0:00

So I don't know if you realize

0:02

this, Hermes is reporting earnings in like

0:04

two days. Yes. And at first I was like, we

0:07

should probably not do this episode because their

0:09

annual report comes out in two days. What

0:11

if we're not current? And then I realized

0:13

this is Hermes. The short term is of

0:15

no consequence. Yeah. Also

0:18

the Hermes annual reports are

0:21

the most beautiful annual reports

0:23

ever created in the history of the

0:25

financialization of mankind. You might think you

0:27

can't do all of your charts in

0:30

orange. You need different colors, but you

0:32

would be wrong. The

0:34

illustrations, the themes, you

0:36

can tell they care. You can tell. All

0:39

right, let's do it. Let's do it. Who

0:41

got the truth? Is

0:44

it you? Is it you? Is it

0:46

you? Who got the truth now? Is

0:49

it you? Is it you?

0:51

Is it you? Sit it down,

0:53

say it straight. Another story on

0:55

the way. Who got the truth? Welcome

0:58

to season 14, episode two of

1:00

Acquired, the podcast about great companies

1:02

and the stories and playbooks behind

1:04

them. I'm Ben Gilbert. I'm David

1:06

Resenthal. And we are your hosts. Today,

1:09

we tell the story of a handbag

1:11

company that won't sell you a handbag.

1:13

A traditional saddle maker that makes very

1:16

little of their revenue from saddles. A

1:18

company that somehow has grown to be worth

1:20

over $200 billion, despite

1:23

rejecting manufacturing efficiencies and

1:25

economies of scale. A

1:28

company so obsessed with craft and

1:30

a reputation for quality that they

1:32

have stayed independent while every other

1:35

luxury brand has merged into conglomerates.

1:37

That's right, listeners, today. We

1:40

tell the oldest story we have ever told

1:42

here on Acquired, older than Standard Oil or

1:44

the New York Times. This company dates

1:46

back to 1837 in Paris, France. The

1:51

crown jewel of the luxury industry,

1:53

Hermes. Ben, do you

1:55

know what company was also

1:58

founded in 1837? that

2:00

we have discussed quite a bit on

2:02

acquired. Hmm. No, I

2:04

do not, David. That would

2:06

be the other iconic color

2:08

luxury company, Tiffany. Oh,

2:11

really? Also founded in 1837. Chuck

2:14

T. Well, this episode,

2:16

listeners, has been probably just under

2:18

12 months in the making. LVMH

2:20

was just after one year ago.

2:23

And it was in that episode that I feel

2:25

like I got a real penchant for everything that

2:27

Hermes stood for. After 187 years,

2:30

still under family control. They're on

2:32

their sixth generation of family leadership

2:34

at the helm. David,

2:36

everything Hermes does is just so

2:39

focused and intentional and pure,

2:43

as much as they get lumped together

2:45

with brands owned by LVMH. They are,

2:47

in many ways, the anti-LVMH. Oh,

2:50

we've got a great discussion of that later in the

2:52

episode. I used to think that, and I no longer

2:54

think that. But after our

2:56

LVMH episode, you were so inspired by learning

2:58

about Hermes, you went out and you bought your

3:01

first luxury object. It was not an

3:03

LVMH brand. Yes, that is true. My

3:05

wife and I were on our honeymoon,

3:07

listeners, after LVMH the last summer. And

3:10

we were in Aix-en-Provence. And we walked by an

3:12

Hermes store. And I thought, would this be a

3:14

great time to go in and get each other

3:16

something as a honeymoon gift? My

3:18

wife got a little twilly scarf. I got

3:21

an Hermes belt. And it's

3:23

the only luxury item I own

3:25

of any luxury brand, traditional luxury

3:27

brand. As foreshadowed on

3:29

our holiday special episode a couple of months ago.

3:32

Well, listeners, if you want to know every time

3:35

an episode drops, you can sign up at

3:37

acquired.fm slash email. You'll get hints at what

3:39

the next episode will be, and follow up

3:41

facts from previous episodes when we learn new

3:43

information. Come discuss this episode

3:45

with us at acquired.fm slash Slack. Come

3:47

check out our second show, ACQ2, where

3:51

we interview founders, investors, and experts, often

3:53

as follow ups to these episodes. And

3:56

before we dive in, we want to briefly

3:58

share that our presenting sponsor this season. is

4:00

JP Morgan, specifically their incredible payments business.

4:02

Yeah, we really uncovered the breadth of

4:04

JP Morgan payments as we went deep

4:06

into industry research for our visa episode

4:08

last year. And just like how we

4:10

say every company has a story, every

4:12

company's story is powered by payments. And

4:14

JP Morgan payments turns out to be

4:16

a part of so many of our

4:18

acquired companies' journeys. So with

4:20

that, the show is not investment advice. David

4:23

and I may have investments in the companies

4:25

we discuss, and this show is for informational

4:27

and entertainment purposes only. David, I

4:29

feel like we're starting before 1837. Yes,

4:32

but not too much before 1837. All

4:34

right, we're not going to like the sort

4:37

of Egyptian invention of the handbag or anything

4:40

like that. Boy, let me tell you, I was tempted.

4:44

Well, if you read the luxury strategy, which

4:46

is great book that we've referenced many times

4:48

on acquired, they start back 50,000 years ago,

4:51

we start in 1801, not

4:54

in Paris, not even in France. You know,

4:57

as we've been talking about the land of

4:59

beauty, luxury, enlightenment,

5:01

where Hermes, of course, was founded

5:03

and is still based today. And

5:06

uniquely, Hermes still does 85%

5:09

of their production by hand by Master Crafts

5:11

people in France, as we will talk a

5:13

lot about. But instead,

5:15

we start in the land of

5:18

hardness and precision, of

5:20

engineering of exactitude, the

5:23

future land of the Porsches of the

5:25

world that is right, Germany.

5:27

A century before the Porsches and

5:29

Volkswagens of the world. Yes.

5:32

Where Thierry Hermes was born in the

5:35

town of Crefield, which is just outside

5:37

of Dusseldorf, where he's

5:39

the sixth child of a family

5:41

of innkeepers. So Hermes, is

5:44

that a German name, a French name?

5:46

Hermes is obviously not a German name.

5:48

I mean, even I know that. Thierry's

5:52

father was French and

5:54

his mother was German. And

5:57

shortly after Thierry is born, he was born in 1801.

6:00

something pretty major

6:02

happens in France and then

6:04

throughout continental Europe that will become very

6:06

very important to our story here and

6:09

that is that Napoleon comes to

6:11

power in France. I mean

6:13

this is the era we're talking about

6:15

here like Napoleon. We finally did it

6:17

here on Acquired. Your AP European history

6:19

class has now merged with business history

6:22

or cover in Napoleon. He is critical

6:24

to what is about to happen here.

6:26

So in the aftermath of the French Revolution

6:29

Napoleon essentially stages a coup, declares

6:31

himself Emperor, first of France, and

6:33

then he basically begins conquering

6:36

all of continental Europe including

6:38

Germany. Now this

6:40

Napoleonic conquest was at

6:43

the same time both the very best

6:45

thing that could happen to young Thierry.

6:47

I mean it leads directly to Hermes

6:50

but also the very worst

6:52

and truly worst is all

6:54

this conquering this glory of France that we're going

6:57

to talk about becomes important to Hermes. That's

6:59

the result of war. So Thierry's

7:01

entire family, his parents, his mom,

7:03

his dad, all five of his

7:05

siblings, they are all killed either

7:08

directly in the Napoleonic wars or by disease

7:10

and famine as a result of this. I

7:12

mean absolutely terrible and

7:15

the result is that Thierry by the

7:17

time he's 20 years old he's an

7:19

orphan. He is the last Hermes left.

7:21

So David 1821, you know

7:23

pretty rough time out the world. Do you

7:26

know who was born in this year 1821 and was also

7:28

an orphan? Oh we have talked about

7:33

them unacquired. Obviously not

7:35

Rockefeller which is where my mind first went because

7:37

we talk a lot about his dad. Yep Louis

7:41

Vuitton himself. Ah ha

7:43

ha he will also come up here in

7:45

a minute. 20 years younger than Thierry Hermes

7:48

but also an orphan. Wow I didn't know

7:50

he was also an orphan. Yep. Wow

7:52

it's just crazy. Two orphans,

7:54

one of whom was German, go

7:57

on to found the two most important most

8:00

French, most luxurious brands

8:03

and really communicators of status in

8:05

the modern world. That's wild. Yeah,

8:08

especially crazy considering they both came

8:10

from nothing. These people who would

8:12

create the monikers of the elite,

8:15

of what would go on to

8:17

be the symbols of wealth and

8:19

nobility, came from nothing

8:21

and were orphans and at

8:23

their greatest aspirations were craftspeople

8:25

for the elite, their own

8:27

servants. Yes. So

8:30

in 1821, Thierry leaves

8:33

Cranfield, leaves Germany. He

8:35

abandons his original kind of destiny as

8:37

an innkeeper and he moves to France,

8:40

not to Paris, but to Normandy

8:42

in the north. And there, he

8:46

becomes an apprentice under

8:48

a master craftsman learning

8:50

the art of écupage

8:52

craftsmanship. Now, écupage is

8:54

the business of outfitting

8:56

horse-drawn carriages. And

8:59

who were the customers of horse-drawn

9:01

carriages, Ben, like you're talking about?

9:03

The nobility. The nobility. Horses

9:06

were extremely important to the world back

9:08

then. The horse was the car. It

9:11

was the Ford F-150. It was the

9:13

Toyota Camry. It was also

9:15

the Rolls-Royce that drew the carriage.

9:18

And only the Rolls-Royces were the

9:20

carriages. So when Thierry

9:22

moves to Normandy and takes up his

9:24

apprentice, he apprentices

9:27

for 16 years. Wow.

9:30

And it's not until 1837 that he finally moves to Paris

9:34

as now a master

9:36

craftsman and opens up

9:38

his own shop in Paris on the

9:40

Rue Bass du Rompart in

9:42

the 9th arrondissement, which that

9:44

whole street today no longer exists.

9:47

And there, he establishes himself

9:49

as really quite

9:51

an exceptional harness maker for

9:54

horse-drawn carriages. Now, it's

9:56

kind of unclear to me at this point if

9:58

he's using the famous... Saddle stitch,

10:01

which becomes so important to

10:03

Hermes. And the reason it's unclear to me is

10:05

because he's not making saddles. Saddles

10:07

are what other people are making. It's

10:10

not that the nobility don't ride

10:12

horses. They do. But

10:14

they ride horses like the elite

10:16

today drive a Ferrari. It's

10:18

not something they do every day. Right.

10:20

Their daily driver is a Bentley because someone

10:23

else is driving them and they have a

10:25

Ferrari for when they occasionally want to drive

10:27

a Ferrari. They'll climb in a saddle occasionally,

10:29

but mostly they're in the carriage. Yeah. So

10:31

when Thierry arrives in Paris in 1837, he

10:34

pretty quickly starts becoming known as

10:37

really the best harness

10:39

maker and carriage outfitter in

10:42

Paris serving the nobility, which

10:44

is pretty impressive. I mean, here he's this

10:46

immigrant from Germany, apprenticed in Normandy. He shows

10:48

up in Paris and all of

10:50

a sudden he's making the best stuff out there.

10:53

Turns out he was just really good at the

10:55

craft. And he

10:57

had exceptionally good timing. We

11:00

spoke about Napoleon a little bit earlier.

11:03

When Thierry finally comes

11:05

to Paris, at this point, Napoleon I

11:07

has been defeated. The Battle of Waterloo.

11:09

That was 1815. France

11:12

has now seesawed through like a

11:14

whole bunch of different republics and the monarchy

11:17

comes back and, you know, it's crazy French

11:19

history stuff. But shortly

11:22

after Thierry returns, Napoleon's

11:25

nephew, Napoleon III,

11:27

stages another coup and

11:30

re-establishes the empire in France. And

11:32

this is super important, Ben, to what

11:34

you were talking about earlier about, hey, this

11:36

guy's an orphan. Louis Vuitton was an orphan.

11:38

How did they become so important? When

11:41

Napoleon III comes to power in France,

11:43

he does two things. One,

11:45

he completely modernizes

11:48

the city. So if

11:50

people have heard of the Baron Osman

11:52

who kind of rebuilt Paris, that happens

11:54

at this time under Napoleon III. They

11:57

transform Paris from a city. medieval city

11:59

with super tight streets. Like if you

12:01

go up to Montmartre, those streets around

12:04

there, that is old Paris. But what

12:06

do you think of the Eiffel Tower,

12:09

the museums, the Grand Boulevard,

12:11

the Champs-Élysées, that's happening right

12:14

at this time. And

12:17

the Baron Osman, he's

12:19

kind of like Robert Moses was in New York

12:21

in the mid 20th century, remaking New York. He

12:24

is given full latitude and

12:27

direction by Napoleon III to

12:30

burn Paris to the ground and

12:32

remake this city as a modern

12:34

city. Fascinating. And

12:36

this is super important for Thierry and

12:38

Hermes for two reasons. One, in the

12:41

old medieval streets in Paris, not

12:43

that many people were going up and

12:46

down them, not that many people were

12:48

gonna see the nobility in their carriages

12:50

in all their finery. Now you've

12:52

got the Champs-Élysées, the Grand Boulevard,

12:54

everything about the sort of gallantry

12:56

of Paris that we know today.

