luxury groups at the end of September to raise concerns that this year’s Christmas trading is likely to be more difficult than last year’s.

Theo Fennell, the jeweller to stars such as David Beckham, Sir Elton John and Kate Beckinsale, became the first British luxury retailer to issue a profit warning last month.

However, analysts said that the warning by Hermès was likely to send shockwaves through the luxury goods sector, granted that it has been viewed as possibly the most resilient of all the luxury brands on the Continent. The company, best known for its €4,000 (£3,200) handbags and for clothing designed by Jean Paul Gaultier, was recently ranked as Britain’s most exclusive brand, ahead of Prada, Louis Vuitton and Gucci.

Ledbury, the market research business, said that Hermès’s customers were likely to feel 40 per cent more financially secure than those of Coach, the American luxury group. James Lawson, the Ledbury director, said that there were already signs that British luxury-goods firms were suffering.

A Bentley dealership in Exeter, Bentley West Country, fell into receivership yesterday. Bankers said that there had been a collapse in demand because of the financial crisis.

In Central London, Boodles, the Bond Street jeweller, said that footfall had declined in the past three to four weeks.

Mr Lawson said: “Hermès was one of the more insulated brands and this is certainly a sign of the severity of the crisis. It was thought to have been in a stronger position than even PPR, the Gucci owner, and LVMH, which owns Louis Vuitton.” He added: “Last month we saw the first signs that sales of big-ticket luxury items, such as property, cars and Swiss watches, were being affected by bonuses being hit. We’re now beginning to see it filter through to other products. Most of the brands in 2009 will be looking at a slow or flat year, because they have been, for the last four or five years, reliant on a booming financial services sector and also the emerging economies.”

Hermès said trading was notably tougher in Russia, Spain, Italy and Belgium. It is still likely to outperform the rest of retailing despite the warning. It expects annual sales growth to be 9 to 10 per cent, against earlier predictions of 12 per cent. Shares in Hermès fell by more than 5 per cent to €96.

In a note to clients, HSBC said: “We can see that Hermès is not more resilient to the economic slowdown than other luxury players, therefore not justifying a premium on fundamentals.”