French luxury group Hermés expects sales of its leather goods division to normalize after a period of stellar growth — a relative slow down as the company rides the coattails of booming demand in the luxury retail sector.
Q2 sales in the leather goods and saddlery division at Hermés more than doubled from a year ago and rose by 24 percent from their pre-pandemic levels.
The company’s half-year operating margin of 41 percent, which was the highest in the last decade, is unlikely to be replicated in the second part of the year, however, especially since the company plans to increase its investments.
Another key factor hampering the Birkin handbag maker’s growth is its self-imposed production restrictions. The brand has made a name for itself by making its products, especially handbags, hard to get, leaving customers waiting up to six years.
“Our real capacity constraint is quality, and that means having the right material and the know-how as these are labor-intensive products requiring a lot of skill,” Executive Chairman Axel Dumas said on a conference call.
The company plans to stick to its policy of not increasing annual sales of leather goods by more than 8 percent, even if that results in a shortage of certain products, Reuters reported.
“We will not have the same growth rate for leather goods (in the second half),” Dumas said.
The company is still positioned to see strong sales, however. As lockdowns in key markets such as Asia and the U.S. have eased, consumers have gone back to shopping in physical stores. As a result, overall sales for Hermés were up 127 percent, reaching $2.55 billion. Meanwhile, the company’s recurring operating margin was at 41 percent of sales — six percentage points higher in 2019 and in line with LVMH’s fashion and leather goods division.