13:00

And it's all on display now. So this

13:02

becomes really important for showing off, for

13:04

signifying your wealth, your status. The

13:07

other kind of related thing here that

13:09

happens with Napoleon and Napoleon III is

13:12

that status is no

13:14

longer just about what you were

13:16

born into. In the

13:18

old system, the nobility, the royalty, it was

13:20

like, look, you're born noble or you're not.

13:22

And it's kind of independent of how much

13:24

money you have or what you do or

13:27

what influence you have. And

13:29

then under Napoleon, he brought in this

13:32

modern idea that you could shift your

13:34

class. I mean, he was essentially a

13:36

nobody and he became the emperor of

13:38

Europe. That'll completely upset the mindset of

13:40

people. Yeah, so all this

13:42

is happening. This is the best

13:44

thing that could ever happen to Thierry. He's

13:47

the best artisan,

13:49

most exclusive crafter of

13:53

carriagewear, of a cepage. The

13:55

city is being transformed so that this

13:58

can all be displayed prominently. socially

14:01

stratifications are becoming more blurry.

14:03

People can spend money for

14:05

the first time to buy

14:07

status. Great for business. These

14:10

are like the disruption waves that

14:12

enabled him to create a business.

14:15

Yes, before all this, before this

14:17

era, there's no way that this evolves

14:19

into Hermes or honestly that Louis Vuitton and

14:21

what he's doing with luggage and with trunks.

14:24

There's no way that that evolves into Louis

14:26

Vuitton. So speaking of, both

14:29

Hermes and Vuitton have

14:33

one really important client,

14:36

a key influencer, so to speak, that

14:38

they both land at this time. I

14:41

remember Louis Vuitton's key client was

14:43

the Empress Eugenie. Is Hermes the

14:45

same client? Yes, the

14:47

same client. So Napoleon III's

14:50

wife, the Empress Eugenie, becomes

14:53

a client of

14:55

both of these men. For her

14:57

carriages, in the case of Hermes, and

14:59

for her luggage and for her trunks, and

15:01

actually I think also for her packing.

15:03

I think Louis Vuitton was the royal laitier,

15:06

I believe, and he packed the trunks. He

15:08

was the luggage guy, Hermes was the carriage guy.

15:11

Which is so funny because that is still in

15:14

some ways both of their legacy today. Yes,

15:17

absolutely. Eugenie and everything going on

15:19

at this time makes

15:21

Louis Vuitton and makes Thierry

15:24

Hermes. But it's

15:26

interesting, right? Vuitton and

15:29

luggage, that is inherently

15:31

of the world that's coming, the modern

15:33

world. The train, that exists at

15:35

this point in time, steam engines are a

15:37

thing, and then the car is about to

15:39

come. And Louis Vuitton and

15:41

trunks and luggage, it all translates directly. Right,

15:43

it's sort of built for the upcoming world.

15:46

Yes. Not the case

15:48

with Hermes. And actually

15:50

today, I think this is one of

15:53

the biggest strengths of

15:55

Hermes, and they still, you know, the

15:57

Equestrian theme, the horse, is

15:59

so much. of their brand, they talk about it

16:01

so much of their products, the saddle stitching, it's

16:04

calling back to that

16:07

other era, like that pre-modern

16:09

era where the horse was primary.

16:12

Right. Hermes is deeply rooted in

16:14

French history and Parisian history and

16:17

really a key part of how

16:20

France as a nation has

16:22

the identity that it has today. But

16:26

it would all be irrelevant if

16:28

the brand didn't translate out of the horse

16:30

era and into the car. Which

16:33

was not Thierry Hermes is doing, nor

16:36

was it his son's doing. So Thierry

16:38

dies in 1878 and

16:41

his son Charles Émile takes

16:43

over. Now he

16:46

apprenticed coming up in the shop

16:49

in exactly the same way that

16:51

Thierry apprenticed. He just apprenticed for

16:53

his dad. So by the time

16:55

he takes over, he's been working in the shop

16:57

as a craftsman for 20

17:00

years. And by

17:02

the way, this sort of family

17:04

tradition and way of business

17:07

continues to this day. So

17:09

Axel Dumas and Pierre-Alexi Dumas, who

17:11

are the two descendants of Hermes,

17:14

the sixth generation that are running

17:16

the company today, Axel is the

17:18

CEO and Pierre-Alexi is the artistic

17:20

director. They apprenticed in

17:22

the business. When they were teenagers

17:24

for five years after school, they

17:27

went to the atelier, they learned the

17:29

saddle stitch, they made bags, they made

17:31

items with their hands. Now

17:34

obviously they also sort of learned the business

17:36

from their parents, but they're not

17:38

learning the business the way that there are

17:40

no children are learning the business at LVMH

17:42

as executives. They're learning with their

17:45

hands as craftspeople how to make this

17:47

stuff, which is wild. Axel is the

17:49

CEO of a $200 billion plus

17:51

company. It's crazy. And to bring it back

17:53

to the late 1800s, I think the

17:55

point you're making here is when

17:58

Charles Emile was apprenticing, There

18:00

was no other example of what

18:03

this company could become. So he thought,

18:05

why don't I carry it on in

18:07

exactly the same manner, Thierry, that you

18:09

did? And so there's not this grand

18:12

ambition to innovate and change with the

18:14

times. It's, well, how do I learn

18:16

exactly your craft, exactly the way you

18:18

do it, and then continue that? Right.

18:21

The business and the craft are intimately

18:24

intertwined. They cannot be separated. And

18:26

this is a playbook theme I want to pull all

18:28

the way forward. But it's so critical to

18:31

understand about Hermes and what really,

18:33

in my mind, differentiates it

18:35

from LVMH. LVMH,

18:37

as we talked about on that episode,

18:40

has world-class, best-in-the-world

18:42

business executives who

18:45

partner with world-class, best-in-the-world

18:47

creatives. At

18:49

Hermes, these are not different

18:52

people. Now, obviously, there is a

18:54

different CEO and artistic director that are both

18:56

members of the same family and who are

18:58

cousins. But in spirit,

19:00

they're cut from the same cloth and

19:02

they apprentice as

19:04

creative craftspeople, and

19:07

they collectively and the family is

19:09

in charge as much of the creative side

19:11

of the house as they are of the

19:13

business side. Yeah, makes sense. So

19:16

back to Charles O'Mearle and the second generation.

19:18

He finally adds saddlery to the

19:21

business. That's his big expansion. He

19:23

adds saddles. Ba-da-na! Ba-da-na!

19:25

Which, again, like as Paris is modernizing,

19:27

as you can now buy

19:30

your way into status, for

19:32

the first time in Paris, you can

19:34

be seen riding in addition

19:36

to carriages. And the

19:38

ideal of what it is to be a

19:41

noble person or a noble person of status

19:43

has changed. It's no longer just,

19:46

oh, I'm a leisurely courtier. It's

19:48

like, no, I'm Baron Osman. I

19:51

am doing things for the

19:53

state, for the country I'm doing big things. It's kind of

19:55

like American in its way in

19:57

the Rockefellers. Right. You're not just famous.

20:00

for being famous. You are famous because you've achieved

20:02

something or you're in the act of achieving something

20:04

or you hold a high office in which you

20:06

were elected or appointed to get a specific goal

20:08

done. You're on the move. You got stuff to

20:10

do and you know, you got to get there.

20:12

Exactly. And you need a saddle for that. So, Charles

20:15

Emile, he adds saddles. And in 1880,

20:18

he moves the workshop in the store

20:20

to Venkat, Rue du

20:23

Fauxberg-Sainte-Honoré. 24, Rue

20:25

du Fauxberg-Sainte-Honoré in the 8th

20:27

Aérendissement of Paris. The

20:29

famous address. The building that is

20:31

today known as Le Fauxberg by

20:34

everybody in the Hermes universe. This

20:37

street and this location is one of the most

20:39

iconic streets in the world, buildings

20:41

in the world, headquarters in the world.

20:43

It was stunning to walk it last

20:45

summer when I was there. You can

20:48

feel the presence of Hermes

20:50

and all the other brands that are

20:52

there. Yeah, the Rue du Fauxberg-Sainte-Honoré is

20:54

where the French presidential residence

20:56

is. It's where the British

20:58

embassy is. It's where French Vogue is today,

21:01

probably because Hermes is there and because

21:03

all of the other luxury flagships are

21:05

there. So, Charles Emile runs

21:07

the business for 25 years. He

21:09

adds saddles. He moves the

21:11

company to the Fauxberg. And

21:14

then in 1902, he

21:16

retires. And his two

21:18

sons, Adolph and Emile,

21:21

who have apprenticed in the business just like

21:23

him, just like every generation will do for

21:25

many generations to come. They

21:27

take over and they change the name of

21:30

the company to Hermes Frere. Hermes

21:32

Brothers, because the two brothers are

21:34

now running the company. And they're going to do this

21:36

forever together. And they're going to be thick as thieves.

21:39

And they are of one mind on how this

21:41

company should go. They've been apprenticed together. They're going

21:44

to be like, Accel and Pierre Alexei today. Well,

21:47

of the two brothers, I think it is fair

21:50

to say that Emile, who I believe is

21:52

the younger brother, is the sort

21:54

of much more ambitious and much more

21:56

adventurous one. There's this great

21:58

story that in the late... 1890s,

22:01

so before his father Charles Emile retires,

22:03

the young Emile sets off to

22:06

conquer Russia for Hermes. He literally

22:08

like gets on a train with

22:10

a notebook and a suitcase filled

22:12

with miniature versions of the saddles

22:14

and the harnesses that Hermes makes,

22:17

and he just finds his way into the

22:19

Czar of Russia's court and

22:21

lands him as a customer. That

22:24

is wild. Unreal. They have to staff

22:26

up a whole new atelier with like

22:28

80 craftspeople to fulfill all the orders

22:30

for the Czar in Russia. Whoa. Yeah.

22:33

So this is Emile. He's going places.

22:36

And right as he and Adolf are taking

22:38

over, kind of at the end of Charles

22:40

Emile's tenure, they decide to introduce

22:42

a new product. Now, they're not thinking that this

22:44

is going to be a big thing at the

22:46

time, but some of their

22:49

customers, again, now that they've added

22:51

saddles, once they get off

22:53

the horse, they want something to carry

22:55

the saddle and maybe they're riding boots

22:57

with them while the horse is in

22:59

the stables at wherever they're going. So

23:01

they say, great, we can help you with this. And

23:04

they introduce the haute aqua bag,

23:07

which translates as the high belted

23:09

bag to carry saddles

23:12

and boots for their clients.

23:14

Now, like I'm saying here, this was

23:17

intended to be an accessory to the

23:19

main business of incubage and

23:21

saddles, the equestrian business. It's

23:24

not really practical for anything else. I don't know

23:26

why anybody else would want a big tote bag

23:28

that could carry your boots. What's this

23:30

bag look like? Well, this bag looks

23:32

exactly like the Birkins and the Kelly's today, except a

23:34

lot bigger. Interesting.

23:36

Because you're putting a whole saddle

23:38

in it, like you're de-saddling your horse, and

23:41

then you're putting that in this bag. Yeah,

23:43

but it has the same trapezoid

23:45

shape. It has the crossover

23:47

belt, the haute aqua. It means the high

23:50

belted bag. It has the belt. It

23:52

has the turnstile lock closure for

23:54

the belt at the top of

23:56

the bag. Fascinating. So this accessory

23:58

that we're going to add

24:00

to the business. This becomes the

24:02

spiritual heritage to the business

24:05

today. That's crazy. It's like

24:07

if Apple eventually transitioned to being not

24:10

the Vision Pro company, but the Vision

24:12

Pro carrying case company. Yes. Yes. Yes.

24:15

Oh, did you get the carry case, by the way? No, I'm

24:17

not going to spend another $200 on that. That

24:20

thing looks like a balloon. It's enormous.

24:22

Yes. And it takes up your whole

24:24

backpack. This bag,

24:26

this accessory that would become

24:28

the Kelly and then the Birkin, they

24:31

introduced it just at

24:33

the right time. It's 1902, kind

24:36

of as Charles O'Neill is

24:38

retiring. And this idea of

24:40

this bag that you would put stuff in, because

24:42

you wouldn't bring a bag on a train. If

24:44

you're of this class, you need a trunk, a

24:47

flat pack trunk that Louis Vuitton is going to

24:49

make for you. And none

24:51

of these three men could have

24:54

seen it at the time, but this

24:56

accessory to the real business

24:58

of saddles and horses and harnesses was

25:01

going to become the perfect transition

25:03

to move Hermes into the age

25:05

of the automobile. But before

25:07

we tell that story. Yes. We

25:09

mentioned Hermes founded in 1837 is the

25:11

oldest company we've covered on Acquired, but

25:14

we might have to caveat that. Yes.

25:16

Our presenting partner this season is JP Morgan

25:19

payments and JP Morgan Chase traces its heritage

25:21

back to 1799. Over 200 years. Incredible. You

25:23

only survive as long as Hermes or JP

25:29

Morgan with a relentless focus on the

25:31

long term and exceptionally high

25:33

quality bar and counterintuitively when talking

25:35

about handbags and banks, technical innovation,

25:38

which is exactly the JP Morgan

25:40

payments story. Yeah. Their current

25:42

payments business was officially forged a few

25:44

years ago, but many of the

25:46

capabilities and products came from different parts of

25:49

the firm, which were already powering the whole

25:51

payments industry. You can trace their

25:53

merchant acquiring to the nineties, their treasury

25:55

products to well before then, and even

25:57

their blockchain work started earlier than most.

