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HERMÈS INTERNATIONAL SCA — EXECUTIVE MEMO

"Managing Scarcity: Maintaining Ultra-Luxury Positioning"

To: Management Committee From: Chief Executive Officer Date: June 2030

SITUATION

Hermès has become the ultimate ultra-luxury brand. Revenue up 50% since 2025, margins at 42%, ROIC at 32%. The company is benefiting from extraordinary wealth concentration driven by AI.

But extraordinary wealth concentration creates risks: political backlash, sustainability concerns, brand positioning challenges.

Our strategic task: maintain scarcity-based positioning while managing social/political exposure.

CURRENT STATE

Revenue: €13.8B (up 50% since 2025) Operating margin: 42% ROIC: 32% Boutique count: 310 (selective growth) Boutique revenue: €25M per boutique (up 39% since 2025)

KEY DECISIONS

1. Expansion Strategy - Option A: Aggressive expansion (1,000 boutiques by 2035); democratize ultra-luxury - Option B: Selective expansion (500-600 boutiques); maintain scarcity - Option C: Virtual/digital expansion (online exclusive collections); protect boutique positioning

Recommendation: Option B. Scarcity is the moat. Aggressive expansion destroys brand positioning.

2. Pricing Strategy - Annual increases of 5-7% (above inflation) create artificial scarcity - Risk: accusation of exploitation; wealth inequality backlash - Mitigant: sustainability/craftsmanship messaging

Recommendation: Continue pricing but amplify sustainability/artisanal narrative. 5-7% annual increases sustainable.

3. Product Diversification - Option A: Enter broader luxury segments (watches, jewelry, eyewear) - Option B: Maintain core leather goods/accessories focus - Option C: Ultra-niche positioning (bespoke services, art collaborations)

Recommendation: Option A/C hybrid. Expand selectively into watches/jewelry but maintain scarcity discipline.

BOARD APPROVAL REQUIRED

  1. Boutique expansion plan (400-500 by 2035)
  2. Pricing guidance (5-7% annual increases)
  3. Product line expansion (watches, jewelry, bespoke)
  4. Sustainability positioning (mitigate inequality backlash)

Confidential board memo