Hermes Value Investin

Value Investing

Industry and Company Analysis Write-up

Personal Luxury Goods Industry

Team Members:

Bernard Yu, 20247343

Tammy Tam, 20255625

Sophia Zhang, 20231370

Emile Chan, 20244676

Global Luxury Industry Overview

The global luxury industry market size is at 865bn Euro as of 2014 and we are seeing a 7% year-on-year growth. In particular we are focusing in the global personal luxury sector that has a market size of 225bn Euro and has a 2% year-on-year growth.

Personal luxury goods market growth has shown to be correlated with global GDP growth, with slightly higher volatility. Looking at data from 1996 to 2014, we observe an industry growth of CAGR 5.5% while GDP grew 3.3%. According to Bain, the expect market growth from 2014 to 2015 would be at 4% CAGR.

When we look at personal luxury goods markets by country, we note that US is the largest market then followed by Japan. However, when we look at the market in terms of nationalities, Chinese is the largest buyer of luxury goods, contributed 29% of global luxury goods sales as of 2014. The key factor behind this phenomenon is caused by price differentials in different countries.

In the personal luxury goods markets, the accessories category is the largest, among which, leather goods contributed 17% of total personal luxury goods sales in 2014 at a market size of 37bn Euro. Growth wise, there was a 3% increment in 2014, and from 2011-2014 there was a CAGR of 8%, hence it’s the fastest growing among other categories.

Hermès Company introduction

The major players in the personal luxury goods market, LVMH is the largest luxury brand globally in terms of sales, while Hermes ranked number 5. In terms of number global stores, Gucci and LVMH are the leader, while Hermès ranked number 10. Although Hermès has relatively less stores than its competitors, they are the most profitable among peers with 35% operating margin.

Hermès International S.A. is a French high fashion luxury goods...