Case study: Hermes perfumes
The early 2000s witnessed a period of stagnation, this was partly due to the attacks of September 11, 2001. In 2004, the global sales of luxury goods resumed growth. Sales increased by 10% in 2006 to 160 billion Euros. This increase can be explained by several factors, including a 4% increase in global growth. The early 2000s witnessed a period of stagnation; this was partly due to the attacks of September 11, 2001, but in 2004, the global sales of luxury goods resumed its growth.
In 2006, there was an increase in the sales by 10% which resulted to $160 billion euros. This increase can be explained by several factors, including a 4% increase in global growth in 2006. Tourism became more dynamic with a 4.5% increase in the number of passengers and the number of millionaires and billionaires +12.5% and +22.6% respectively compared to 2005). Some trends have emerged with respect to the geographic distribution of global sales of luxury.
The European market continues to be the world's largest market in terms of turnover with a 27% share of the global market, followed by Japan which is on par with United States and has a market share of 24%, and China with a market share of 15%. Although Japan is very large consumer of luxury goods, the depreciation of the yen against the euro since the early 2000s, has impoverished Japanese households and thus reduced their ability to consume luxury goods.
The undervaluation of the yen against the euro has penalized exports from European companies. In fact foreign products such as perfumes are now dear to the inhabitants of Japan and under such conditions European companies are no longer competitive. Unlike markets such as China and Russia which are growing, they offer exciting opportunities to the groups on the sector.
The luxury market can be divided into six segments. Of these, clothing constitutes 32%, perfumes and cosmetics 23%, jewelry and watches 20%, accessories 19%, various house collections 3% and tableware 3% of the total market for luxury. The segment offers opportunities for perfumes and Hermes is positioned as the leading exporter of French luxury goods and is present on all market segments.
In 2006, the global market of perfumes and cosmetics grew by 4.8% and recorded its strongest growth since the year 2000. We will use the model of Porter's 5 forces to determine the characteristics that govern the market for fragrances and power relationships between the different players involved.
The market required compliance with property rights and for this reason, it is supervised by different institutions. Some of them are responsible for regulating the competition, others to defend the consumers. The freedom of competition means the possibility for the merchant to use every means to ensure the success of its business. But it also has the right to harm its competitors, especially by appropriating their customers. For example, some perfumes, like Sephora, provide samples to the customers, which offers more incentive to the customers. But it is nevertheless bound by the limits set by commercial usage; otherwise the company is guilty of unfair competition.
The protective role of the state is to enforce property rights and contracts. The global luxury goods market is dominated by a handful of companies and the leader with respect to perfumes is LVMH (Dior perfumes holding subsidiaries, Guerlain, Givenchy, Kenzo) and then comes PPR (Gucci Perfumes). Hermes is ranked in the seventh place.
Tags:Tourism, global sales of luxury, China, Sephora, LVMH, perfume