Hermès not so big in Japan after VAT hike

  • @LauraHChesters

Japanese shoppers kicked their habit of buying Hermès silk scarves and Birkin handbags after a VAT hike hit the luxury goods company’s sales growth in the country.

The French leather goods specialist said sales in the region had risen 21.7 per cent in the first quarter before the VAT rise on 1 April. But the second quarter only saw a rise of 1.6 per cent, meaning overall sales growth in the first half was up only 8 per cent.

Sales for the Paris-based firm were also weaker in the US as a strong euro and fluctuating foreign currency hurt sales. US sales slowed to growth of 7.9 per cent, down from 17.9 per cent in first quarter.

Hermès’ second quarter sales advanced 5.8 per cent to €963m (£563m), below analyst expectations.

The first-half sales reached €1.9bn – up 12 per cent on the previous year and only 8 per cent higher when taking into account currency changes.

The company warned its first-half operating margin – which it will reveal next month – will be lower.

Hermès had previously benefited from restraining production – many of its most popular handbags are purchased via long waiting lists.

However, it has been slowly increasing its supply and the group opened two factories in 2012 in Isère and Charente and plans two new facilities in the Franche-Comté region where construction work has begun.

The leather focused group said Asian sales, excluding Japan, were strong – up 17 per cent – and it said it was “maintaining its dynamism, most notably in China.”

Over the first half, leather sales grew 13 per cent, ready to wear clothing and accessories rose 16 per cent, silk was up 11 per cent but watches fell 7 per cent due to the crackdown on gift giving in China.

Despite the issues for Hermès, the king of cashmere, Italian luxury brand Brunello Cucinelli, reported strong demand in the US and China this week. The cashmere sweaters and scarves group, which is listed in Milan, reported an 11.6 per cent rise in first half sales to €175.8m with growing demand in the United States and Asia.

But the gift giving restrictions in China has also hurt French cognac-maker Rémy Cointreau. First quarter sales fell 5.7 per cent to €214.8m.

Cognac sales make up 80 per cent of operating profit, with half of this coming from China, and the group said it was continuing its “de-stocking efforts in Asia” to match “consumption trends”. In contrast, sales at its spirits division rose 11.3 per cent.