Hermes International is hiring workers and investing in French production to meet surging demand for handbags in Asia, boosting the economy as presidential elections highlight the country’s struggle to create jobs.
The Paris-based luxury-goods company is expanding its network of domestic workshops that make bags like the Kelly and Birkin, it said yesterday in reporting quarterly sales that beat estimates.
For Hermes, a “Made in France” label is an intrinsic part of the appeal of its handbags, which are coveted in Asia and elsewhere as an emblem of French chic.
“This represents significant brand equity for them,” said Leopold Authie, analyst at Oddo & Cie. “France has know-how for certain luxury products that you can’t find elsewhere, just as Italy has shoes and Switzerland has watches.”
The move to boost employment comes as presidential run-off contenders Emmanuel Macron and Marine Le Pen debate how to revive employment in a country where the jobless rate remains stuck at 10percent despite a nascent economic recovery.
In the run-up to the May 7 vote, the two finalists this week squared off at a Whirlpool factory near the northern city of Amiens, where workers are protesting plans to move production to Poland.
Hermes, which makes about 85 of its products in France, plans to increase leather-goods output by 8percent and to hire 250 workers in the country this year.
The company said it was investing in a third workshop in the Franche-Comte region, bringing the total number of domestic leather production sites to 15.
Making handbags in France is not without challenges, including the country’s 35-hour work week and labour laws that add costly social charges to the payroll and make it difficult to dismiss workers.
“The average bag takes them 16 hours to make,” chief executive Axel Dumas said. “We work 35 hours in France, so you can imagine.”
It is hard to bring on more than the 250 craftsmen and women the company plans to add this year because training them requires taking another worker off the line to teach them, Dumas said. Overall, Hermes had 7881 domestic employees in 2016, or about 60percent of its total.
Rival LVMH experienced work stoppages at some Louis Vuitton production sites this month after unions called on workers to protest salary increases they deemed insufficient. Such disruptions have been rare for the luggage maker, which added 370 workers in its French plants in 2016. Hermes last year achieved productivity increases of 15percent, and it is targeting 8percent for 2017. The company needs those kind of gains to meet demand for its handbags, silk ties and other goods in Asia and elsewhere.
Sales of leather goods and saddlery, which account for roughly half of Hermes’s revenue, jumped 15percent in the first quarter. Revenue climbed 11percent on a constant-currency basis, beating the 8.8percent median estimate of eight analysts in a survey. Asia, minus Japan, led the way with a 16percent gain.
France’s advantages as a production site were not matched in the company’s sales performance: revenue there climbed 4percent, less than half the rate analysts had estimated.
Overall, the results represent a marked uptick from a year ago, when flagging consumption in China and a terrorism- related downturn in European tourism saw the company report its slowest quarter in seven years. The luxury-goods industry has bounced back more broadly, with first-quarter results from LVMH and Kering surging past analyst estimates.
Berenberg analyst Zuzanna Pusz said the gains at Hermes underpin the industry’s recovery.