26:00

in the mid 2010s. When they

26:02

combined all that together under one

26:04

group, it really became a one

26:06

of a kind end of one

26:08

business, a portfolio of treasury, online

26:10

commerce, point of sale, global trade,

26:12

card, cash management, fraud prevention, analytics,

26:14

and more. A one

26:16

stop payment shop for businesses of all sizes.

26:18

Yep. And when you move $10 trillion a

26:20

day in 160 countries and

26:24

120 currencies, these learnings really compound.

26:26

And that is exactly the story

26:28

of their new offering embedded banking.

26:30

This actually reminds me a bit

26:32

of our episode on Amazon and

26:34

AWS on how companies can take

26:36

internal capabilities and scale them externally

26:38

as brand new products. In this

26:40

case, JP Morgan said, Hey, we

26:42

already facilitate credit card acceptance. We

26:44

manage KYC and anti money laundering.

26:46

We pool money and split across virtual

26:48

ledgers here. We disperse funds. Oh, wow.

26:50

We can embed all of these into

26:53

our customers marketplace businesses to power their

26:55

end to end payments for buyers and

26:57

sellers and lower risk across the whole

26:59

ecosystem. So while Hermes explicitly

27:01

avoids e commerce for their most coveted products,

27:03

as we will talk about later, for

27:06

the other 99% of you out

27:08

there, that's probably not your strategy. You

27:11

want to do more business online. Large

27:13

retailers are increasingly adopting a digital marketplace

27:15

strategy to connect buyers and sellers directly.

27:17

But for the underlying platform, whether that's

27:19

B2C or B2B, there's a lot of

27:22

complexities that come with having a friction

27:24

less payments experience, you have to create

27:26

and manage the seller bank accounts, money

27:28

movement, and most importantly, who's going to

27:30

take on the compliance and risk of

27:32

holding and dispersing the funds, the third

27:34

party seller or the platform? Yep.

27:37

Macy's is a great example. They wanted

27:39

to offer more selection to customers and

27:41

support diverse owned small businesses at the

27:43

same time. But Macy's needed a solution

27:45

to onboard sellers seamlessly and manage the

27:48

state by state complexity of the payouts.

27:50

So they turned to JP Morgan payments

27:52

and their embedded banking solutions, which

27:54

enables a large number of suppliers

27:56

and their bank account details on

27:58

a single platform supported by tokenization

28:00

and utilizing a single API integration. This

28:03

frictionless and secure payment solution worked to

28:05

say the least. Macy's nearly doubled its

28:07

marketplace sellers in the first quarter of

28:09

2023 and increased revenue by 50%. So

28:14

whether you're in retail, luxury, or

28:16

really any industry, there's a clear

28:18

growth opportunity from having an end-to-end

28:20

payment solution. Head on over to

28:22

jpmorgan.com/acquired to discover more payment solutions

28:25

driving growth for businesses, whether that's

28:27

Fortune 500, startups, or

28:29

any stage in between. And also,

28:31

if you're heading to the retail conference Shop

28:33

Talk in Las Vegas in March, be sure

28:35

to stop by the J.P. Morgan Payments booth

28:37

where you can learn more directly from their

28:39

team of experts. Yep. Thank

28:41

you, J.P. Morgan. Now, David,

28:44

how was Hermes perfectly positioned for

28:46

the age of the automobile with

28:48

this new accessory? So

28:50

this is wild. I suspect

28:52

you probably also found this in research, but

28:56

when I did, my mind melted.

28:59

So during World War I in 1916, Emil

29:03

becomes a officer in the French

29:05

military, and the military sends

29:07

him to the United States to learn about

29:09

kind of U.S. industrial and military production. You

29:12

know, he's sort of a leading

29:14

industrialist in France at this time, shall

29:16

we say? And one

29:19

of the people that he gets sent to meet with

29:21

is, do you

29:23

know about this, Ben? No, I have no idea. I can't

29:25

believe you didn't find this. No. He meets

29:28

with Henry Ford. No!

29:31

He goes to Detroit. He sees the

29:33

assembly lines. He sees the

29:35

car. He sees the future. He

29:37

sees the assembly lines, and then he like had blinders

29:39

on. He's like, oh, pay no attention to the manufacturing

29:42

efficiencies they've got going on over there. Ha

29:44

ha ha! This is what's so funny.

29:46

No, he's like, this is unbelievable. And

29:49

to the, you know, manufacturing efficiencies point,

29:51

he actually does take some elements of

29:53

the assembly lines and brings

29:56

them back to Hermes. It's not like

29:58

they're anti-efficiency. They're pro-efficiency. efficiency,

30:01

but in the context of being

30:03

a craft, you know, non-mechanized human

30:06

master craftsman built object. So

30:08

he actually does take some of the production

30:11

ideas from Henry Ford, but

30:13

more importantly, he's

30:15

looking at this place and he's like, my God,

30:18

there is a Model T rolling off

30:21

the assembly line every three minutes.

30:24

Ford at this point is producing

30:26

half a million cars per year.

30:29

Everybody knew about the automobile, but this is

30:31

a different era. This is kind of the

30:33

same time as when we talked about our

30:35

Novo Nordisk episode about the start of that

30:37

company where like news didn't

30:40

reach Europe. This wasn't a

30:42

global world. And so Emil

30:45

getting this window, like literally seeing

30:47

the assembly lines in Detroit, he's

30:49

like, whoa, once

30:51

this war is over, the world is

30:53

going to change forever. Okay.

30:56

So Emil both figures out how to open

30:58

business in Russia and goes to America, meets

31:00

with Henry Ford, understands the automobile is going

31:02

to change the world. Yeah. He's quite the

31:04

character of this guy. The other

31:06

thing he finds in America is, I know

31:08

you know this one. Yeah. The zipper. Yes.

31:12

Or as it was originally called, the

31:14

clothes all. Yes. Which really does not have the

31:16

same ring to it. I'm glad we changed the zipper.

31:19

I couldn't believe this. The zipper

31:21

was a late 1800s, early 1900s

31:23

invention in America. And it was

31:26

primarily used for industrial use cases.

31:28

In this case, it was zipper

31:30

enclosed, the hood of a car. I

31:33

think like a military car. Yeah. Where Emil first

31:35

sees it. It's not at the Ford factory. I

31:37

think it actually might've been in Canada on the

31:39

later leg of his journey where he sees it

31:41

on the car. It was also

31:43

used for opening and closing boots. And

31:46

that is how the name zipper

31:48

came to be. I think it was the

31:50

BF Goodrich company. Really? Yeah. I believe they

31:52

made a brand of boot with this clothes

31:55

all function and they called it the zipper.

31:57

And that's where the zipper came from. Regardless.

32:00

And needless, enterprising young Emil, he tracks

32:02

down the inventor of the zipper, like

32:04

the holder of the patent in America.

32:07

He obtains an exclusive license for two

32:09

years in France. This literally is like

32:11

the Novo Nordisk episode. Totally. Brings

32:13

it back to France and makes the

32:16

first zippered products. He makes

32:18

the first zippered jacket ever

32:20

created anywhere in the world.

32:22

It is a leather golf jacket for the

32:24

British Duke of Windsor, the heir to the

32:26

throne. Just amazing. In

32:29

France, the zipper would be called the

32:31

Hermes Fastener in France. Yes,

32:34

that's right. Just a while. I

32:37

think they made the right decision

32:39

not to make zippers the business

32:41

and instead to stay focused on

32:43

leather kids. It does show their

32:45

penchant for innovation. The idea

32:47

that we can push the envelope forward

32:49

in functionality and what people would be

32:51

willing to wear. I mean, this guy's

32:53

a Duke and he's wearing a zippered

32:55

jacket. I'd imagine that drew some

32:57

eyes at first. Yeah, and a golf jacket

32:59

literally for use while playing golf, while playing

33:02

sport. What more modern activity to

33:04

happen here? Yep. Regardless

33:06

though, the big thing for Hermes that he brings

33:08

back is, oh my God, the car is

33:10

coming. Okay, so we're still

33:13

in the third generation of the

33:15

Hermes family. Two brothers are

33:17

running it. What's next? When

33:19

Emil comes back and he's

33:21

running around making zippered jackets,

33:23

he's collaborating with car companies,

33:27

leads to a rift between the two brothers.

33:29

Adolph, the older brother, he's much

33:32

more conservative. He wants

33:34

to remain in the horse market.

33:37

He's kind of depressed about the car coming. He's

33:39

like, hey, I just

33:41

want to remain a niche leather worker and

33:43

I'm not really cool with everything you're doing

33:45

here. This is literally like he wants faster

33:47

horses of the analogy of like, if you

33:49

would ask people what they want, they'd say

33:51

a faster horse. He's stuck in horse land.

33:53

Right. I don't know if it was

33:56

that he had his head in the sand or more just like

33:58

he didn't want to go build a big company. which

34:00

I could understand. Totally, I could totally understand

34:02

that. Either way, in 1919,

34:05

Camille buys him out and says,

34:07

I believe in my

34:10

ability to lead this company making this transition

34:12

into the automobile era. And legend

34:14

has it that he goes

34:16

to the craftsman in the

34:18

atelier above the shop in the faux

34:20

board and says, okay,

34:24

what are we gonna do? What

34:26

can we make with our hands

34:28

here in this atelier that will

34:30

interest our clients today? And I think

34:32

this is still kind of legend around our meds

34:35

of like, what can we make

34:37

with our hands that will interest

34:40

our clients today? And the

34:42

obvious answer at the time is a version

34:45

of the Hauta Courois bag. You know,

34:47

it's bags for these cars. And

34:49

if you want the most exquisite

34:52

bags, the most exquisite things to

34:54

show in your automobiles that you're

34:56

buying, who better

34:58

than Hermes? And

35:01

finely handcrafted leather bags

35:03

and accessories that you

35:05

can outfit your car in the same way you could outfit your

35:07

horse. So the business is now

35:09

a meals and the business is now handbags. And

35:12

once again, to timing and

35:15

insight here, kind of like Thierry in the

35:17

original case, what the

35:19

automobile does, and it's not just

35:21

automobiles, it's also improvements to trains

35:24

and improvements to ships. The

35:26

global rich, the

35:28

global elite, they start traveling

35:30

a lot more. You know, we're now

35:33

in the 1920s, the roaring 20s. This is what

35:35

F Scott Fitzgerald is writing about. The

35:38

visible symbols of wealth. It's

35:40

when you're home, it's in your car and the

35:42

bags and the accessories you're using with your car.

35:45

But you're also out traveling a lot

35:47

more. You're rubbing shoulders with elite all

35:50

around the world. The American elite

35:52

are going to France, they're going to Europe,

35:54

vice versa. People are starting to travel around

35:57

the world. People are traveling to Asia. People

35:59

are traveling. traveling to the Middle East,

36:01

people are traveling to South America, Emile's

36:03

going right along with all these people,

36:06

and your luggage, your bags, that's

36:08

what you bring with you. That's what you show. Yeah.

36:11

And importantly, it's not just that you're

36:13

trying to show a label,

36:16

which is a little bit different than the modern

36:18

version of luxury. It's that you're trying to have

36:20

something really nicely crafted. When you show up somewhere,

36:22

someone should just look at your luggage and go,

36:25

wow, that is beautiful. Hermes

36:28

is not yet a

36:30

recognized brand. So merely slapping

36:32

Hermes on it won't do

36:34

the trick. The way to wow the people

36:36

that you want to wow is through

36:38

the raw craftsmanship. The product

36:40

itself, yes. Yep. So

36:44

in 1922, Emile's

36:46

wife famously complains that the

36:48

large bag they've been making,

36:50

the La Tocorua, the saddlebag,

36:53

it's too large to fit through car doors.

36:55

So she asks for a smaller version. And

36:58

this launches the handbag business

37:02

in 1925. And by

37:04

the way, by this point, they've put the

37:06

zipper on a handbag. Yes, exactly. And speaking

37:08

of the zipper, in 1925, they had ready

37:10

to wear clothes, like the legacy of the

37:12

golf jacket here. The legend has

37:14

it that they added clothes because a long time

37:16

client came in and said, I am fed up

37:18

with seeing my horse better dressed than me. Who

37:23

knows if that's true, but it's a

37:25

nice story. But they really go into

37:27

this. In this modern world where the

37:29

global wealthy, the global elite are traveling,

37:32

they're seeing each other. What outward signifiers

37:34

can they supply them? Clothes,

37:36

1927, they had jewelry, 1928,

37:39

they had watches. And

37:42

something interesting that is different than the Hermes

37:44

you know today, the way

37:47

that they're adding all of these things,

37:49

they're finding crafts people who are experts

37:51

at particular crafts. Exactly what you're talking

37:53

about, David, a watchmaker. They're finding a

37:55

watchmaker and they're saying, can we work

37:58

with you on designing something new? uniquely

38:00

Hermes, but you're the craftsperson. We're

38:02

not trying to build this competency in-house. Right.

38:05

It's not right to say that they're

38:07

licensing products. You know, it is a

38:09

collaboration, but they are selling

38:13

products in their stores that

38:15

are not made end-to-end

38:17

by Hermes employed craftsmen.

