Letter #165: Robert Chavez (2018)
Hermes of Paris President and CEO of the Americas | Lessons from Luxury Retail
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Today’s letter is the transcript of a conversation with Robert Chavez, Hermes of Paris, Inc. President and CEO of the Americas. In this conversation, Robert discusses Hermes’ retail insights and investment strategies, Hermes’ distribution strategy and survival in the retail industry, brand legacy, relevance, and innovation in the fashion industry, innovation, failure, and Hermes’ ecommerce strategy, and Hermes’ retail strategy and pop-up shops.
Robert Chavez is the Hermes of Paris, Inc. President and CEO of the Americas. He started his career at Bloomingdales, where he spent 10 years before being recruited to Macy’s by Rose Marie Bravo (who went on to be President and Chief Merchant of Saks Fifth Avenue and CEO of Burberry) just as it was heading into a leveraged buyout. He would spend six years at Macy’s and rise to President of Merchandising, leaving in 1992 when the company filed for bankruptcy. After leaving Macy’s, Robert joined Etienne Aigner to serve as President, where he oversaw a $100mn wholesale/distribution business with 500 employees. Eight years later, he left Etienne Aigner to become the President of Frederic Fekkai & Co., a French beauty and accessories business that was a joint venture between Chanel and Frederic Fekkai. But just two months after joining, a headhunter reached out and set up a meeting for Bob with Hermes’ Jean-Louis Dumas. Shortly thereafter, Bob was appointed CEO of Hermes USA.
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Transcript
Host: Good morning, everyone. How are you? We'll save some time for questions, so please submit via the Skift forum app, and ask away. I am so delighted to be here with my friend Bob Chavez, the President and CEO of Hermes, the Americas. Bob, for those of you who don't know him, is one of the most respected, one of the most successful executives in the luxury retail sector. And I was so grateful to have the opportunity, when Bob agreed to come on stage with us. At Skift, we like to bring new voices, we like to bring new perspective to the table. And today, we're going to hear some lessons--things that we in travel can learn from luxury retail. So Bob has been with Hermes for 18 years--I've known him for 10. And Bob has absolutely been crushing it during his time there. You'd be hard pressed to find many companies who year after year have double digit increases. Every time I asked Bob, How's business? It's like, It's great! And also, for the first half this year, revenues totaled $3.3bn, globally. Amazing. And the best is that the stock hit its record high in May this year. So speaking of investments, it's been said that one of the best investments to make is in a Birkin bag, which for those of you who don't know one, it's the best, it's on the top of my bucket list. But it's better to invest in a Birkin bag than it actually is in gold or the stock market. So Bob, but why don't we start there? If you could tell us a little bit more about what a Birkin is, and then more importantly, the breadth of products that you sell at Hermes.
Robert Chavez: Sure. Well, thank you, Carolyn. Your words are far too kind, but I appreciate it. Let me say that Carolyn has been here for three years and she's been asking me for three years to come, to come, to come. I finally couldn't say no to her because she said, I'm not taking no for an answer. So it's a pleasure to be here today. But yeah, just to talk a little bit about the Birkin bag, it was created in 1984. It continues to be one of our best selling products. Highly desirable. The demand is--continues to be much higher than the supply, which is why so many people talk about it as a great investment. But it's something that people continue to appreciate. And they know that it will continue to increase in value. But also it's something that you're going to pass on to the next generation and even the generation after that.
Host: Yeah, yeah. And so let's talk a little bit about retail. You sell everything at the world of Hermes. You're selling everything from saddles all the way to perfume, scarves, and--I was in the store in Las Vegas and I saw like a $70,000 couch, which by the way, was amazing. But let me ask you about the brick and mortar part of the business, the retail part. I mean, you just hear nightmare stories that just--brick and mortar retailers trying to survive. And yet, in contrast, Hermes, you have all these--I think you have over 300 boutiques now.
Robert Chavez: Worldwide, yes.
