Hermès can no longer be sold?

Hermès is also feeling the chill in China’s luxury market.

On October 22, Hermès released its third quarterly report for 2026 (as of September 30, 2026). The group’s single-quarter sales were 4.096 billion euros, a year-on-year increase of 4.3% at fixed exchange rates. According to statistics from Visible Alpha, this is the slowest single-quarter growth rate for Hermès since the beginning of 2020.

In terms of regions, the drag comes from the Asia-Pacific market (excluding Japan), which is dominated by the Chinese market. The revenue of this region in the third quarter was 1.65 billion euros, and the growth rate at fixed exchange rates was zero. Hermès CFO Eric du Halgouët said at the earnings conference call that the macro environment in Asia-Pacific (excluding Japan) continues to be under pressure, and the Chinese market, Hermès’ largest single market, is currently “very difficult.”

Looking at business segments, leather goods and horse gear are still the group’s growth base. In the third quarter, this segment’s revenue was 1.912 billion euros, a year-on-year increase of 10.8% at fixed exchange rates, and it was the only department to maintain double-digit growth. In the third quarter, ready-to-wear and accessories fell by 2% at fixed exchange rates, watches fell by 6%, and other sectors such as jewelry and home furnishings fell by 1.1%.

Hermès management attributed the decline in the ready-to-wear sector to the Chinese market. Eric Dualguet explained on the conference call that the sector is still growing in all other regions.

Why it “can’t be sold”

Why has Hermès slowed down in the Chinese market?

The first is the stratified changes in demand-side consumption. Hermès CEO Axel Dumas pointed out in the performance communication for the first half of 2026 that the Chinese market is clearly stratified: the brand loyalty of high-net-worth core customer groups is stable, while the spending of “aspirational consumers” who use entry-level models and accessories as consumption upgrades has shrunk.

To put it simply, growth mainly comes from repeat purchases from old customers rather than an increase in customer flow.

Tang Xiaotang, a fashion industry analyst and founder of Wufashion Chinese Network, told Interesting Report: “The pressure on Hermès in the Chinese market mainly comes from the middle class and the ordinary wealthy class.”

He said: “There has been no significant decline in the income of domestic residents, and the scale of deposits is still growing. However, a large number of household assets have been deposited in real estate. After the value of real estate has shrunk, residents’ expectations for future income have weakened. The so-called ‘aspirational consumers’ in the luxury goods industry are this part of the middle class and ordinary wealthy people, and they are also the main force currently leaving the traditional luxury market.”

Dr. Zhou Ting, a luxury goods expert and president of the Yaoke Research Institute, also believes that “when high-net-worth individuals’ future income expectations weaken and concerns about asset preservation increase, non-essential luxury goods consumption will be cut first.”

At the same time, Zhou Ting said that the aesthetic migration of the new generation of consumers is also an important reason. “Generation Z and young upstarts do not naturally agree with Hermès’ ‘old money’ image. They value more the contemporary nature of design and the expression of brand values.”

The second is from the supply side, and high-end competing products are being suppressed. Zhou Ting believes: “Chanel and LV continue to launch high-end handmade lines, hard cases, and top leather products to divert high-end customer groups. Hermès is no longer the only choice for the top market.”

Second-hand Hermès in Beijing’s “Super Zhuanzhuan” store. Photo/Photo by Wang Hanyi

It should be noted that Hermès is still a relatively resilient company in the industry. For comparison, LVMH’s third quarter report showed that its fashion and leather goods business fell 5% organically; Kering Group’s fashion and leather goods department fell 3% on a comparable basis in the third quarter, and core brand Gucci’s revenue fell 6% on a comparable basis to 1.291 billion euros. At the industry level, Bain predicts that the global personal luxury goods market will grow at only 2% to 4% in 2026, while the industry’s average annual growth rate from 2010 to 2022 will be more than 6%.

Tang Xiaotang also said: “The so-called Hermès is ‘unsellable’ in China is a comparison with the brand’s past high growth rate; viewed horizontally within the luxury goods industry, Hermès still has strong market resilience.”

Hermès in action

Facing the turning point in growth rate, Hermès is also adjusting.

On the supply side, we continue to expand leather goods workshops in France and lengthen the production cycle. The first quarter financial report disclosed that the 25th leather goods workshop in Loupes, France, was opened in April, and it plans to open three more between 2027 and 2030, located in Charleville Mézières, Colombelles and Les Andelys. Management stated that the goal of expanding production is to meet the stable demand for the leather goods category, rather than to quickly increase volume and eliminate scarcity.

On the channel side, we will maintain a renovation pace in our Chinese stores. In 2026, the renovation of the Sanlitun stores in Beijing and Taikoo Li in Chengdu will be completed, and the adjustments to the stores in Hong Kong, Taipei, and Kaohsiung will be completed. The channel strategy still focuses on direct sales, while promoting full-link digitalization. In terms of regional layout, resources are tilted towards high-growth markets such as the Americas and Japan, simultaneously consolidating South Korea’s position as the second growth pole in the Asia-Pacific and hedging against the pressure caused by stagnant growth in Greater China.

Hermès’ new store in Sanlitun, Beijing｜Source: Visual China

In terms of creativity, Hermès is betting on the fashion category for the next phase of growth. In January 2027, fashion designer Grace Wales Bonner will present the brand’s first men’s collection, and women’s creative director Nadège Vanhée will launch a Couture line.

As for how to judge the follow-up space of Hermès, Tang Xiaotang said that in the past, many consumers took the initiative to accept distribution and purchase ready-made clothing accessories in order to get popular bags. Now this part of the customer group who is sensitive to the distribution cost has chosen to quit and directly purchase spot goods at a higher price in the second-hand market to avoid store distribution rules.

“Even if the top rich are not constrained by the logic of distribution, ready-made clothing and accessories are part of routine consumption, and there is no motive for deliberately stocking up to get bags,” Tang Xiaotang added, “but the distribution mechanism used to be an important driver of sales of ready-made clothing accessories, but now this pull method is ineffective.”

Zhou Ting also said: “The distribution system is not only a moat in the past, but also a risk point in the future.”

Regarding what else the brand can rely on to survive the cycle, Zhou Ting pointed out that Hermès’ core moat has not disappeared. Core leather goods such as Birkin and Kelly bags are still in demand globally, and it still has four core assets as safety pads.

The first is brand equity. More than 180 years of historical accumulation, luxury mentality, and the symbolic value of Birkin and Kelly support pricing power and high gross profits. Short-term performance fluctuations are difficult to shake.

The second is customer assets, which have accumulated a group of high-net-worth repeat purchasers with high global loyalty. The allocation system has objectively completed the selection of customer groups. This part of the core customer pool is difficult to be quickly snatched away by competing products.

The third is supply chain assets. Leather raw materials, workshop layout, craftsman training, and quality control systems are barriers to long-term accumulation. Top-quality leather resources themselves are scarce, and this system is difficult to copy.

The fourth is creative assets. In recent years, Hermès has continued to invest in new styles of high-end jewelry, home furnishings, silk scarves, and leather goods. Creative reserves determine whether the brand can tell new stories and reach young consumers.

In Zhou Ting’s view, Hermès will undergo cyclical adjustments, but it will be difficult to be overturned.

Author: Wang Hanyi