From the beginning, the Hermes Family knew they were in the craftsmen business. Making products that last for generations.
Dave Young:
Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom-and-pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is, well, it’s us, but we’re highlighting ads we’ve written and produced for our clients. So here’s one of those.
[Wagmore Garage Doors Ad]
Dave Young:
Welcome back to the Empire Builders Podcast. Dave Young here, along with Stephen Semple. And Stephen, just before he whispered the topic in, this tells you what Stephen thinks about me. He said, “Yeah. I’ll tell you this one, but I don’t think you’re going to know about it because it’s a really high-end fashion.” Yeah.
Stephen Semple:
It’s not exactly what I said.
Dave Young:
Not … Well, I’m telling the truth in a more powerful way. And as we call them in Nebraska, Hermès, but it’s Hermès. Say it for me.
Stephen Semple:
I think it’s Hermès because it’s French.
Dave Young:
Hermès? Hermès?
Stephen Semple:
Yeah.
Dave Young:
Is the H pronounced at the beginning or not? I don’t know.
Stephen Semple:
I think it would be very soft.
Dave Young:
Scarves and things like that, that’s all I know.
Stephen Semple:
Well, the big thing they’re known for is handbags.
Dave Young:
Things I don’t own is what they’re known for.
Stephen Semple:
Correct.
Dave Young:
And I will admit you were absolutely right to think that I probably don’t know a whole lot about these people or this brand.
Stephen Semple:
The more I looked into this company, the more interested I got on it because I got fascinated by some of the history.
Dave Young:
I got to share with you just how much I don’t know about them. You see this shirt I’m wearing as we record?
Stephen Semple:
Yes.
Dave Young:
This is from the fishing department at Walmart. Not the men’s clothing section. Fishing. And I-
Stephen Semple:
And, Dave-
Dave Young:
Here’s the other thing.
Stephen Semple:
Dave, you don’t fish, dude.
Dave Young:
I don’t fish. No, I don’t. I don’t fish at all. I stumbled across these shirts one time. I’m like, “I love these shirts.” But yeah, anyway, they’re not Hermès.
Stephen Semple:
So this is a really interesting company. It was founded in 1837 by Thierry Hermès. And he’s a German-born craftsman. And the company started in Paris. Now, what makes it super rare is here we are, close to 190 years later, and it’s still primarily owned by direct descendants of Thierry.
Dave Young:
Wow.
Stephen Semple:
There you go, Dave.
Dave Young:
Okay. That’s pretty cool. That’s a family business.
Stephen Semple:
That’s interesting on its own, isn’t it?
Dave Young:
Mm-hmm.
Stephen Semple:
So the family owns somewhere between 65 and 70% of the business, and is publicly traded at around a valuation of about $200 billion.
Dave Young:
That’s a lot of billion.
Stephen Semple:
That’s a couple of billion, isn’t it?
Dave Young:
Yeah. Wow. Okay.
Stephen Semple:
They only have like 70% of that 200 billion, so …
Dave Young:
Oh. Well, just downgraded their jet.
Stephen Semple:
Yeah. That’s it. So in 2010, the luxury giant LVMH tried to take the company over, and the family blocked it. There was a time where they tried to take over. And the CEO, Axel Dumas, is a sixth generation member of the Hermès family. So today, they have 300 stores. They do 14 billion EU, which is about 16 billion US in sales, which means they sell $50 million per store.
Dave Young:
I was going to say that’s not very many stores.
Stephen Semple:
No. And put in perspective, Gucci does about 25 million. Prada does half of that. Tiffany’s does about 15 million per store. $50 million per store.
Dave Young:
It’s got to be a front for something else.
Stephen Semple:
Now, their big product, so we talked about … Is this handbag called the Birkin bag. And the Birkin bag sells for anywhere from $10,000 to $100,000 per bag.
Dave Young:
Get out of town.
Stephen Semple:
Yeah. And often sells for more-
Dave Young:
Is it bottomless? Can you crawl into it?
