Handbags at dawn: The battle at the heart of French fashion house Hermès

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Talks of a takeover are ruffling family feathers at the classic fashion house, Hermès. Susannah Frankel on a battle for the grandest label of them all

In the autumn of last year, Bernard Arnault, founder, chairman and CEO of the world's largest luxury goods conglomerates, LVMH (Louis Vuitton Moët Hennessy), and among the richest men in France, set into motion what may go on to become the most spectacular and potentially long-drawn-out takeover battle of his career to date. Given that this is a man whose reputation for voraciously snapping up family-owned businesses precedes him, that's saying quite something.

Arnault already controls Fendi, Pucci and Louis Vuitton. Most famously, in the latter part of the 1990s, he was involved in a bitter struggle with arch-rival Francois Pinault, CEO of PPR (Pinault Printemps La Redoute) over control of the Gucci Group. In that case, Arnault was unsuccessful. But never one to let spirits be dampened, he today has his eye on Hermès, perhaps the grandest French status label of them all.

It all started with an announcement, three months ago now, stating that LVMH had amassed a 17.1 per cent stake in Hermès, taking family descendants entirely by surprise. Two months later, that rose to 20.2 per cent. "LVMH built the stake through cash-settled equity swaps with three banks that dated back to 2008 when the luxury industry was in deep crisis," reads the US edition of this month's Economist magazine. "The use of these derivative contracts allowed LVMH to skirt disclosure requirements and produced a nice profit for Mr Arnault, who had bet on Hermès' stellar rebound."

In fact, Arnault is currently facing an enquiry by French regulators over concerns that he may indeed have violated disclosure laws. In the meantime, it is perhaps only to be expected that the extended Hermès family – today comprising the Puechs, Guerrands and Dumas, all related by marriage – which owns more than 70 per cent of the business, is none too happy with what it clearly sees as an unwelcome attack, not only on its future, but also on a time-honoured heritage.

Although the powers that be at LVMH claim they have no intention of attempting to acquire a controlling stake in the company, speculation is rife that, if the current generation of family members might be reluctant to sell their shares, their heirs may be more amenable. It's not without reason that Arnault, the man at the head of it all, is dubbed "the wolf in the cashmere coat" and his far-from-demure entrepreneurial style is well-known, not to mention entirely at odds with the more discreet and traditional values this proudly independent name represents.

And so Hermès fought back. In December, a holding company was created, grouping more than 50 per cent of Hermès' capital, thereby granting family members first rights to buy shares from each other should any decide to sell. This, too, is currently being looked at by French authorities at the behest of minority shareholders but, said Bernard Puech, chairman of Émile Hermès, the family management company, in an interview for Le Monde recently, the move is "further proof to all those people who do not believe us. We are a united family, animated by one spirit – to transmit to our descendants the unique jewel received from our parents."

The unique jewel in question was founded as a harness and saddle workshop in Paris in 1837 by one Thierry Hermès. In 1880, his son, Charles-Émile, took over, moving the business to 24 Rue Faubourg Saint-Honoré where it remains, albeit vastly expanded, to this day. Assisted by his sons, Adolphe and Émile-Maurice, Charles-Émile built up a discerning and cosmopolitan clientele across the globe. With the dawn of the 20th century, Hermès, then managed by the third generation and known as Hermès Frères, cemented its reputation as purveyor of leather goods to horsemen and women of style. Émile-Maurice furnished Tsar Nicholas II with saddles and the company introduced its first bag – the haut à courroies – designed to allow the world's most well-heeled equestrians to carry their Hermès saddle with them wherever they went.

As enamoured with craftsmanship as he was innovation, Émile-Maurice, on a trip to America during the First World War, experienced the impact of the car and mass production on a brave new world and with it the potential of the luggage industry to flourish. He returned with, among other things, exclusive rights to introduce the zip, or "American fastener", to his home country. Soon known about town as fermeture Hermès, it was quickly adapted to the purposes of fine leatherwork. At the same time, Hermès' production of fashionable items increased to include travel, sport and driving accessories, clothing, belts, gloves, jewellery and wristwatches. During the 1930s, and drawing on a by-that-time extensive personal collection of paintings, books, objets d'art and curiosities related to equine pursuits and travel, Hermès classics including a petit sac à courroie pour dame, later known as the "Kelly", leather diaries and printed silk scarves, also went into production.

In 1945, following Paris's liberation from German occupation, Marlene Dietrich, in full GI uniform, marched with General Patton's army, stopping off at Hermès to sign autographs on her way. Hermès orange, initially used more extensively than it might have been during the war because of dye shortages, was officially adopted for packaging post-war, all stamped with Le Duc Attelé, a drawing by Alfred de Dreux depicting a Parisian two-horse equipage and registered as the Hermès trademark not long after. The official naming of the aforementioned Kelly bag, meanwhile, came in 1956, after a photograph of the young Princess Grace of Monaco clutching hers to her belly to hide the early stages of pregnancy appeared on the cover of Life magazine.