Host: And you have so many more in the pipeline. So you're doing something right there. So the question is, What are you doing right in brick and mortar that keeps your business vibrant and fresh? And is there something that we in travel can borrow a page from?
Robert Chavez: I would say first and foremost, we have a very limited distribution strategy. Especially if you look here in the United States. In the US we have only 30 stores, including our website. So people talk about limited distribution, but in today's world, with all the connections, on internet, you can't fool people anymore. So they know whether you're being authentic and truthful, or not. Our strategy of keeping a very limited distribution has really worked very much in our favor. People want things that not a lot of people can get. I mean, that's what it's like in the in the luxury world. And continues to hold true. Once something becomes very, very saturated, then that luxury customer doesn't really want that anymore. They want something that's a little bit more special, it's a little bit more unique. And that's definitely worked in our favor, by keeping our distribution very limited. The other thing that we have not done, like most of our competitors, is you will not find Hermes shops inside of other department stores. You see a lot of luxury brands that have shop at shops in Neiman's and Nordstrom and Saks. We made a strategic decision about 15 years ago that we did not want to be in that business. It made people a little bit nervous at first about what were we going to be doing to our strategy, but it's worked very, very much in our favor. And the best example I would give is, if you all remember what happened 10 years ago, that holiday season of 2008 was a complete disaster. And I remember walking into some of these department stores, and I saw luxury brands sitting inside of tub tables with 50% signs off of them. And we were spared that debacle--only because we had already decided not to be in that business.
Host: You don't go on sale, do you? Like, that's lile, the naughty four letter word.
Robert Chavez: No, it's very, very rare. We do have some exceptional sales--it's only once a year and the location changes. So we sort of keep everybody wondering and scrambling. But it's really just once a year, and believe me, people will fly in from all over the world once they find out where that three or four day sale might be.
Host: Maybe by the end of the conversation we can get the date and location. We won't tell anyone, right? How do you manage to keep a 180 year old brand so modern? I mean, you have so much heritage, and--I think that's--it's not even modern, in your case. I mean, you're like eternally hot. So what advice can you give to the legacy travel brands? How can they stay contemporary? You have like one foot back in your heritage, but how do you contemporize the brand? And do you think it's a function of innovation? Is it a function of marketing? Or is it something else?
Robert Chavez: I would say it's a combination of several things. First and foremost, it's really about relevance. And I know, particularly in your industry, when you look at all the things that have changed businesses so drastically. I know Chip was with Airbnb--I just met him for the first time backstage. But when you look at how new businesses or disruptors are changing businesses, the most important thing that we think about all the time, is the relevance. That we cannot become irrelevant in a fast changing retail world. The retail world is changing very, very quickly. So how do we do that? That distribution is still very, very important to us. If you look at dotcom, the only authorized site for Hermes products is hermes.com. You can find Hermes products all over the internet, yes. But are they real? Are they reused? You have no idea where they've come from. So that's part of that limited distribution again. But it's really all about how do we stay relevant in the fast changing world? Another element for us is really product. We change our products--we have plastics, of course, but every six months, our store directors--every store director from all over the world--goes to Paris twice a year to buy the next season's product. So why do we do that? Very few companies will send 300 individual store directors to Paris to buy for a week for their store. We do that because we believe that the store director is going to know their client much more intimately than anybody else is going to know that client. So they will actually buy things specifically for their client base. What we sell in Beverly Hills is very different from what we sell in Boston, is different from what we sell in Tokyo, or in Mexico City. And our customers--our loyal customers have come to realize that. So if you go into Hermes, and you find either a handbag or a scarf or a tie in a certain color, you know that you probably should buy it because the next store that you visit, the next city that you visit, you may not find that color, you might find that design, that you may not find that color, because it's a different market. So product innovation, product development is something that has also been very, very key to our success. As well as introducing new products. We came up with a product called the Twilly. It was a little thin strip of of silk. It came out about maybe eight years ago. We all sort of scoffed at it, thinking who's gonna buy a little thin piece of silk instead of buying the regular Hermes scarf? Today, it's probably one of our top selling recruitment items, because it brings the next generation into Hermes. And then they graduate from there.