Stephen Semple:
Seemingly, it’s a pretty big bag. I personally-
Dave Young:
Will it transport you to other dimensions?
Stephen Semple:
I personally have never known anybody who’s had one, so I can’t really comment.
Dave Young:
No. No. I just want to touch one.
Stephen Semple:
And here’s the other crazy thing, is they often sell for more on the secondary market.
Dave Young:
Sure.
Stephen Semple:
Yeah.
Dave Young:
Why not?
Stephen Semple:
They’re super-
Dave Young:
Because they only make a couple of them, or enough to sell.
Stephen Semple:
They’re super scarce. You cannot walk into a store and buy one. There’s a waiting list.
Dave Young:
Wow. Okay.
Stephen Semple:
Even celebrities, doesn’t matter who you are, have to get on the waiting list. They’ve really leaned into this whole idea of scarcity.
Dave Young:
Yeah.
Stephen Semple:
They’ve really leaned into it.
Dave Young:
How many billion dollars worth of scarcity?
Stephen Semple:
Oh, in terms of their sales?
Dave Young:
300 stores. And how much per store?
Stephen Semple:
Well, 50 million a store.
Dave Young:
It doesn’t feel like scarcity, but when the handbags are 10,000 and up … Wow.
Stephen Semple:
And to this day, the leather bags use the original hand saddle stitching. Every bag is made by one person, beginning to end, handcrafted. Their scarves, which are also really known for, are hand screen printed. The edges are all hand rolled. And the CEO personally signs off on every product.
Dave Young:
All right.
Stephen Semple:
So there is this real high level of craftsmanship with it. So Thierry was born in 1801 in Krefeld, Germany. And at the time, that part of Germany was under the control of Bonaparte, which made him a French citizen. So that’s why though he was German-born, French citizen.
Dave Young:
Oh. Okay.
Stephen Semple:
And the town was known for textiles and was considered the city of velvet and silk. And in 1821, most of his family had died of famine and disease due to the war. So he moved to Normandy, where he learned the art of saddle and harness making under the Palmieri family. 1828, he married. And in 1837, he moved to Paris and opened an equestrian supply store. I’m going to butcher this.
Dave Young:
Of course you are.
Stephen Semple:
Rue Basse-du-Rempart.
Dave Young:
You said it perfectly.
Stephen Semple:
Okay. There we go. There, he made bridals, harnesses, carriage fittings using leather and wrought iron, right? And he became famous for a particularly strong saddle stitch that basically uses this opposite stitching. If one of the stitches broke, the other held.
Dave Young:
Now, here’s what I know about horses in Paris.
Stephen Semple:
Okay.
Dave Young:
Ain’t no cowboys over there. So again, this is the rich folk doing equestrian things and pulling carriages.
Stephen Semple:
That’s it. It was a mode of transportation.
Dave Young:
Yeah. The average folk are walking around the streets of Paris.
Stephen Semple:
Correct. Correct. It was the nobility who had horses and carriages. Now, that original stitch is still the stitch that’s being used today.
Dave Young:
Hey, if it works.
Stephen Semple:
Yeah. So this stitch is important to the history because to your point, horses and carriages were a mode of transportation. And, look, the roads were rough. Transportation was rough. So durability was really important. And his skill attracted the nobility. People like Eugénie, the wife of Napoleon III. So Thierry went on to win several medals for this design and his work. And he became known because his stitching did not break, the leather aged beautifully, and the workmanship was flawless under stress. So he died in 1878. And his son, Charles-Émile, took over. And like his dad, he was dedicated to this quality. The business expanded. They started creating more products, including these really large bags that could actually carry a saddle and the boots, right? Because-
Dave Young:
Wow. Okay. That is a big bag.
Stephen Semple:
Right? Because if you had a horse and you’re showing up, you take the saddle, you take the boots off, right?
Dave Young:
Yeah. Yeah.
Stephen Semple:
And it’s really considered the forerunner to this big handbag that they make today. So you’re asking, “Is it big?” It’s a big handbag. So the business growing.
