In a remarkable turn of events, Hermès has surpassed LVMH in market capitalisation, making it the most valuable company on France’s CAC40 index. This shift occurred on Tuesday when Hermès’ valuation briefly crossed €243.65 billion ($276.3 billion), edging out LVMH’s market cap of €243.44 billion. The luxury goods sector, historically dominated by LVMH, has seen a stunning reversal in fortunes, with Hermès now leading the pack.

This milestone comes after LVMH, the luxury conglomerate that owns brands like Louis Vuitton, Christian Dior, and Tiffany & Co., experienced a significant drop in stock value. LVMH shares fell by as much as 8.4% following disappointing first-quarter results, which reflected slowing demand, particularly in China and the United States. The combination of economic uncertainty, escalating trade tensions, and sluggish sales in key markets has significantly impacted the performance of LVMH, allowing Hermès to rise to the top.

The LVMH-Hermès Rivalry: A Long History of Tensions

The rivalry between LVMH and Hermès has deep roots, going back to 2010, when Bernard Arnault, the billionaire CEO and controlling shareholder of LVMH, made a stealthy attempt to acquire Hermès. Arnault quietly accumulated a significant stake in the luxury brand, prompting the Hermès family to unite and push back against the takeover. In a dramatic series of events, they eventually forced Arnault to sell his shares, marking a significant victory for the Hermès family and solidifying their independence.

This battle for control of one of the most iconic luxury brands in the world has been dubbed a "David vs. Goliath" story, with the Hermès family emerging victorious in their fight to remain independent. Fast forward to today, and the market capitalisation of Hermès reflects the brand’s resilience and strategic focus on maintaining exclusivity, a model that has clearly paid off in the current economic climate.

Hermès’ Resilient Luxury Strategy: Exclusivity and Scarcity

What sets Hermès apart from its competitors in the luxury goods market is its supply-constrained business model, which cultivates a sense of exclusivity and scarcity around its products. Hermès has been able to maintain its position as the leader in the luxury sector by offering products that cater to the wealthiest customers and by ensuring that the demand for its products far exceeds what’s available in stores.

Hermès bags, such as the Birkin (named after the late British singer and actress Jane Birkin) and the Kelly (named after Princess Grace Kelly), are prime examples of the brand's carefully curated exclusivity. These iconic bags, often costing over €10,000 in Paris, have become symbols of status and wealth. On the resale market, these bags can fetch much higher prices, further reinforcing their desirability.

Despite the global downturn in demand for luxury goods, Hermès has weathered the storm better than its competitors. By focusing on the ultra-wealthy and maintaining a limited supply, Hermès has managed to retain its pricing power while other luxury brands have struggled. The company’s commitment to high-quality craftsmanship, unique designs, and limited availability has created a cult-like following among its customers, further enhancing its appeal.

LVMH's Struggles and the Impact of the Conglomerate Model

In contrast to Hermès' focused approach, LVMH's diversified conglomerate model may be working against it. LVMH owns a wide range of luxury brands, including Sephora, a beauty retailer, which has lower profit margins than its flagship fashion and leather goods brands like Louis Vuitton. This diversification means that LVMH’s valuation is subject to broader market fluctuations, making it vulnerable to what analysts refer to as a “conglomerate discount”.

In its first-quarter results, LVMH reported disappointing sales, particularly in its fashion and leather goods division. Slower demand in key regions, particularly China and the United States, has compounded the challenges faced by the company. With trade tensions and potential tariffs looming, LVMH’s massive portfolio of luxury assets may be becoming more difficult to manage, causing investors to question its growth prospects.

The Hermès Family: A New Chapter of Wealth and Control

While LVMH’s Bernard Arnault frequently dominates the world’s richest lists, Hermès remains firmly in the hands of the Hermès family, with Axel Dumas serving as the current CEO. The family’s wealth is now estimated at around $171 billion, making them the wealthiest family in Europe. This contrasts with LVMH, where Arnault holds the majority of the controlling stakes.

The Hermès family’s control over the brand has allowed it to make strategic decisions that prioritize long-term growth and stability over short-term profits. The company’s business model—focusing on scarcity, exclusivity, and quality—has allowed it to maintain its luxury cachet while others have faltered.

The Future of Hermès and LVMH

Looking ahead, Hermès will continue to focus on its luxury strategy, ensuring that its products remain highly coveted and difficult to obtain. This exclusive approach will help the brand preserve its position as the most valuable luxury company globally. Meanwhile, LVMH will need to address the challenges posed by its broad portfolio and the pressures of a slowing global economy. Whether it can regain momentum in the luxury market will depend on how well it adapts to shifting consumer demands and external economic pressures.

Hermès' success is a testament to the power of independence, exclusivity, and controlled growth in an industry where competition is fierce and changing consumer preferences often dictate success or failure. For now, Hermès’ rise to the top signals the potential for a new era in the luxury goods market, where a focus on scarcity and high-end exclusivity may be the key to thriving in an increasingly uncertain global market.

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