38:20

Right. And it's interesting,

38:22

because they're sort of towing this line

38:24

between first and foremost

38:26

being a craftsman themselves, and being a

38:28

manufacturer and being a designer, but also

38:31

kind of being a retailer, where they're

38:33

just bringing in other branded goods and

38:35

selling it in their shop. Yes.

38:38

And I think all this is being figured

38:41

out real time. These ideas

38:43

of retailers versus

38:46

brands, it

38:48

was a much fuzzier line then than it

38:50

was today. So what does

38:52

Hermes do? What does Emil do? They

38:55

start opening up stores outside of Paris,

38:58

and where are they gonna go? They're gonna

39:00

go to the travel destinations where their clients are going.

39:02

So the first store is in the Côte des Eures

39:05

in the south of France, and then

39:07

they start opening up more stores around

39:09

the world. You know, again, not

39:11

necessarily in like the London's or the

39:13

Rome's or the New York's of the

39:15

world. They're opening them up in the

39:18

travel destinations. Their mindset around

39:20

additional stores at this point is, it's

39:22

for the same clientele in all the

39:24

places that they travel. Yes.

39:27

And the clientele was primarily French at this

39:29

point in time. Yeah. Or

39:31

if not exclusively. Other than the Czar and

39:34

yeah. I suspect though that it was strategic

39:36

of like, our French clients are

39:38

gonna go to these places. They're gonna rub

39:40

shoulders with the Americans, with the British, and

39:43

then we're gonna have a store there so

39:45

that those Americans, those British elite,

39:47

they can go purchase our

39:49

products there too. Right. This

39:52

by the way is a different retail strategy

39:54

than what they have today. Today, management sort

39:56

of insists that the idea is that each

39:59

store is for the same. the local clientele.

40:01

And we will only expand into an

40:03

area if we feel that we can

40:05

serve the local clientele that lives there

40:08

well. And that's sort of a

40:10

recognition of the maturation of their business. The rich

40:12

people are going to go find an Hermes store

40:14

somewhere. It's easy for them to travel somewhere, buy

40:16

it on vacation. But if we're going to open

40:18

new stores, we should open it in

40:21

places where there is a thriving

40:23

new upper class who can buy the

40:26

goods locally there in their city. Yes.

40:29

Now, I think some

40:31

element of this certainly still exists. You had

40:33

a nice time going into the Hermes store

40:36

in X, right? Yes, for sure. But

40:38

it plays well for me as someone

40:40

who is on vacation and shopping to

40:43

believe that I'm shopping in a store that

40:45

is for the locals. It's less fun to

40:48

be shopping somewhere that is very clearly created

40:50

for you as a tourist. Yeah, I think

40:52

they very brilliantly walk this

40:54

line. And the products that the shops carry

40:56

are very different. And we'll get into that

40:59

later in the episode too. But

41:01

back to this era. So I

41:03

think we've laid the groundwork of a

41:06

few critical components of Hermes so

41:08

far. First and most

41:10

importantly, the craftsmanship. These things are

41:12

handmade by artisans with their hands

41:14

and the family and the people

41:17

who own the company are the

41:19

chief artisans. That goes all the

41:21

way back to Thierry. We've

41:23

talked about the connection to the

41:26

legacy of French nobility, but not really French

41:28

nobility. It's sort of like status, but accessible

41:31

status for the first time in the world

41:33

and the modernization of the world. We've

41:35

talked now here about the true modernization

41:38

of the company and the transition to

41:40

the automobile era. What

41:42

we haven't talked about yet and what Hermes at

41:44

this point certainly is not is

41:48

this element of whimsy

41:50

and art that is

41:52

really, really critical, I think, to

41:54

the company. Plus, if

41:57

you've ever been in an Hermes store.

42:00

you can feel a warmth that

42:02

doesn't exist in other luxury stores.

42:06

If you're in a destination with a lot

42:08

of luxury shops, you'll walk

42:10

past a lot of bright lights and

42:12

mirrors and punch you in the face

42:14

reds and black

42:16

and white and you just feel like there's

42:19

a lot going on. And then you arrive

42:21

at Hermes and it feels

42:23

warm and it feels soft and it

42:25

feels welcoming and it feels

42:28

whimsical. And there's this almost dream-like

42:31

color palette that they use starting

42:33

with a base of orange and

42:35

having this explosive rainbow of fun

42:37

but in some ways it all

42:39

feels natural and from the earth

42:42

and just whimsy. I think that you

42:44

nailed it David whimsical. And this

42:46

I think is really a very different

42:49

thread than the original

42:51

kind of leather craftsmanship and

42:53

it is a critical one in the

42:56

kind of weaving of the Hermes business.

42:59

And this thread comes from the next

43:01

generation of the family, specifically

43:04

Robert Dumas. So a

43:06

meal had four children but

43:09

they were all daughters and tragically

43:11

one died young but the other

43:13

three grew up and they

43:15

got married and back in this day

43:18

women weren't going to take over the

43:20

business unfortunately. Right same story as the New York

43:23

Times. There was a whole generation of daughters. Well none

43:25

of the ox daughters get the business

43:28

and so it goes over to the

43:30

son-in-law of the Solesberger and now it's

43:32

the Solesberger ox family that owns the

43:34

business in the same way that Hermes

43:37

is the Hermes Dumas family. The son-in-law

43:39

tends to do well in this early

43:41

20th century period of passing it down

43:43

from unfortunately father not the daughter but

43:46

father to son-in-law. And in

43:48

this case when you read about the Hermes

43:50

family fortune today it's the Dumas family that

43:52

are obviously the CEO and the artistic director

43:55

that you hear about visibly but

43:57

really I think all the sons-in-laws and

44:00

all of their descendants become active in the

44:02

business. So there's Robert Dumas, there's

44:04

Jean René Guerin, and there's

44:06

Francis Pouche. And these are all son-in-laws. And

44:08

these are all son-in-laws. And those are the

44:10

three family names that you still hear about

44:13

to this day of the Hermes family. But

44:15

back to Robert Dumas and the fourth generation,

44:18

he brings this whimsy and real art

44:20

into the business. And the

44:22

way Hermes describes it today when you read

44:24

their annual report is they talk about their

44:27

trademark humor and imaginative flair. And despite the

44:29

fact that they really are tied to this

44:31

old French elite, they

44:33

really don't take themselves too seriously in

44:35

all their products, especially the entry-level ones.

44:38

I mean, the Birkin is the Birkin.

44:40

Yeah, they'll do some special editions here

44:42

and there, but there's a weight to

44:44

that product line. But there's an

44:46

overall playfulness that's exuded from the brand

44:49

that comes from this era of leadership.

44:51

Totally. And this comes from Robert. So

44:54

one of the first things he does when

44:56

he joins the business is he redesigns the

44:58

kind of smaller Ota Corwa bag, the

45:00

handbag line, into what

45:03

he calls the Sac de Peix in 1935.

45:06

Really great name. It's got a ring to it. I feel

45:09

like that's going to go be a viral hit and appear

45:11

on Sex and the City. Beautiful,

45:14

beautiful, elegant bag. So

45:16

Sac de Peix, hold on to that

45:18

one, listeners. Yep. A little later in

45:21

the 1930s, he introduces the

45:23

Chandonque bracelet, which is another

45:26

iconic Hermes item in there. Great,

45:29

David. I can't let you get away

45:31

with that. Métiers, please enlighten listeners. I

45:34

know Hermes sprinkles around French words in

45:36

all their literature, and it just expects

45:38

Americans to deal with it. If it's

45:40

italicized, it's French, and you can

45:42

go look up what it means yourself. Here on

45:44

Acquired, David, tell us about a métiers. A

45:47

métiers is like someone's

45:49

work, but in the craftsman sense.

45:51

A métiers is like a trade.

45:53

It's like a craft profession. And

45:56

this is what Hermes calls their

45:58

divisions. I feel gross. even just

46:00

saying the word divisions. There are

46:02

16 of them today, and jewelry,

46:05

of course, is one of the métiers.

46:07

Oh, I feel so much better saying métiers. I bet,

46:09

yeah. There's a levity here in the room now. So

46:12

chandanca in French means chain of anchors,

46:14

you know, anchor chain. And these are

46:16

anchors like boat anchors. And

46:19

the way that this bracelet comes

46:21

about is Robert is walking along

46:23

the beach in Normandy one day, and

46:26

he's just inspired by the scene of these

46:28

boat anchors on this foggy beach. And so

46:30

he makes a little little sketch in his

46:32

notebook, and then he plays with it. And

46:35

then he decides he's going to turn this

46:37

into a bracelet. Love it. And

46:39

so an important thing to know here

46:41

is when you're buying Hermes

46:43

products, they're really not

46:45

pushing the brand. There

46:48

is not an iconic

46:50

recognizable Hermes H, or

46:53

horse and carriage logo or bright

46:56

color that you're supposed to identify.

46:58

This is really the origin of

47:00

quiet luxury, where Hermes is handcrafting

47:03

the highest quality product they can make.

47:06

A single artisan is

47:08

the person making the good. And, you

47:10

know, when you receive it, you really

47:12

are just aware that it's the highest

47:14

quality thing made by a single person

47:16

with their blood, sweat, tears, love, a

47:19

piece of them left inside. And

47:22

it's super different than luxury

47:24

today because it is just

47:26

not branded. And Hermes hadn't

47:28

even really developed the iconography

47:31

yet that would become Hermes's

47:33

version of, you know, slightly louder luxury. Over

47:35

the years, if you sort of look at

47:38

products now, the belts have an H, you

47:40

know, they incorporate horse motifs into designs on

47:42

their ready to wear clothing, but that really

47:44

wasn't a thing yet in this era. Hermes

47:47

is on the lighter side of branding

47:49

their goods today, but it's still... Well,

47:51

they have to adapt to the market.

47:53

The customers want some way to let

47:55

people know that they're wearing an Hermes

47:58

item, even if it's lower key. than

48:00

other luxury brands. So Hermes builds that

48:02

for them. The family talks about

48:04

this a lot. The words

48:06

they use is, this is not a museum. There

48:09

is this artistic element to what we do, but

48:12

we are not a museum. We are a

48:14

business and we have clients and we are

48:16

here to serve our clients. There

48:18

is this push-pull here. Yes.

48:21

Okay, so what year are we that the bracelet

48:23

is entering the market? That was in the mid-30s.

48:26

Then in 1937, Robert introduces the other key pillar

48:28

of Hermes' product

48:34

that is less talked about today

48:36

relative to the bags and the leather goods,

48:38

but for many, many decades was the bigger

48:41

business. Oh, yes, I

48:43

have numbers on this. So silk

48:46

scarves, the Hermes

48:48

classic silk scarves.

48:50

This is the embodiment of this art and whimsy

48:52

that we're talking about. The silks

48:54

that they use are the finest silks in

48:56

the world. It takes 300

48:59

silk moth cocoons per scarf, as

49:01

they will readily tell you to

49:03

produce these things. But

49:05

the designs on them, the

49:07

artwork on them, are whimsical.

49:09

Like we said, so the first design, the

49:12

Jeux des omnibus et dans blanche, where these

49:14

sort of white ladies at play, I guess

49:16

you could translate that, is based

49:18

on a wood block engraving that

49:21

Robert does. I mean, this is like what an

49:23

artist this guy is. He's about to become CEO

49:26

of Hermes, but he's

49:28

making wood block engravings, and then making silk

49:30

scarves out of them. That's the

49:32

first design that they put out there, and quickly they

49:34

become a huge, huge

49:37

phenomenon with Hermes' clients. Yeah,

49:40

and so fast forward all the way to 1988, when

49:44

Excel Dumas has his very first internship

49:46

with the company. This

49:48

is crazy. Silk was

49:50

55% of

49:53

the company's sales. Leather was only 9%.

49:56

You compare that to today, it is

49:58

a completely different story. Leather

50:01

is 43% and

50:03

silk and textiles is 7%. So

50:05

there was a run, I mean this was introduced when David? The

50:07

30s? 1937. So 1937 through probably the 1990s where the silk scarves

50:16

were the Hermes franchise. And

50:18

the reason this sort of took

50:20

off is it almost became part

50:23

of the French woman's uniform to

50:25

have an Hermes scarf as a

50:27

part of your outfit. Well,

50:29

it's funny you say the French woman's

50:31

uniform. Yes, that is entirely true. But

50:34

the woman who really popularizes

50:36

them around the globe is

50:38

a British woman, specifically Queen

50:40

Elizabeth. Oh, I didn't realize that

50:43

really. Yeah, this is so iconic

50:45

Queen Elizabeth. She starts wearing

50:47

them as head scarves in the 1940s.

50:50

And I mean Queen Elizabeth, she's Queen of England for

50:52

what, like 60, 70 years.

50:54

Yeah. And she's wearing these scarves,

50:56

these whimsical playful scarves on her

50:59

head as the Queen of England.

51:02

Fascinating. So this is a

51:04

good time to talk about how these silk

51:06

scarves are made. And I was going to

51:08

do this later when we talk about their

51:10

modern day production process. But it

51:12

turns out that their modern day production process is

51:15

not that different than it used to

51:17

be. So here's how Hermes scarves are

51:19

made today. They are first

51:22

sourcing the finest silk that they

51:24

can find, which is now from

51:26

their own owned farms

51:29

in Brazil. So that's where the silk comes

51:31

from. Only 20 new

51:34

designs are created every year and they

51:36

retire old designs. There's sort of a

51:38

Disney vault aspect to this. They'll bring

51:40

them out of the vault. Yeah. The

51:43

pipeline to get a new design into

51:45

the customer's hands is two

51:47

years. Now you might be

51:49

asking yourself like, come on, why is

51:51

this taking two years? This is a ridiculous thing.