Dave Young:
Everything but the horse.
Stephen Semple:
Yeah. Everything but the horse. That’s it. So the business is growing. The prestige is growing. They’re making these products for the horse and carriage industry. Then Charles travels to Canada.
Dave Young:
Oh. Okay.
Stephen Semple:
Okay. And he comes across this unique fastening system that’s being used for the canvas roof of the convertible Cadillac. It was a zipper.
Dave Young:
Oh. Yeah. The zipper. Uh-huh.
Stephen Semple:
So he took the idea back to France, and he applied for a patent to use the idea, and thus was born the Hermès fastener. It was innovative at the time.
Dave Young:
Okay.
Stephen Semple:
By the end-
Dave Young:
But it was a zipper?
Stephen Semple:
It’s a zipper.
Dave Young:
Okay.
Stephen Semple:
But it’s not a zipper. It’s the Hermès fastener.
Dave Young:
It’s the Hermès fastener. Yes. Get it right.
Stephen Semple:
Yeah. So by the end of World War II … This is another important part in terms of innovation because think about how many businesses that served the carriage trade that died.
Dave Young:
Well, sure. Yeah.
Stephen Semple:
Right?
Dave Young:
Because once we started all using cars and … I’m also thinking, man, this German-owned business in Paris in World War II, that’s got to be a tricky road to-
Stephen Semple:
Well, we’re not at World War II yet. End of World War I.
Dave Young:
Okay. Into World War-
Stephen Semple:
Into World War I.
Dave Young:
Oh, yeah. Okay. Kind of the same.
Stephen Semple:
He realizes that the car is going to take off. He notices the car. But what he also realizes, it’s a faster form of transportation. So it requires stronger materials and better fasteners because remember, the early cars didn’t have trunks that you put things in. You put a trunk on the back of the car and attached it all with fasteners.
Dave Young:
Right. So you need a trunk that could withstand being outdoors while a car drives it around.
Stephen Semple:
Correct. They did a collaboration with Bugatti where Bugatti commissioned a yellow trunk and yellow cowhide to match the first Bugatti Royale.
Dave Young:
Wow. Okay.
Stephen Semple:
Right. So this is a interesting thing. They did not change their business for the car. They refocused it.
Dave Young:
Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.
[Using Stories To Sell]
Dave Young:
Let’s pick up our story where we left off. And trust me, you haven’t missed a thing.
Stephen Semple:
So this is a interesting thing. They did not change their business for the car. They refocused it. They leaned into the things they were already good at. And I think this is important because how many companies, again, were unable to pivot to the automobile business?
Dave Young:
I think of all the things in a car. Yeah. Eventually, we figured out we could actually put a trunk in the car instead of-
Stephen Semple:
Eventually.
Dave Young:
… carrying it on top. But you’ve also got all the upholstery, maybe the dashboard, maybe the steering wheel that would be wrapped in leather and need some fine stitching. So there’s lots of things that you could still do that show off your skill and your dedication to this kind of quality.
Stephen Semple:
Right. They didn’t ask, “What do we need to do differently?” They asked, “Where does their craftsmanship still matter?”
Dave Young:
Yeah.
Stephen Semple:
That’s the question they asked. Where does our craftsmanship still matter?
Dave Young:
And they realized that’s the business they were in, was craftsmanship and making things well.
Stephen Semple:
This is an important distinction to keep in mind that comes later. So 1922, they added their first handbag basically when Émile’s wife, she was like, “I’d like a scaled down version of this thing that you put boots and saddles in.”
Dave Young:
Don’t really need to carry my boots, but …
Stephen Semple:
But travel was also expanding at this time, so the handbags started becoming a needed accessory. 1950s, they added their orange box. So they took probably … And I’m going to guess they probably took inspiration from Tiffany’s Blue Box, and they created this orange box. Now, here’s an important part of the company’s history. It’s 1978. And Jean-Louis Dumas, the great-great-great-grandson of Thierry has taken over the company. And the company was stagnating. They still had loyal customers, but not enough of them. And here’s the advice that was given to them by investment bankers. Cut production costs by outsourcing production.