Host: Yeah, you spoke about innovation, and the other side of innovation is failure. Is there anything that you've done that just didn't work?
Robert Chavez: Yeah, there's several things that we've done that didn't work. One was, we were introducing chocolates about 15 or 16 years ago. That died after about the first week, so we don't--Okay, we're not going to be in the chocolate business. We've had some locations which haven't done well. In my 18 years here, in the US, we opened a store in Charlotte, North Carolina. Nothing against Charlotte, North Carolina, but after 10 years, we were still stuck at a certain level. And we realized that the market really wasn't ready for us. On the same hand, we've had other markets that have continued to thrive. And then there are other products that we've introduced that have not been successful. But if you don't fail, then you're not learning.
Host: True, true. Very true. So you've been really successful segwaying into ecommerce. I think you were one of the very first luxury brands. in the early 2000s, to come out with your digital site. And you would think that would be really difficult for an ultra luxury brand to come forward with this really bold ecommerce strategy. Can you offer insights on this strategy and how you made it work for a brand like Hermes?
Robert Chavez: Sure. We actually introduced our website in 2002. And we were one of, if not the first luxury brand, to sell online. And we did it for several reasons. One, we wanted Hermes to be more accessible and more approachable. One of the things that we realized is that when many of our clients came into the store for the first time, there was a big intimidation factor. Number one question at holiday time--and I learned it because I spend time behind the counters at every holiday season--to me, it's very important to know what's happening in the market and what are the customers saying or asking for? Number one question at the scarf counter every holiday season was--they would whisper, How much are the scarves? They were a little embarrassed to ask the price of the scarves. So we thought that this would be a great way for us to communicate the price so the clients didn't have to walk in and embarrassingly ask How much are the scarves? Or, So what are you asking for them this year? Those were very typical questions. So number one, is it was informational for customers. Number two, we also made it whimsical. I don't know if you remember our initial website, but we didn't--our whole theme was, Don't take ourselves seriously. So we had small drawings, we had caricatures. We made everything much more whimsical, funny, and friendly. And people were very surprised. They didn't expect to see that. They didn't expect to see that element of Hermes online. And we sort of continued with that strategy for several years. And we still do that today. We said, How do we make ourselves more approachable? And again, not take ourselves so seriously. And it's worked. Today, our internet business is our fastest growing business. We relaunched our website last year, only to make it more--it's--don't laugh--it's mobile first. I know that it takes us a little bit longer than everybody else, but once we went mobile first last fall, the business just skyrocketed.
Host: I love the one thing you can't buy online though, is the Birkin bag.
Robert Chavez: No. You cannot. You gotta keep people--give them reasons to keep coming into the store.
Host: So, Hermes is the gold standard in luxury. And when you walk into an Hermes store, the service isn't good, it's not great. It's like, beyond. Its impeccable. So how do you train your people? Like in travel, we have hospitality schools. How do you train for that job? What do you look for in talent?
Robert Chavez: Well, I would say, the first thing that--it starts with the hiring process. And one of the things that we always say at Hermes is that we can teach you everything about the product, we can teach you everything about the history, we can teach you everything about the company. We cannot teach you how to smile. So if in the interview you're not smiling, already, you're not going to get the job. Because that's a key part of the type of people that we're looking for. In terms of the training and the development, it's really about immersing our team in the culture of the company. So we have all types of programs. We have product development and training programs, we have selling and service programs. We send people to Paris for intensive training. The session that I talked about, the 300 store directors that go to do the buy. We select a group of salespeople that go to actually sell to these store directors. So when they get to Paris, they're actually selecting the merchandise. So somebody has to be their salesperson there in Paris. So that gives people the in-depth training inside of the product, and also understanding how it is that that buying process works. And then they come back, and we have a lot of what we call Train the Trainer programs so that they can then go out and train their fellow colleagues in the store. So it's multipronged, and it's an ongoing program that we continue to do more and more depending on the tenure of the person that's been with the company.