51:54

Here is the process. They

51:56

screen print every single scarf

51:59

by hand. There's no digital process

52:01

here. It's not like you're going to

52:03

custom-make.com and ordering up some Hermes Scarf.

52:05

Right. Some of the design does

52:07

seem like it involves computers now. If you watch

52:09

documentaries about the craftsmen at Hermes, which there's a

52:12

couple of good ones we'll link to in the

52:14

show notes, if you want to just sort of

52:16

watch Hermes craft people at work, they

52:19

do seem to be translating designs off

52:21

of a computer. But it's not like

52:23

they're hitting Command P. That's not how

52:25

this works. Every single

52:27

color of the scarf is

52:29

screen-printed using its own mask or basically

52:32

a stencil. So if your scarf has

52:34

20 colors, it has at least

52:36

20 masks that they

52:38

then squeegee the ink over, and

52:41

the precision is perfect. This

52:43

is like EUV lithography. Yes. I was

52:45

looking at my wife's sort of twilly

52:47

scarf, the little wrist or

52:49

hair tie scarf that we got at next on Provence. I

52:52

mean, I don't know how you do this

52:54

by hand. And I don't know how you do it by hand

52:56

20 times over and over and

52:58

over for every single layer. If

53:01

you've ever been to an Hermes store or you own

53:03

one of these, you just can't believe that this is

53:05

done by hand without any of the layers being out of

53:07

alignment. Because if any of them are out of alignment,

53:09

you ruin the whole thing and you have to start

53:11

over. And so if

53:13

that's not enough, the masks are

53:15

also hand-etched by a craftsperson. Their

53:18

entire job is to know how to translate

53:20

a design into all

53:22

the different color layers, which

53:24

they then hand-etched. So the

53:26

pipeline is designer, engraver,

53:29

that's an engraver of

53:31

each mask, colorist, weaver,

53:34

printer, and then someone to do the

53:36

finishing. All of which are like

53:39

extremely hard to replicate

53:41

and involve both extreme

53:43

craftsmanship and extreme taste.

53:45

The competitive barriers to the Hermes scarf,

53:48

I think they're way higher than the

53:50

bags, honestly, even though the bags are

53:52

a bigger business now. Even the skills

53:54

are completely non-transferable. This process doesn't really

53:56

exist, certainly not at scale at any

53:58

other company. I was talking

54:00

to my wife about this. She brought up

54:03

the idea that it's kind of like Disney

54:05

Imagineers, or almost like Pixar employees, where you

54:07

specialize in this one crazy little piece of

54:09

the production process that no other company has

54:11

your same production process. And the

54:13

attention to detail is so staggering

54:15

that once you enter the Hermes

54:17

universe, then you're sort of in

54:20

that universe for the rest of your career,

54:22

because that is where your trade is still

54:24

practiced. And I think also, you know, as

54:27

a client too, at least in Scarves, like

54:29

if you enter the Hermes Scarves universe, you're

54:31

not buying any other Scarves. Totally. And

54:33

you really like all the lore. Part

54:36

of what makes Hermes Hermes at this

54:38

point is their callbacks to their own

54:40

history. I mean, they have 187

54:42

years of history to call upon,

54:44

and they do so over and

54:46

over and over again, and they

54:48

remix and they name things

54:50

after stores that used to exist

54:52

at certain addresses. It's a universe.

54:54

Yeah. I mean, I remember growing up

54:56

and my mom is half British, I'm a quarter British,

54:59

and to the Queen Elizabeth thing,

55:01

Hermes Scarves, you know, my mom's Hermes

55:03

Scarves were an R among her most

55:05

treasured items. Yep. So

55:08

you'll note all of this that's

55:11

happening, Robert, the innovations, these

55:13

new products, the art, the whimsy.

55:16

He's doing all this in the 1930s.

55:18

This is the Great Depression era.

55:21

This tells you about Hermes and

55:23

Hermes clients. They are

55:26

unaffected. They

55:29

keep buying. And this carries through right to this

55:31

day. I mean, I don't know that there is

55:33

a more recession

55:35

insulated business than

55:38

Hermes. You're exactly right. 12 months

55:41

now after we did the LVMH episode,

55:43

we're finally on the tail end of

55:45

the sort of pandemic bubble of luxury.

55:47

And we're seeing a lot of these

55:50

brands take a hit. Hermes is the

55:52

most insulated of all the luxury brands,

55:54

where they have these sort of least

55:56

cost sensitive clients. So after this, there's

55:58

World War Two. And famously,

56:01

before the war, Hermes products

56:03

came in cream colored boxes.

56:06

Robert was very meticulous about

56:08

the packaging that his crafted

56:10

items and his art would

56:12

come in. And it was

56:14

cream. It had to be cream. During

56:16

the war, there's a shortage

56:19

of packaging materials. They can't get cream.

56:21

The only color that is available to them

56:23

in the quantities that they need is

56:26

orange. That was designed for patisseries,

56:28

for bakeries. Oh, is that what the orange

56:30

ones were used for? That's why there was

56:32

an excess of it, because they were used

56:34

for bakeries, and bakeries weren't baking as many

56:36

croissants and penne au chocolat during the war,

56:38

etc. There's all this

56:41

orange packing material. Robert

56:43

embraces it. And Hermes' orange

56:46

box is born. And this is

56:48

crazy. I didn't know this whole research. Hermes

56:51

owns this color. You cannot

56:53

get Hermes orange anywhere else. Pantone

56:55

does not list it in their

56:58

colors. It's interesting you say

57:00

Hermes owns this color. So you

57:02

are correct that Hermes has selected

57:04

a non-pantone color. But

57:07

what Hermes tries to do is say, well,

57:09

we own orange. We can't

57:11

be nailed down by

57:13

a Pantone-specific code. We

57:16

own orange more broadly. And they've actually

57:18

gone head-to-head with the EU. And this

57:20

has gone to court, where it's been

57:22

determined that, no, you can't own orange.

57:24

You can't just own all the oranges.

57:27

Amazing. And so what they've done is

57:29

they've actually leaned into this, where there

57:32

is a classic Hermes orange,

57:34

but it presents differently on

57:37

each of the leathers. They have

57:39

10 different leathers or something like

57:41

that that they work with. When they dye those

57:43

leathers, it presents a little bit differently. And so

57:45

they sort of have this, sure,

57:48

there's a digital, perfect representation

57:50

of the color of classic

57:52

orange. But there's this whole

57:54

spectrum of the way that it shows up

57:56

on leather. And they've sort of even further

57:59

kind of winked at all of

58:01

us by creating five or six other

58:03

oranges. They have Hermes Fue,

58:05

which is sort of the fire. They

58:08

have Hermes Sanguine, which is sort of

58:10

this red, hot orange, like lava. Or

58:13

they have the Hermes Moutard, which is sort

58:15

of their mustard. And each of these is

58:17

a little bit of, I think

58:19

it's to continue to assert that we

58:21

own the whole spectrum of oranges, but

58:24

it's definitely to be able to stay

58:26

current, stay present, encapsulate the theme of

58:28

a season, because every year they sort

58:30

of pick a theme. And so they play with

58:32

their oranges a little bit to evoke the whimsy

58:34

that they want from this year's theme. Yeah, there's

58:37

this sort of like, you know,

58:39

meta level or like corporate level playfulness to

58:41

this too of, we own all the oranges.

58:43

Totally. The Hermes oranges are almost like,

58:45

to continue the Disney analogy, it's almost like the people that

58:47

go to the park and look for the hidden mickeys. It's

58:50

a way to even more deeply participate in

58:52

the Hermes universe. So a

58:55

few other things that Robert adds over

58:57

the years, he adds the men's silks

58:59

matie, aka ties.

59:02

The legend behind that one is pretty great. Supposedly

59:05

in Cannes, a number of

59:07

gentlemen were refused entry to the

59:09

casino and thus went to

59:11

the neighboring Hermes shop, you know, next

59:13

door and said, can you take

59:15

some of your beautiful silk scarves and cut

59:18

and tailor them into ties for us so that we can

59:20

enter the casino? I'm

59:22

sure that's apocryphal, but adds to the legend

59:24

here. And they are these patterns, you know,

59:26

they're just as intricate as the scarves. There's

59:28

less storytelling that happens in the tie. The

59:30

scarves tend to be something you could frame

59:33

and put on the wall and look at

59:35

in 16 different ways and the

59:37

story behind it. But it's still, I

59:40

mean, when you look at it, you kind of can't

59:42

believe that it was hand screen printed. Totally.

59:45

After World War II, Robert decides

59:48

that Hermes needs a logo. So

59:50

taking inspiration from the 19th century

59:53

painting, Le Duc atlais groom all'attente,

59:55

which means hitched carriage waiting groom,

59:58

the famous Hermes logo. is

1:00:01

born, the logo is the callback

1:00:03

to the carriage. It's the

1:00:05

nobility. I find it really interesting, especially

1:00:07

at that point in time that

1:00:10

Robert decided, you could imagine

1:00:12

a galloping horse or something like that

1:00:14

would be the appropriate logo. No, it's

1:00:17

so genius. No, it's the carriage. Yes,

1:00:19

it's to intentionally ground

1:00:21

the brand in history, in something

1:00:23

that they were a part of

1:00:25

that is only theirs

1:00:27

because nobody else starting today is gonna

1:00:29

have that as a part of their

1:00:31

history. They're leaning into the thing that

1:00:33

makes them unique, special, the almost like

1:00:35

defensible, durable asset that they have is

1:00:37

that they participated in that era that

1:00:39

has a nostalgia about it. And no

1:00:42

longer exists. Yes. Horses

1:00:44

in the Achestrion world still exists. It's obviously

1:00:46

not what it once was, but it

1:00:49

still exists. The carriage world

1:00:51

is gone. It's just a

1:00:54

dream these days. And that's what Robert is

1:00:56

so good at, this dream. The

1:00:58

other thing we have to talk about are

1:01:00

the window displays. You referenced this a little

1:01:02

bit earlier. So he hires

1:01:04

first Annie Bomel, and then she's

1:01:06

soon joined by the legendary Leila

1:01:09

Manchari. Specifically these two

1:01:11

women, they come from theater set design.

1:01:14

Just to design the window

1:01:16

displays at the foreboard, at

1:01:19

the flagship store on the Rufo Borg Saint-Honoré.

1:01:22

I mean, there are a whole

1:01:24

museum exhibits just dedicated to these

1:01:26

window displays. And it's not like,

1:01:29

again, you walk by XYZ other

1:01:33

store, even the most prestigious brands, and

1:01:35

it's like the products are there. Here's

1:01:37

the products, here's the brand you're buying,

1:01:39

here's the LV, et cetera. These

1:01:42

displays, it's a dream. There

1:01:44

are probably some Hermes products in there,

1:01:47

but it's like a museum exhibit. It's

1:01:49

artwork. Yes, and art

1:01:51

is exactly the right way to put

1:01:53

it. There is no utility to these

1:01:55

displays. Much like any

1:01:58

advertising that you see of Hermes. today.

1:02:00

It's not about the product, it's

1:02:02

about how you feel.

1:02:05

So I think this is an interesting

1:02:07

place to revisit this idea

1:02:09

that we talked about on the

1:02:11

LVMH episode of luxury versus premium,

1:02:14

where premium means you pay more and you

1:02:16

get more utility out of a given product.

1:02:19

I pay for a bigger storage space on

1:02:21

my iPhone and I get, you

1:02:23

know, more utility out of that. I can store

1:02:26

more photos. Luxury means you pay more literally because

1:02:28

it doesn't create more utility.

1:02:30

It is either more pleasing to you

1:02:32

intrinsically for the feeling or it's an

1:02:35

extrinsic signal where you are signaling to

1:02:37

others that you have the

1:02:39

means to spend on this item even

1:02:41

though it doesn't provide

1:02:43

more utility. It's a sort of

1:02:46

despite rather than a because. But

1:02:48

art, it does fall on this spectrum.

1:02:51

Art is like luxury taken to

1:02:53

its logical extreme. It

1:02:55

has actually zero utility. A

1:02:58

Birken bag is a piece of art,

1:03:00

but at least it also carries your

1:03:02

stuff around. Luxury products are this interesting

1:03:04

midpoint between extreme functionality, but

1:03:06

also artwork. And so when you buy

1:03:08

an Hermes product, you aren't just buying

1:03:10

the product, you're buying a piece of

1:03:12

art, a piece of their heritage, a

1:03:15

feeling that connects you to the maker and

1:03:17

the place it was created. You're trying to

1:03:19

buy a piece of Hermes's heritage and reputation

1:03:22

and hoping to adopt it as a part of

1:03:24

you, as a part of your identity. And

1:03:26

you are seeking, whether it's conscious or not,

1:03:29

to let other people know about

1:03:31

this too. And you're not necessarily trying to signal

1:03:33

it to everyone, but you do want to signal

1:03:35

it to the right people who would appreciate it.