Dave Young:
Of course that’s the advice that was given to them by investment bankers.
Stephen Semple:
How many times we heard that advice?
Dave Young:
Yeah.
Stephen Semple:
But what was their DNA? Craftsmanship.
Dave Young:
Yeah.
Stephen Semple:
And, look, everybody will say, “Oh, you can outsource it, and you’ll still have the same quality.” He knew that to not to be true. He knew he would never be able to maintain quality the moment he did that. So how many companies would have resisted this? I don’t know of any others. I’m sure there’s others. But that was a big moment. And he said, “No, we’re not doing that.” Instead, what he decided to do was something that they rarely did, advertise.
Dave Young:
Yeah. Okay.
Stephen Semple:
But here’s what they did. They decide to advertise something different. It’s 1979. And they launched this campaign showing edgy, young … Remember, ’79. Edgy, young Parisian women wearing silk Hermès scarves, not in haute couture, wearing jeans.
Dave Young:
Yeah. There you go.
Stephen Semple:
Fits, but doesn’t fit. Picked a scarf. Expensive, but pretty much anybody could purchase. And all of a sudden, this accessory that made the jeans and everything look awesome. Where did you get that scarf?
Dave Young:
You could dress down, but people would still know.
Stephen Semple:
Bingo.
Dave Young:
I also think … I don’t know if this had a part in it or not, but that’s the era of Robin Leach’s Lifestyles of the Rich and Famous.
Stephen Semple:
Right. There you go.
Dave Young:
And so people had a fascination with this kind of thing there because of that show, right? That was always an interesting one to watch and to make fun of Robin Lynch, Leach, Robin Leach.
Stephen Semple:
Yeah. Leach. Yeah. So here’s the thing you could do. You could put on your jeans, you could put on a nice shirt, you could put on that scarf, and you’re looking like a Parisian model. They sold a crap ton of the scarfs. What they also knew is selling the scarves, people are now in their store, they’re going to see other things.
Dave Young:
Yeah. They’re going to start to want that bag.
Stephen Semple:
The advertising campaign was shocking.
Dave Young:
Really?
Stephen Semple:
Because it was just … Well, it was never done before. It was never this super high-end fashion going there. They were the first to do it. It was shocking, but changed the trajectory of the company. We could do a whole episode just on the scarves and the history of the handbags in terms of the things that they did for promoting it. But what I loved was he looked at it and he said, “There’s another option other than dropping production costs. What we need to do is we need to find new customers. How are we going to find new customers? We’re going to find new customers by reaching down, but we’re not going to reach down by making our products cheaper. We’re going to reach down by finding a product that if somebody really wants, they … Sure, $300, $400 scarf is crazy expensive, but can buy. And we’re going to make it glamorous. And, look, if we sell a whole pile of those scarves, we’re doing well.”
Dave Young:
So I may be wrong on this, but here’s what my Spidey-sense tells me. Who stole the idea of the DNA of the Hermès ads in the ’70s to repeat that thing where it’s, “We can make this expensive product desirable. And everybody will want it”?
Stephen Semple:
Ralph Lauren.
Dave Young:
Now I’m thinking iPods.
Stephen Semple:
Except he’s not expensive.
Dave Young:
I’m thinking iPod. The iPod.
Stephen Semple:
iPods. Interesting. Interesting.
Dave Young:
Thousand songs in your pocket. And the ads were sort of this every person with the white cord and the AirPods.
Stephen Semple:
Interesting. Interesting.
Dave Young:
But that’s the same notion, right?
Stephen Semple:
It is the same notion.
Dave Young:
This is the one little expensive thing that you can have and just make your life better.
Stephen Semple:
Yeah.
Dave Young:
Yeah.
Stephen Semple:
Well, it’s that whole idea of an indulgence.
Dave Young:
Mm-hmm. Absolutely.
