Hermès rode out the pandemic without discounting and posted luxury's fastest rebound

When Covid-19 shut its boutiques in early 2020, Hermès chose not to do the things most consumer groups did: no discounting, no layoffs of its artisan corps, no retreat from making goods at full price. Executive chairman Axel Dumas kept the focus on the local client rather than tourist traffic and pushed digital, with e-commerce sales growing at triple-digit rates in 2020.

The full-year numbers validated the discipline: annual sales fell 6% while LVMH and Kering each dropped 16%. In the fourth quarter of 2020 Hermès actually grew 16%, with Asia-Pacific up 47%, and Citi's Thomas Chauvet called it 'by far the most resilient brand in the luxury sector'. Q1 2021 sales then surged 44% at constant exchange rates to €2.08B, with Asia ex-Japan up 94%, beating forecasts of a 24% rise.

Dumas attributed the strength to the hand-stitched production model and restrained pricing - group prices rose just 1.4% in early 2021. For all of 2021 sales were up 42% on 2020 and 33% on 2019, even though leather goods capacity constraints left the fourth quarter 5.4% lighter in its biggest division.

2020 sales fell only 6% against 16% declines at LVMH and Kering; 2021 sales rose 42% over 2020 and 33% over 2019, the industry's strongest recovery

Scarcity is the moat: Birkin and Kelly demand chronically exceeds supply, so Hermès needed no markdowns to move goods when demand dipped.

Owning its workshops meant production could pause rather than be discounted, protecting both margin and brand equity through the trough.

Digital investment made each closed store irrelevant rather than lost: online sales doubled across regions and later brought in streams of new customers.

The loyal local clientele, cultivated for years, replaced missing tourists faster than touristic rivals could reposition.

Scarcity pricing survives a crisis if you never teach customers to wait for a sale. Keep production and staff intact through the downturn, and the rebound arrives at full price instead of at markdown.

Hermès exited the pandemic as the sector's benchmark for resilience. In 2021 it raised prices only 3.5% on average while Louis Vuitton pushed 7%, and Dumas told CNBC there was 'no strategy at all to create growth through unnecessary price increases'. By early 2022 its shares hit records, though capacity constraints in hand-stitched leather goods remained the binding constraint on growth, with online sales already approaching €1B a year and 78% of them to new customers.