1:03:38

There's this genius aspect too to what Hermes is

1:03:40

doing and what Robert's doing with

1:03:42

the arts like these window displays. The

1:03:44

luxury strategy book talks a lot about

1:03:47

this. When you're

1:03:49

selling luxury items, they

1:03:52

can't just be art. They need to have some

1:03:54

utility to them. You will

1:03:56

never see any of these brands, Hermes

1:03:58

included, become art galleries. They're not

1:04:00

selling paintings, but it's

1:04:03

critical for luxury brands to have a

1:04:05

connection to the arts. I

1:04:07

think he realized this before anybody of

1:04:09

like the windows in our stores are

1:04:12

these portals into this world of

1:04:15

dream and art. And you'll come in and you'll

1:04:17

buy a scarf that you'll wear, you'll

1:04:19

buy a bag that you'll use, maybe you'll

1:04:21

buy a tie, maybe you'll buy a wallet

1:04:24

or homewares or furniture or any of the

1:04:26

other things over time that they sell. And

1:04:29

that will have utility, but it's

1:04:31

connected to this dream. Yes, you're taking

1:04:33

a piece of that dream with you.

1:04:35

And it's almost a daily reminder of

1:04:37

the dream that you're now participating in. The

1:04:40

key insight is that by

1:04:43

adopting art as a

1:04:45

critical piece of the

1:04:48

bundle that is your product, it

1:04:51

enables you as the seller to

1:04:54

completely switch tracks

1:04:56

to disconnect from any

1:04:59

evaluation of value or

1:05:01

features. Exactly. You're out of

1:05:03

the feeds and speeds world. You are

1:05:05

not being comped against, well, this other

1:05:08

purse is much cheaper and serves the

1:05:10

same function. Now we have

1:05:12

bundled in the function

1:05:14

of the object and an

1:05:18

unevaluatable, priceless feeling, a

1:05:20

priceless feeling. And so

1:05:23

now we can sell the

1:05:25

goods for whatever we want, because it's

1:05:27

impossible to know the value of that

1:05:29

second component that we've bundled in. Yeah,

1:05:31

totally. So speaking of

1:05:33

dreams, we're now in the 1950s, in

1:05:36

the post-World War II era, the

1:05:38

most amazing,

1:05:42

unbelievable, fantastical

1:05:44

dream of

1:05:46

the 1950s happens

1:05:49

to Hermes in real life. And

1:05:52

that dream is Princess

1:05:54

Grace Kelly. So

1:05:56

I sort of mentioned a little while back that one

1:05:59

of the first things, that Robert did

1:06:01

when he came into the business was redesign

1:06:03

the handbag and christen

1:06:05

it the Sac de Pache. Well,

1:06:08

it becomes popular but like we're talking

1:06:11

about leather goods, handbags, you know, important

1:06:14

but that kind of was the previous generation of

1:06:16

the business. Now under Robert it's the

1:06:18

scarves, it's the dream, it's all this stuff and leather's

1:06:20

part of it but a smaller part. Well

1:06:22

in 1956

1:06:25

Princess Grace Kelly of Monaco, this

1:06:29

is a girl from Philadelphia, an

1:06:31

American girl who

1:06:34

goes on to become a movie star, who

1:06:37

then goes on to become Princess

1:06:39

Grace of Monaco. I

1:06:41

can't imagine a bigger dream

1:06:43

for any woman or any person in the

1:06:46

1950s. She

1:06:48

is photographed using the Sac

1:06:51

de Pache in Life

1:06:53

magazine. On the cover of Life magazine.

1:06:56

So the legend is that it was on the

1:06:58

cover of Life magazine but I googled a lot

1:07:00

of 1956 covers of

1:07:03

Life magazine and I didn't

1:07:05

find it on the cover. Oh interesting. So maybe

1:07:07

that's been sort of played up over time. This

1:07:09

might have become part of the lore. Regardless, big

1:07:12

picture in Life magazine, she

1:07:14

is clutching her beloved Sac

1:07:17

de Pache to her

1:07:19

midsection. And it's almost like as she's exiting

1:07:21

a building and it's it almost seems like

1:07:23

it's like a paparazzi type photo. It is,

1:07:25

it's a paparazzi photo and her husband Prince

1:07:27

Renier of Monaco is holding the door behind

1:07:29

her. It's like the most dreamlike

1:07:31

thing you could imagine and

1:07:34

it's in black and white and the

1:07:36

reason that she is clutching this fairly

1:07:38

large bag, unbeknownst to the world at

1:07:40

the time, is she's trying to hide

1:07:42

her pregnancy from the paparazzi.

1:07:44

She's pregnant with her first daughter

1:07:47

and this photo just becomes iconic.

1:07:51

Everybody wants to be

1:07:53

Grace Kelly. Everybody wants

1:07:56

to have this bag. And one

1:07:58

of the last things that Robert does

1:08:00

right before he retires in 1977 is

1:08:03

he officially changes

1:08:06

the product name of the second to pitch to

1:08:08

the Kelly bag. And this is

1:08:10

the birth of, I don't even

1:08:13

know what to call it, the Kelly and the Birkin

1:08:15

are ends of ones, but these leather good products that

1:08:18

transcend everything that

1:08:21

are like so truly end

1:08:23

of one, there's no other way to describe them. And

1:08:26

there is so much to say about

1:08:28

these bags and how they're crafted and

1:08:30

the lore around them and the

1:08:33

supply and demand and Econ

1:08:35

101. But before we

1:08:37

get to that, this is the

1:08:40

perfect time for another story about

1:08:42

ServiceNow. ServiceNow is one

1:08:44

of our big partners here on season 14

1:08:46

and is really an incredible company. Yep.

1:08:49

ServiceNow digitally transforms your enterprise,

1:08:51

helping you automate processes, improve

1:08:54

service delivery and increase overall

1:08:56

operational efficiency all in one

1:08:58

platform. Over 85% of the Fortune 500 runs

1:09:00

on them. And

1:09:03

today they are the 76th largest company

1:09:05

in the world by market cap.

1:09:07

That's wild. They're coming up on Hermes here.

1:09:09

Yeah. And that story is

1:09:12

really the story of their CEO, Bill

1:09:14

McDermott. When he took over in

1:09:16

2019, the idea that this just 15

1:09:18

year old company would be bigger

1:09:21

than Nike or Pfizer soon was

1:09:23

insane. ServiceNow was the leader

1:09:25

in enterprise IT automation. But what Bill has

1:09:27

done since, like we talk about all the

1:09:29

time on the show, is evolve that product

1:09:32

into a true solution for the entire enterprise.

1:09:35

Yep. It's just like our Nvidia series. Moving

1:09:37

from product to solution makes you an

1:09:39

essential partner for your customers, which lets

1:09:41

you build real enterprise value. And Bill

1:09:43

is the best in the world at this. Bill's

1:09:46

story is great. He started his career at

1:09:48

age 17 in a very different business.

1:09:50

He bought his local corner deli in

1:09:53

working class Long Island. As a high schooler,

1:09:55

this is amazing. He buys the deli for

1:09:57

$7,000 in seller. financing

1:10:00

from the owner who is retiring. And Bill

1:10:02

realized that the kids like him who hung

1:10:04

out at the store, they

1:10:06

weren't coming there for the product. Sure,

1:10:09

they wanted food, but it wasn't about the sandwiches.

1:10:11

It was about hanging out with your friends. That

1:10:13

was the solution. Now, this was the 1970s. Bill

1:10:17

starts installing arcade cabinets, Pac-Man, space

1:10:19

invaders, everything we talked about on

1:10:21

our Atari and Nintendo episodes. And

1:10:23

guess what? Kids spend way more

1:10:25

time there and Bill makes way more

1:10:28

profits than just selling sandwiches. He literally

1:10:30

made life-changing money from this deli. He

1:10:32

buys his parents a beathouse. So

1:10:35

after college, Bill joins the tech world

1:10:37

in sales, rises through the ranks at

1:10:39

Xerox, and eventually becomes CEO of SAP.

1:10:42

But he's always bringing that mindset. Why

1:10:45

are my customers really here? So

1:10:48

when he joins ServiceNow in 2019, he

1:10:50

takes them from, oh, you can make

1:10:52

my IT function better to, you can

1:10:55

digitally transform my entire company. And

1:10:58

the company's performance since then has been incredible.

1:11:00

I mean, honestly, it's like Hermes over the

1:11:02

past couple of years. Revenue

1:11:04

has doubled. Earnings have nearly 10xed

1:11:06

since 2019. And

1:11:08

Bill and ServiceNow have entered the

1:11:10

conversation with the NVIDIAs, the Microsofts,

1:11:12

as the most important technology partners

1:11:14

for enterprises around the globe. So

1:11:17

if you want to learn more about the

1:11:19

ServiceNow platform and see how it can transform

1:11:21

your business, go over to servicenow.com/acquired or click

1:11:23

the link in the show notes. Now when

1:11:25

you get in touch, just tell them Ben

1:11:27

and David sent you. Okay,

1:11:30

David, so Life magazine,

1:11:33

the Kelly bag, it's out. So

1:11:36

this thing must sell like hotcakes, right? Well,

1:11:39

yes and no. Certainly

1:11:42

this plays right into this whole

1:11:44

dream thing that we've been talking

1:11:46

about. And Burnish's,

1:11:49

Hermes is already incredible brand

1:11:51

and image. I mean, my

1:11:54

God, Princess Grace Kelly of Monaco

1:11:57

Is carrying this bag? not just carrying this bag,

1:11:59

but it's Her.. Favorite bag The closest

1:12:01

thing to her body. But.

1:12:04

We're. Still in the fifties here. So

1:12:06

weak. Yes, it becomes incredibly popular. Yes,

1:12:09

I'm pretty sure becomes their messes biggest

1:12:11

selling bag. But. The

1:12:13

market isn't quite there yet in the way

1:12:15

that it is today with the burton said

1:12:18

the Kelly's. Sig Global.

1:12:20

Ritz. Isn't. That

1:12:22

big of a population. And. Luggage. I'm

1:12:24

sure they're all buying Kelly's. But. Robert

1:12:27

probably knows all these clients personally. Had

1:12:29

this point, we're not anywhere near the

1:12:31

scale that we're talking about to this

1:12:33

and here point I keep saying it's

1:12:35

launched. It's not really launch, they just

1:12:38

rebrand to the Kelly Bag. But when

1:12:40

the Kelly Bag is formally launched, It's

1:12:43

really expensive. It's a nine

1:12:45

hundred dollar handbag in the

1:12:47

system, which today is ten

1:12:49

to twelve thousand dollars, approximately

1:12:51

the price of a Kelly

1:12:53

bag today. So. It comes

1:12:55

out. As. This thing that

1:12:57

is completely ridiculous and inaccessible price wise.

1:12:59

So the people who are buying it

1:13:01

or the Grace Kelly's of the World

1:13:03

and there's not really this. Stratified.

1:13:07

Class below that that's got this

1:13:09

huge amount of purchasing power. Rests

1:13:11

The. Number of people who could

1:13:14

spend the equivalent of twelve thousand dollars

1:13:16

on a bag back then was just

1:13:18

much much much smaller than it is

1:13:20

today. Yeah, exactly. So.

1:13:22

No, handbags do not immediately become a

1:13:24

huge part of the business. where I

1:13:26

should say it's the dominant whatever it

1:13:28

is today, six or seven times larger

1:13:30

than silk part of the business right

1:13:32

away. And in fact, Actually,

1:13:35

sadly, kind of quite the opposite happened.

1:13:37

so as we head to the sixties

1:13:39

and into the Nineteen seventies and the

1:13:42

end of Roberts tenure in his generation.

1:13:44

As. The head of him as. The

1:13:47

company's highness starts to fall on hard times,

1:13:49

which is crazy to say right? I

1:13:51

remember this moment in the Porsche episode. You're

1:13:53

like, know, come on, Porsche skinny down

1:13:55

the entire lineup to only making the Nine

1:13:58

Eleven because they couldn't justify any. Other

1:14:00

products in the whole company was a frickin' mess. Air.

1:14:02

Masses not quite in those dire straits,

1:14:05

but. I mean, they have

1:14:07

the ingredients of errors that we know.

1:14:09

Today they've got the Kelly bag, They've

1:14:11

got the orange box, they've adopted the

1:14:13

logo of got the scarves. They've got

1:14:15

the scarves. They have these small workshops

1:14:18

where they make everything but it's not

1:14:20

working yet. And. It's particularly

1:14:22

now working because. Like

1:14:24

we just talked about. That. Market.

1:14:27

Was. Not that big. Yeah, And

1:14:30

as we entered the Nineteen seventies. Something.

1:14:32

Really funny happens. The

1:14:35

next generation. Rejects

1:14:37

that dream, This. Is

1:14:39

the don't you and me?

1:14:42

Our parents generation? The Hippies?

1:14:44

The Nineteen seventies? This is

1:14:46

democratization. Little girls don't wanna

1:14:48

be Grace Kelly anymore. They

1:14:51

wanna be like Stevie Nicks

1:14:53

Her as you, something like

1:14:55

that and the dream of

1:14:57

a mess that was once

1:15:00

so elegant and so desired

1:15:02

by so many people but

1:15:04

inaccessible. Is kind of now like.

1:15:08

You know, it's certainly still got it's audience. By.

1:15:10

It's not as universal. This.

1:15:13

Is when so many the other but we

1:15:15

now think of is luxury brands really

1:15:17

start to come up and we talked about

1:15:19

this on the Lvmh episode. but they're connected

1:15:21

to Fasten. First your

1:15:24

and eighty Sandler and he notices

1:15:26

the Mondrian dress from Eve Sandler

1:15:28

at this is pseudo the Revolution.