Stephen Semple:
Right? This is an indulgence. I can go and I can treat myself. I will feel better. It’s special. It’s all these other things. And it’s that moment where you’re sort of like … It’s that whole idea of it’s an indulgence. And they figured out how to stay true to what they do. They still make the super expensive stuff, but were able to reach down into more mainstream, which is where you need to be in order to be successful long term.
Dave Young:
Yeah. You just want the people to really want the one thing. This is a great story. And now I’m wondering what color of Hermès cravat would go well with my Walmart fishing shirt. But here’s the problem. Here’s the problem.
Stephen Semple:
There’s so many problems.
Dave Young:
No. No. Well, I don’t even know where one of their stores is. So that’s probably by design. They don’t want me to know where one of their stores is.
Stephen Semple:
Where they will be-
Dave Young:
I’d wander around and touch things.
Stephen Semple:
Yeah. Where they would be would be in, again, the really super high-end malls [inaudible 00:18:49].
Dave Young:
If you find a Tiffany store, you’ve found the Hermès store.
Stephen Semple:
You have. You have. But it’s funny because anytime I’ve known about the company, I’ve never really researched it because it was not-
Dave Young:
I’ve seen the name before. I’ve seen the name. Wondered how you pronounced it until fairly recently. Yeah.
Stephen Semple:
And seen the name, know about it. Then I came across a few things. And then literally how I got interested in it, I was researching Tiffany’s, and there was a little book on Tiffany’s that had some information in it that I thought I could use for the Tiffany’s episode. I bought the book, and Amazon said, “Those who have bought that book have also bought-“
Dave Young:
Also like. Yeah. Hermès.
Stephen Semple:
“… this book.” Right? So I was like, “Oh, what the heck? Let’s add that to the cart.”
Dave Young:
Yeah. There you go.
Stephen Semple:
So I added it to the cart. And then I started reading through it, and I was like, “Wow. This is actually a really interesting company.”
Dave Young:
Very cool.
Stephen Semple:
Yeah. So I sort of stumbled across it kind of by accident.
Dave Young:
What’s the scarf cost? It’s got to be less than the leather bag.
Stephen Semple:
Oh, yes.
Dave Young:
Yeah.
Stephen Semple:
Yeah.
Dave Young:
So …
Stephen Semple:
I’m going to guess they’re three, $400.
Dave Young:
Okay. I’m just saying for the guys out there, this is one of those sleeper gifts, right? Get her a scarf from Hermès.
Stephen Semple:
I just Googled it. Canadian. They run from $500 to 750 bucks.
Dave Young:
Yeah. Yeah. I’m not saying do that instead of jewelry or something, but that’s a nice one you didn’t think of.
Stephen Semple:
It’s a special thing.
Dave Young:
Yeah. And she’s going to know more about it than you probably.
Stephen Semple:
And I remember doing the research on it. I was looking at them. They are beautiful and they’re all hand rolled and they are actually pretty spectacular.
Dave Young:
Awesome. All right. Hermès. Hermès. Hermès. Hermès. Hermès.
Stephen Semple:
Let’s go with Hermès. That sounds great.
Dave Young:
Hermès. Yeah.
Stephen Semple:
Hermès.
Dave Young:
It doesn’t sound quite as-
Stephen Semple:
I actually think if we’re probably going to … I think if we’re going to really do it correctly, it’s Hermès, I bet you. It’s just like … That H is just like-
Dave Young:
Hermès. Hermès is a diner somewhere, but-
Stephen Semple:
Just poking it.
Dave Young:
Hermès. Thank you for bringing us the Hermès story to the Empire Builders Podcast, Stephen.
Stephen Semple:
All right. Thanks, David.
Dave Young:
Thanks for listening to the podcast. Please share us. Subscribe on your favorite podcast app and leave us a big, fat, juicy five-star rating and review at Apple Podcasts. And if you’d like to schedule your own 90-minute empire building session, you can do it at empirebuildingprogram.com.
