editorials


“We are not in luxury. “We are in quality.”

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January 2011


These few concise words say it all. They describe how the family owners of Hermès responded to Bernard Arnault (LVMH) at the announcement, legally necessary, that he had acquired—as secretly as it was ‘amicably’—17.7 percent of the shares of their company. “We are artisans. Our goal is to make the best products in the world. We are not in luxury. We are in quality,” stated Bernard Puech, President of the board of directors of the Hermès limited partnership company. This legal arrangement guarantees control of the business to the family, the major shareholder, no matter what happens, even if the family no longer has majority control (today it holds approximately 73 per cent of the company). As Bernard Puech adds, “Even it there is only one single family-held share, the family will maintain control.”
We will not venture into the various possible outcomes of this ‘friendly’ hostile action, which was immediately and energetically rejected by Hermès. The brand obviously fears that the particular friendship of Arnault might become too insistent and end up suffocating it one day. But rather than focus on the strategy of the ‘kiss that kills’, let’s look at the forceful response of Hermès that differentiates ‘luxury’, of which LVMH is the most striking example, from ‘quality’, which is of a whole other order.
The subtext of what Bernard Puech is saying is that quality in the long term—Hermès is in its sixth generation of managers—cannot bend to the strategic family policies of globalized finance. He goes on to emphasize in passing that “the structures that have allowed this attack are the subsidiaries of LVMH based in Luxembourg, the United States, and especially in Panama, a country that is not the most transparent when it comes to financial regulation and the source of funds.” Moreover, as the directors of Hermès are saying, beyond the financial engineering that made this happen, there is a deeper incompatibility, which is cultural. Luxury is a status; quality is a value. Luxury addresses the exterior; quality addresses the interior. Luxury is an image; quality embodies a product. Hermès, they say proudly, “is not a signature; it is a cultural soil, a culture incompatible with that of a large group.”
This way of considering itself as a ‘soil’ that must be cultivated to grow new fruits ‘every season’, this manner of envisioning time over the long term are culturally at odds with a financial policy that seeks, on the contrary, to annihilate time in its immediacy and in the instantaneousness of the flux of virtual transactions.
Beyond the case of Hermès versus LVMH, the shock of cultures concerns all of us. The battle that is being carried out on the high-end product level is raging everywhere else as well. It is part of what we call ‘the great choices of society’. Do we want to favour the absolute race for performance, the relentless pursuit of growth at any price that demands instantaneity? Or do we opt for the ‘soil’ that will perhaps not give immediate fruits but that we can certainly cultivate for many years to come? In other words, do we want to regulate, organize and plan for the long term or do we prefer to leave everyone free to grab up as much as they can in the shortest time possible? The answers are not insignificant. They will fashion the future, for better or for worse.
As you can see, we are way beyond watchmaking, whether it be ‘luxury’ or ‘quality’. And, having observed Hermès’ activities in watchmaking, we can certainly testify that it has been this ‘culture of the soil’ that has dictated the brand’s patient growth. Step by step, without cutting corners, by planning its activities in terms of decades, and by not claiming to be something it is not, Hermès has, in thirty-two years, gradually acquired the metier of timekeeping, of which it can now rightfully be proud.
The moral of this story is that the most high performance brands are not always those that claim to be. As Hermès declares, “Since going public in 1993, the annual growth in net profits of LVMH has been 7.6 per cent while that of Hermès has been 14.7 per cent. The shares of LVMH have risen by a factor of six on the stock exchange—those of Hermès by 35.”
The believers in the long term have thus every reason to continue to cultivate their soil.

Source: Europa Star December - January 2011 Magazine Issue