1:15:30

Which. Guzzi. It's scenario in the

1:15:32

eighties when Karl Lagerfeld takes

1:15:35

over and what they're selling

1:15:37

is very very very different

1:15:39

than what a mess is

1:15:41

selling. This is an important

1:15:43

distinction between air masses and

1:15:45

all the brands you just

1:15:47

named. They come from the

1:15:49

world of could to or

1:15:51

an assassin an does cutting

1:15:53

edge in your face risky

1:15:55

arts. And air

1:15:58

masses comes from my me. And

1:16:00

you by this point they're already a hundred and

1:16:02

twenty years old. Hundred and thirty years old. The

1:16:04

come from the world of leather. And. Horses.

1:16:07

And durable goods that stand the

1:16:09

test of time. And frankly, Styles.

1:16:13

That stand the test of time.

1:16:15

It's not to how creative and

1:16:17

crazy can we be, it's they

1:16:19

talk about, it is responsible gross.

1:16:21

What's the smallest amount that we

1:16:23

can move from our current compass

1:16:25

in order to do what our

1:16:27

clientele one small staying true to

1:16:29

our roots. It's a rejection of

1:16:31

risk and know must embrace of

1:16:33

history. So super different than most

1:16:35

other luxury brands which as you

1:16:37

point out come from fashion right?

1:16:39

And those brands are getting born

1:16:41

or reborn right? There in the nineteen

1:16:43

seventies. Yes, And David

1:16:45

this is probably a good time to share

1:16:47

of who we chatted with in preparation from

1:16:49

this episode and his observation about Air Mess

1:16:51

Yes this was super cool and in a

1:16:53

one of the things that for me and

1:16:55

for both as as can a blizzard mind

1:16:57

as acquired. Gross. We.

1:17:00

Got to talk with Dominica

1:17:02

to solo who was see

1:17:04

of beauty during the fight

1:17:06

with Bernard Arnault that we

1:17:08

chronicled. The. Really, I think that

1:17:10

was the best part of our Lvmh

1:17:12

episode. Absolutely, when not Dominica this away

1:17:14

and Tom Ford and that team at

1:17:16

rejected Bernard's take over and managed to

1:17:18

not become a part of Lvmh and

1:17:21

obviously then Dominica and Tom Ford last

1:17:23

to start Tom Ford after that. But

1:17:25

it was super cool. We talked to

1:17:27

Dominik Go. He comes from that world

1:17:29

even you know with the heritage of gets you. He.

1:17:32

And tom it was fashion first

1:17:34

in. In. His perspective In any

1:17:36

the perspective of many folks that are

1:17:38

coming out of this seventies, eighties era

1:17:41

of luxury. That's. What's

1:17:43

interesting? That's what's for us. Risk on

1:17:45

baby, Risk on. yeah. let's figure out

1:17:47

how it breaks and glass in what

1:17:50

we're doing. Grace. kelly is

1:17:52

not breaking any glass right that

1:17:54

does dominica helped us understand about

1:17:56

air med as may have been

1:17:58

so protective of their and

1:18:00

this unbelievable steward, they're so careful

1:18:02

at how they've chosen to deploy

1:18:05

the brand. They make

1:18:07

sure that the mystique is always

1:18:09

there, they don't violate the promise,

1:18:11

they never cut corners. They have

1:18:13

been above board in their brand

1:18:15

promise and keeping that promise with customers

1:18:17

for over 100 years. And

1:18:20

that is a strength and a weakness. It's

1:18:22

a strength as long as you learn how

1:18:25

to employ it as a strength. In the

1:18:27

world of fashion, it's butting heads. Yeah,

1:18:29

it's antithetical to fashion.

1:18:31

Yes, exactly. So all this

1:18:33

culminates towards the end of the 1970s as

1:18:36

Robert is nearing the end of his tenure at Hermes in

1:18:38

the end of his life. Sadly,

1:18:40

there's a moment, this

1:18:42

is like probably 1977 or so, where

1:18:46

they bring in consultants and the consultants

1:18:48

recommend like, hey, you guys should probably

1:18:51

do what Gucci is doing.

1:18:54

And you should probably close the atelier above

1:18:56

the shop at the Pho Borg and you

1:18:58

should probably outsource production and you should probably

1:19:00

increase your number of products and your SKUs

1:19:02

and have lower prices and have them be

1:19:05

more accessible. Unbelievable. That was the

1:19:07

accepted wisdom at the time. I don't

1:19:09

know if it was McKinsey or who

1:19:11

was saying that. Well, today I will

1:19:13

tell you that Hermes has a corporate

1:19:15

policy of no consultants. And now I

1:19:17

know where that came from. I

1:19:19

mean, this is enshrined in the

1:19:22

luxury strategy as anti-law of marketing

1:19:24

number 19. Do

1:19:26

not hire consultants. Wow.

1:19:29

So the recommendation was to come in and destroy

1:19:31

everything that makes you special and follow the playbook

1:19:33

that everyone else is running. Yeah. I

1:19:36

mean, it's working for them and it's not working for Hermes. It's

1:19:38

crazy. And this is

1:19:41

when the next generation transition

1:19:43

happens to Robert's son

1:19:46

Jean-Louis Dumas. I

1:19:48

kind of can't believe it with this family. Every

1:19:50

time they come in at a

1:19:53

generational transfer and the

1:19:55

company and the brand is under existential threat even

1:19:57

though we think of Hermes, the most honest. a

1:20:00

saleable thing in the world right now, but

1:20:02

finds itself at a moment where it can

1:20:04

be assailed, there's a generational

1:20:06

transfer happening, you would think this is

1:20:08

like the downward spiral, this is the

1:20:10

dropping of the baton, and

1:20:13

the next generation always rallies. And isn't

1:20:15

it amazing? You would think the

1:20:18

best person out there to brilliantly

1:20:20

come up with both the business

1:20:23

strategy and the creative element is

1:20:25

probably not your direct descendant.

1:20:28

Right, probably not your nepotistic family

1:20:30

member. That's not the best search

1:20:33

process to run, and yet it

1:20:35

works. There's something about the,

1:20:38

I don't think it's like this magical

1:20:40

bloodline, I think it is a deep

1:20:42

understanding of the tradition of the business,

1:20:45

of exactly what type of sort

1:20:47

of chutzpah the team has to rally

1:20:49

and take on, having the political clout

1:20:51

to find the right people and empower

1:20:54

them to make the change, to

1:20:56

have a sixth sense for where you

1:20:58

sit in the marketplace versus competitors and

1:21:00

what people may want out of your

1:21:02

brand next. It's all the

1:21:05

intangibles that come from growing up in

1:21:07

the business make you

1:21:09

able to be the right person to

1:21:11

transform it. I really do think that

1:21:13

there is an element too of

1:21:16

the successive generations, they apprentice in

1:21:18

the Atelier, it's like with their

1:21:21

hands. I think there is an

1:21:23

element of that. And they

1:21:25

also apprentice, especially these days on the

1:21:27

business side too. Axel talks

1:21:29

all the time about dinner table conversations

1:21:32

between his uncle, Jean-Louis, who we're about

1:21:34

to talk about now, who was the

1:21:36

fifth generation CEO of Hermes and

1:21:39

his mother who was head of production at

1:21:41

the dinner table growing up. You

1:21:43

can't not absorb that. I

1:21:45

think that's the flip side of nepotism, right? Which makes

1:21:47

it such a challenging topic. On

1:21:50

the one hand, obviously limiting the

1:21:52

universe of talent. On

1:21:54

the other hand, how do you replicate those dinner

1:21:56

table conversations? You know, it's funny, I called it

1:21:58

a sixth sense. I think. the right way

1:22:01

to describe it is actually a jinnessiqwa about

1:22:03

what you sort of absorbed from those. Totally.

1:22:07

Okay, Jean-Louis, the fifth

1:22:09

generation. The

1:22:11

brand, you know, the consultants are saying,

1:22:13

hey, go be like Gucci. Shut down

1:22:15

your shop where they still today make

1:22:17

Birkin and Kelly bags by hand one

1:22:20

artisan at a time in

1:22:22

the most famous address in all of

1:22:24

luxury and fashion, Nutso. Well, I do

1:22:26

have to correct you there. That is

1:22:28

not specifically true. It's certainly spiritually true.

1:22:30

I believe now the only products that

1:22:32

are made in the Pho Borg are

1:22:35

saddles. Oh, really? I think everything else

1:22:37

is made in Pentant, which is a 20

1:22:40

minute drive away. It's not like

1:22:42

the outsourced production. Anyway, we'll get

1:22:44

to that. Great. Okay. Jean-Louis

1:22:47

comes in. What year is this? Great.

1:22:51

He, like all the generations before and after him, he's

1:22:53

come up, he's apprenticed in the business. He knows how

1:22:55

to do the saddle stitch. It's in

1:22:57

his hands. It's in his soul. We've talked

1:22:59

too many times without actually talking about the saddle

1:23:01

stitch. It's time to actually talk about saddle stitching.

1:23:03

So listeners, you might be wondering, why do they

1:23:05

keep saying this? What does it mean? Saddle

1:23:08

stitching is an amazing technique

1:23:10

that Hermes uses for every

1:23:12

single bag that they make.

1:23:15

It can either, I can't

1:23:17

tell if this is true or not, it

1:23:19

can either only be done by hand or

1:23:21

until recently only be done by hand, but

1:23:25

it is a far more effective, high

1:23:27

quality, and durable form of stitching relative

1:23:29

to the typical machine sewn stitching that

1:23:32

you're thinking about right now, where the

1:23:34

same thread goes through one needle and

1:23:36

it goes up, down, up, down, up,

1:23:39

down, up, down. It's also

1:23:41

incredibly beautiful. It's got a slight di-ank-and-all

1:23:43

valence to it as opposed to

1:23:46

the normal straight line stitching. Yes.

1:23:49

So how does it work? So there's something

1:23:51

called a horse that goes between your legs

1:23:54

and the horse holds two pieces

1:23:56

of leather together, the whole point

1:23:58

of the saddle stitch. is to

1:24:00

sew two pieces of leather together. So

1:24:03

you first punch

1:24:05

little holes in the leather using

1:24:07

likely a pricking iron as your

1:24:09

method of doing this. And

1:24:12

if you're good, you don't prick all the

1:24:14

way through, you just poke a little hole

1:24:16

with your pricking iron or all partway through.

1:24:19

So that way you don't poke too big

1:24:21

of a hole, you only end up pushing

1:24:23

exactly a hole the size of your needle

1:24:25

and thread through. And you can always tell

1:24:28

if you're looking at something and it's stitched

1:24:30

and there's these big freaking holes and then

1:24:32

there's this thin thread that's moving through and

1:24:34

there's space between the thread and the leather.

1:24:37

You know what kind of craftsmanship went into that.

1:24:40

If it almost looks like the stitch vanishes

1:24:42

into the leather and you're like, is there

1:24:44

even a hole there? It's hard to even

1:24:46

see how this was done. That

1:24:48

is a saddle stitch. So you take your

1:24:50

pricking iron or your all you poke the

1:24:53

hole or the partial hole. So

1:24:55

there's a lot of muscle memory involved in this. You

1:24:58

then pass one needle

1:25:00

through going, call it from the right

1:25:02

to the left side. And

1:25:04

then you have a second needle on

1:25:06

the other end of the thread. So

1:25:08

one thread, two needles. Yes. That you pass

1:25:11

through the other direction. And so

1:25:13

what you've done as you pull both

1:25:15

of them through is created

1:25:18

this incredibly strong sort

1:25:20

of interlocking mechanism. There's

1:25:22

tensile force going in both directions.

1:25:24

Yes. If it gets ripped,

1:25:27

you're not at risk of the whole thing

1:25:30

pulling out and your saddle or your bag

1:25:32

falling apart. You just

1:25:34

lose that one stitch and that one

1:25:36

stitch can be repaired. And

1:25:38

so the only way for you to unravel

1:25:41

something that is saddle stitched together is to

1:25:43

individually go through and cut Every

1:25:45

single stitch. Compare that to most

1:25:47

products that you own. Yes. This

1:25:49

literally provides high utility if you're

1:25:51

in an A Kestrian jumping competition

1:25:53

or if your bag needs to

1:25:55

hold something that really needs a

1:25:57

lot of protection and can't fall

1:25:59

apart. Real. It's almost like it

1:26:01

started with real necessary utility because

1:26:04

something life threatening could happen. Now

1:26:06

it's just massively overkill for everything

1:26:08

that saddle stitch, But you appreciate

1:26:10

the craft behind and there are

1:26:12

very few people who are in

1:26:14

a life or death circumstance that

1:26:16

are dependent on their spirits holding

1:26:18

true from the channel. My inner

1:26:20

pure Alexi sure the current artistic

1:26:23

director of of him as. I.

1:26:25

Think it still has

1:26:27

relevance if you. Want

1:26:30

your object to be permanent. If

1:26:32

you want an object that you own,

1:26:35

To. Represent something wholly

1:26:38

different and antithetical to let's call

1:26:40

it the Amazon effect too soon

1:26:42

or the Walmart affect a certain

1:26:44

of rhythms. These. Days. You

1:26:47

want it to be made like this? Yup,

1:26:50

And something that made this really

1:26:52

special for. Hundreds of years

1:26:54

If not still is that it had

1:26:56

to be done by hand. Said he

1:26:58

wants something of this quality. Discuss this

1:27:00

Interesting had yes he is handmade stuff

1:27:02

better. Well. Not necessarily, and Xl

1:27:05

even says this in an interview. He

1:27:07

says in twenty nineteen today hand stitching is the

1:27:09

highest quality so machines are a non negotiable. When

1:27:12

the quality of a machine stitching gets better than

1:27:14

hand stitching, we will do it. We are not

1:27:16

a museum and David, this is where you're getting

1:27:18

your we are not a Museum quote from. But.