Host: So you grow your own, smile first. Anyone interviewing, smile when you go into the Hermes interview. So, you'll see other luxury brands like Bulgari and Armani that have transferred their cachet into hotels. Will I be sleeping in Hermes soon?
Robert Chavez: No, you won't be sleeping in an Hermes hotel soon. We continue--you asked me what part of our success is--it's just staying focused on our core business. Has the subject come up? Yes, it's come up many, many times. We've had many, many offers from many companies to partner with them. But it's not our core business. And once you start to stray from your core business, we think you take the focus off what it is that you do best. And again, going back to that staying relevant, we don't think it's the right place for us.
Host: Excellent. So let's take some questions from the audience.
Robert Chavez: Sure.
Host: So the first question: do you see travel as a competitor as younger generations invest more in experience instead of things?
Robert Chavez: I wouldn't say that we see travel as a competitor. Because for us, our customers base is a--their travelers. And they love to come visit us wherever in the world that that we are. We see it more as an opportunity almost. And I know we talked about this earlier at our breakfast a couple of weeks ago, but one of the things that we have to offer is that we would love to welcome your clients into our stores. All you have to do is let us know that they're they're coming, or let them know that Hermes is there. But we'd love nothing more than to give your top customers a private appointment. We'll see them at eight o'clock in the morning, we'll see them at 6:30 in the evening. So for us, it's not really a--we don't view it as competitive. We view it more as an opportunity.
Host: Excellent. So, private appointments. I like that. So, how much is the scarf? Is it the Twilley, or is it the regular scarf?
Robert Chavez: No, the regular classic scarf is--
Host: Did you bring any to sell? To the audience?
Robert Chavez: No, I did not bring any to sell. $395 is the price of the scarf, yes. Going up next year. So if you're going to shop for one, you better get one for holidays.
Host: If buy now, you can get this deal in the next 48 hours. I want to ask you this question: How do your pop ups help you stay relevant? Because in fact you have a pop up right now, down in Soho. And I love the strategy behind it, if you could just share it.
Robert Chavez: Yes, so we have two types of pop up shops. One, this is the first commercial pop up shop that we've done. It's in Soho on Green Street. It's only footwear. It's only men's and women's footwear. Why did we do that? We did it as a recruitment. Footwear has become a recruitment category for us in a very, very big way. It's one of our fastest growing businesses. We are opening in the Meatpacking District next year in April. So our strategy was to introduce Hermes into the downtown market. We are picking up a lot of new clients who are visiting us, people that would never shop up on Madison Avenue. And by capturing their names, we're letting them know that we will be opening in Meatpacking in the spring of next year. And we will invite them all back to come in and enjoy us. The second type of pop up that we've done is really experiential pop up. We just did one a couple of weeks ago in the Meatpacking District. And it was called the Carre Club, carre meaning scarf or square in French. And it was really only for four days. And it was really an experience where we brought six of our designers, our scarf designers, who came from Paris, and actually were drawing illustrations or coloring in a specific drawing of a scarf. So if you had a favorite artist or you had a favorite design, you could come and meet this artist. And it was overwhelming the amount of people that we had there. We put a little cafe in, we put in a small shop. You could be photographed wearing a different silk. And we also had what we called a "Carre-oke" area where a lot of people were filmed singing crazy, crazy songs. But it was really just to engage, and to again, go back to that feeling that--how do we make Hermes more approachable? That was the most important thing for us.
Host: So I think everyone wants to know--next year at a global forum, will you do a pop up here, at our forum? Anyway, Bob, the time ran out way too quickly. I have so many more questions for you. But thank you so much for joining us.
Robert Chavez: My pleasure.
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