By that point, and with Émile-Maurice's son-in-law, Robert Dumas, at the helm, anyone who was anyone shopped at Hermès: Christian Bérard, Jean Cocteau and Colette, the Duke and Duchess of Windsor, Bergman, Bogart, Bacall, Bardot and more. The spectacular success of the Kelly was followed, some 30 years later, by that of the Birkin, sketched, fashion folklore decrees, by Jean-Louis Dumas, a fifth-generation family member who took up the company reins in 1978, as he chatted to the actress on a flight between Paris and London. At a recent sale of vintage Hermès bags at Christies, nine of these dating from the 1980s sold for more than £30,000 apiece, four fetched just under £40,000. A 1998 Rouge Moyen alligator Birkin went under the hammer for £49,250. Birkin sold her own black calfskin bag to benefit the International Federation of Human Rights for a record €74,352 in 2009.

Given a culture that thrives on conspicuous consumption and a fashion industry that still, for the most part, decrees that what is in one season will be out the next, Hermès stands alone as a creator of entirely timeless luxury goods that are as understated as they are beautiful. Designers as diverse as the elusive, Belgian-born Martin Margiela and the extremely famous Jean-Paul Gaultier have worked their magic designing womenswear for the house, always ensuring that its history and unparalleled respect for fine workmanship is upheld.

Next month in Paris, a new name, Christophe Lemaire, will debut in this capacity. Since the late 1990s, Veronique Nichanian has been responsible for equally elegant menswear. Unlike the majority of fashion's big names, Hermès has never licensed any of its by-now formidable output, preferring instead to control its production first-hand in workshops on the outskirts of Paris.

Neither has the company ever paid celebrities to endorse its designs. And yet, everyone from Martha Stewart to Kate Moss and from Elle Macpherson to Victoria Beckham are all too happy to parade their allegiance to the Birkin in particular. The latter is said to own more than 100 Birkin bags. More extraordinary still: no amount of over-exposure appears to dent its allure.

If Hermès has always had an eye on experimentation and modernity, the manner in which everything from the most modest of wallets to a crocodile handbag studded with diamonds is made, is exclusive to the point of anachronistic. Even the tools involved in the creation of merchandise are handmade. Those who staff the Hermès ateliers are trained for between two and three years, then join the company as apprentices before being allowed to work unsupervised.

As for the legendary waiting lists – which mean that even those prepared to pay upwards of £4,400 (the starting price for a Kelly bag) and £5,700 (for a Birkin) might not actually get hold of either for months and even years – they are in place not as part of any canny marketing strategy, but because Hermès turns down more skins than it accepts, such is the rigour of its quality control.

Hermès scarves, equally, of which two collections are released each year, are sewn and printed entirely by hand, each one woven from thread produced by no less than 250 mulberry moth cocoons. The more classic, and still predominantly horsey, designs are favoured by Queen Elizabeth II and Hillary Clinton, but that's never stopped the more obviously fashionable likes of Madonna and Sarah Jessica Parker sporting them.

And therein, perhaps, lies the ultimate secret of Hermès' success. While the vast majority of luxury brands have an image that appeals to a distinct customer base, the only link between one Hermès customer and another is that they are in possession of perfectly good taste and, of course, a disposable income to match. Hermès may be worn by the lady of the manor just as it might a young fashion designer, dressed always in battered jeans but in possession of an Hermès belt, say. While other designer bags and accessories come and go, anything designed by Hermès really is for life, destined to be handed down from generation to generation, just as the business has been for more almost 200 years.

Throughout the Seventies and Eighties, Jean-Louis Dumas radically extended and reinforced the presence of the Hermès Group across the globe until, by 1990, annual sales were reported at $460m. Dumas died last year, although he had passed the Hermès baton to Patrick Thomas, the first-ever outsider, four years before that. While the family claims it is united, just as the descendants of the Louis Vuitton family did before it, there are many more members than there used to be, and there's no guarantee that the next generation will feel as bullish.

According to the Financial Times, as of October 2010, a mere 0.1 per cent stake in Hermès was worth in the region of €18m. The company posted €289m in net income in 2009. It's small wonder, then, that Arnault is keen to remain in the frame. Should the family eventually loosen its hold, it would be nothing short of humiliating for Arnault were it to fall into the hands of any competitor.

"LVMH knows that it cannot do much without the approval of members of the fifth generation of about 15 people aged roughly between 65 and 75," HSBC analysts confirmed last month. "But LVMH is positioning itself for the sixth generation. While the fifth generation always said it wanted Hermès to remain independent, the sixth generation may think differently."

For his part, M Puech is unconvinced. "The sixth generation is extraordinarily committed and wants the maison to remain an independent, family-controlled firm." With aristocratic nostrils suitably flared, he said: "We are inheritors of values more than of money".

'La Maison', the photographer Koto Bolofo's pictorial account of the Hermès empire, is published by Steidl, priced £103; steidlville.com

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