1:27:21

It really gets to this element of. Why?

1:27:23

Are handcrafted good, desirable? well, in

1:27:25

this case is literally creed something

1:27:27

higher quality, more durable, certainly more

1:27:29

aesthetically pleasing, since when done well

1:27:32

in, you can't see that whole

1:27:34

and between the bread and the

1:27:36

leather. It's a pretty special process.

1:27:38

And. For everyone who sort of wondering.

1:27:40

Okay, but what is the rest of creating

1:27:42

one of these bags look like. Start

1:27:45

to finish. A tele bag, And

1:27:48

will talk about Brooklinen. A little bit

1:27:50

of a similar story is made by

1:27:52

one craftsman. So. One craftsmen

1:27:54

starts with. Thirty.

1:27:56

Six unique pieces of high

1:27:58

quality leather as much as

1:28:00

possible from the same animal

1:28:02

and match exactly. Yes, exactly.

1:28:05

And. So it's not source from all

1:28:07

these different places all over the world.

1:28:09

And one persons responsible for the bottoms

1:28:11

and someone else is responsible for the

1:28:13

straps is one craftsman that takes these

1:28:16

thirty six cuts in, stitches it together.

1:28:18

it takes twenty hours. He and his

1:28:20

is over the course of a few

1:28:22

weeks to create the so. The. One

1:28:24

person assembling at all and putting

1:28:27

the fasteners on it's stitching it.

1:28:29

This. Takes two years to learn how

1:28:31

to do before you are allowed to

1:28:34

create one for the first time. Or

1:28:36

I think it's even more than that.

1:28:38

It's two years of training to become

1:28:40

i am as artisan period. I.

1:28:43

Don't think you're allowed to touch the

1:28:45

Burke and the Kelly's Who. And you

1:28:47

start day one on the job. I

1:28:49

believe you need at least another three

1:28:51

years, if not more before you're allowed

1:28:53

to touch the Perkins and the Kelly's

1:28:55

Fascinating. So. This knowledge is

1:28:57

passed from generation to generation and

1:28:59

Air Med refers to this as

1:29:01

the Savoir Faire or the know

1:29:03

how are the expertise about the

1:29:06

materials and the exceptional technique that's

1:29:08

transmitted from one crafts person to

1:29:10

another who hang on to have

1:29:12

a lot more to say when

1:29:14

we get to the current generation

1:29:16

about this. Do. You know, David and

1:29:18

I'll stop after this. but I thought this is pretty

1:29:20

funny. Have you read the annual Report

1:29:22

Third six hundred page document that they were

1:29:24

once a year. I have to been I

1:29:27

have not read it. Cover to cover, you

1:29:29

did more the history and I did for

1:29:31

this but I've read large sections of it.

1:29:34

I was reading. I found myself

1:29:36

laughing at how often Savoir Faire

1:29:38

was used in the pros. Every

1:29:40

other paragraph they the Disorder throw

1:29:42

in a Savoir Faire one hundred

1:29:44

and thirty three times. Savoir Faire

1:29:46

is referenced in the Air Masses

1:29:48

registration documents, Partially in their defense,

1:29:51

Savoir Faire literally translates as know

1:29:53

how It's kind of like a

1:29:55

proper term in. France. Yeah.

1:29:58

Fair. but i think the take away his real that

1:30:00

this knowledge is transmitted from one generation to

1:30:02

the other in the very same way that

1:30:04

it was from father to son all the

1:30:06

way back at the founding of the company.

1:30:09

And that is how they scale production. And

1:30:12

we'll put a pin in that and come back to

1:30:14

it later. Yeah, that's the

1:30:16

true genius of the current generation is they

1:30:18

have scaled that to 7,000 people.

1:30:21

It's unbelievable. Unbelievable. I

1:30:23

was going to talk about this towards the end of the Jean-Louis era, but

1:30:25

I want to say it now because I think it's perfect. I

1:30:28

got to talk to a woman named

1:30:30

Beatrice Amblaard, who lives here in San

1:30:32

Francisco. This is amazing. She

1:30:35

was an artisan at Hermes

1:30:37

in Paris. She

1:30:39

was hired right at the start

1:30:41

of Jean-Louis' tenure. She

1:30:43

worked in the atelier at the foreboard

1:30:46

when Jean-Louis' son Pierre, a Lexi Curran

1:30:48

artistic director, came to train after school

1:30:50

as a teenager. He sat

1:30:52

next to Beatrice. And I got

1:30:54

to chat with her about this. She runs April in

1:30:56

Paris in San Francisco. She moved to San

1:30:58

Francisco when Hermes opened the San Francisco store here. I asked

1:31:00

her, I was like, oh, you transitioned to the front of

1:31:02

the house. And she was like, no, no, no. I

1:31:05

was the person for the West

1:31:07

Coast who repaired everything

1:31:09

for North American West Coast clients. There

1:31:11

was one person in New York and

1:31:13

I was in San Francisco and we

1:31:16

came from the foreboard. A few

1:31:18

of these people go around the world. And one of

1:31:20

the things about Hermes, and actually Jean-Louis, who

1:31:22

would say this, the true essence of luxury and

1:31:24

the true essence of Hermes is everything they make

1:31:26

can be repaired. And so if you

1:31:29

buy an item from Hermes, no matter

1:31:31

what it is, they will repair it. Yeah, I

1:31:33

think that's true. Even if it's 100 years old,

1:31:35

you bring it in, they will repair it. Yeah,

1:31:37

that's true. They have 15, this is flashing forward

1:31:39

today, 15 dedicated repair shops worldwide

1:31:41

and they mend 120,000 pieces a year. Wow.

1:31:47

Amazing. Yeah. So I

1:31:49

asked Beatrice when I was talking to her, what

1:31:51

was this like? What was it special? She said, look,

1:31:54

you have to understand, When I

1:31:57

was training as a young person and decided I

1:31:59

wanted to go in. it is field. Or

1:32:01

Mans was absolutely the greatest

1:32:04

company that anyone. Could.

1:32:06

Hope to work for were wasn't even

1:32:08

close. There was no comparison to what

1:32:10

years this was in the late eighties

1:32:12

early nineties. She said look I

1:32:15

decided that either I was going to get a

1:32:17

job at him as or I was gonna leave

1:32:19

this industry and go do something else. it isn't

1:32:21

that high of esteem and I said or while

1:32:23

wise and he said lit. By. The time

1:32:25

we're at this era. Nobody

1:32:27

else was last. Justice rates everything

1:32:29

we talked about in the nineteen

1:32:32

seventies. all these other brands that

1:32:34

he all wedding this complete other

1:32:36

direction. The consultants were telling your

1:32:38

meds to go in that direction

1:32:40

to, but it'll last one standing.

1:32:42

That did all of this by

1:32:44

hand in the tradition handed down

1:32:47

through hundreds of years if that's

1:32:49

important to you. There's. No

1:32:51

place else you can apply your trade doing

1:32:53

that anywhere else. I asked her. Then I

1:32:55

was like okay, well. As for

1:32:57

the products and today clients to

1:32:59

the customer is. Why

1:33:02

does that make a difference? And.

1:33:04

What he said is what you'll hear the family talk about

1:33:06

all the time. She. Said like it's

1:33:08

about so. This. Product has

1:33:11

a soul. Somebody made that sing

1:33:13

with their bare hands. That means

1:33:15

something. And there's nobody

1:33:17

else certainly at are massive

1:33:20

scale. That. Does that you see

1:33:22

Ended up leaving him as and starting

1:33:24

her own particular in San Francisco, april

1:33:26

in Paris and she actually also runs

1:33:28

around. Whether school here in San Francisco

1:33:30

to to train artist you can get

1:33:32

custom stuff. small boutique staff. Beatrice as

1:33:34

a. Worldwide. Masters you

1:33:36

can get that from her. But

1:33:38

the idea that at two hundred

1:33:40

billion dollar company at scale would

1:33:42

be doing best like there's nobody

1:33:45

else. Gets. Nuts. It's completely

1:33:47

insane. And the people who don't

1:33:49

work for M as. Your options are

1:33:51

in the dozens. if you

1:33:54

go as a customer and

1:33:56

you want something like a

1:33:58

saddle stitched fag or wallet

1:34:00

or something like Hermes would make

1:34:02

in that traditional sort of pre-war

1:34:05

early 20th century fashion. There

1:34:08

aren't that many other artisans out there. Hermes

1:34:10

employs 7,000 of them. I

1:34:13

don't know how many other ones there are. 1,000,

1:34:15

2,000? And it's not like Hermes has cornered the

1:34:17

market. They're hiring more people and training them as

1:34:19

fast as they can. They're trying

1:34:21

to preserve this market that otherwise would

1:34:24

have entirely been zero. It's

1:34:26

a pretty crazy thing that they've managed to

1:34:28

scale, even to the scale that they're at.

1:34:31

The other thing Beatrice said to bring it

1:34:33

back to Jean-Louis, he is

1:34:35

a legend. He

1:34:37

really cared. The idea

1:34:40

that he would follow the consultants, like

1:34:42

it was just so completely anathema to

1:34:45

him. He's the artistic director and CEO of the

1:34:47

company. She ran into him in the

1:34:49

elevator in the faux board right after she started. He

1:34:51

looks there and said, you're Beatrice M.

1:34:53

Blard. Welcome to Hermes. She

1:34:56

knew everybody by name. And

1:34:58

then when she ended up leaving in 1997 to

1:35:00

open her own store, he called her. He

1:35:05

was genuinely shocked.

1:35:08

Nobody ever leaves. What are you going to do? And

1:35:11

she explained that, well, she wanted to

1:35:13

be entrepreneurial, start her own thing. And

1:35:16

then shortly after the San Francisco Chronicle

1:35:18

did an article about her, he found

1:35:20

the article, read it in France, cut it

1:35:22

out, mailed it to her with a

1:35:24

note of congratulations handwritten. And

1:35:26

it doesn't cost him anything to do that because, I

1:35:28

mean, on the one hand, you just say they're being

1:35:31

a kind person and gave so much to

1:35:33

your house for so long. On the other hand, this is

1:35:35

the CEO of Hermes. Right. And

1:35:38

I think it's important to realize these

1:35:40

individual craftsmen are entirely

1:35:42

non-competitive with Hermes. It's

1:35:45

a completely different value proposition to the

1:35:47

customer. When you're buying

1:35:49

Hermes today, you don't start from a

1:35:52

place of, you know, I think I

1:35:54

want some of the very

1:35:56

best sewn leather

1:35:59

goods I can find. And let me evaluate

1:36:01

the whole landscape of people who could

1:36:03

deliver that for me, and then I'll decide

1:36:05

which maker to go with. Either

1:36:08

A, you're doing that and you are

1:36:10

a person who knows about a bunch

1:36:12

of individual leather craftsmen, which

1:36:15

is rare, or B, you

1:36:17

actually just want to buy something from

1:36:19

Hermes, and there's not any evaluation going

1:36:21

on. And maybe there is between big

1:36:23

luxury brands, but probably not. The

1:36:26

value proposition is not you have a

1:36:28

need for a leather good and you can bake

1:36:30

off all the competitors. You either

1:36:32

want something from Hermes or you're a different type

1:36:34

of customer. Yeah. Okay.

1:36:37

So Jean-Louis' story, how did he

1:36:39

turn this thing around and save

1:36:42

Hermes from the consultants? Well,

1:36:45

like we said, he'd apprentice just like every

1:36:47

other generation. But

1:36:49

unlike any other generation, or I guess maybe sort of

1:36:51

like Emile back in the day going and meeting Henry

1:36:53

Ford, he comes to America. And

1:36:57

specifically he came to America to follow his

1:36:59

wife, Renna, who became a

1:37:01

world famous architect. Renna

1:37:03

was interning with IM Pei in

1:37:06

New York. Really? And Renna

1:37:08

Dumas would go on to design

1:37:10

all the stores that they offered

1:37:12

to fall around and design to

1:37:15

Atelier and Pantan when they expand

1:37:17

production. IM Pei, famous

1:37:19

from a number of things, including

1:37:21

previous acquired episode with Michael Ovets,

1:37:23

designed the CAA building in

1:37:26

Los Angeles, designed the Louvre pyramid.

1:37:28

I was going to say, think

1:37:30

about the connection here at France

1:37:32

and Paris. Yeah. Which by

1:37:34

the way, everyone in Paris thought the pyramid

1:37:36

was hideously ugly when it first, relative

1:37:39

to this 1700s building around it. And

1:37:42

over time now it's become this iconic

1:37:44

triangle pyramid, beautiful signature of the city.

1:37:47

Jean-Louis, when he's in America,

1:37:50

he works for Bloomingdale's. Bloomingdale's!

1:37:53

My God, of all places. Well, there was

1:37:55

a heyday of department stores. In fact, if

1:37:57

you go way back, do you...

1:38:00

know how Hermes entered the United

1:38:02