Based on Bloomberg article by Andrew Roberts, November 4 2011 Hermes wanted to build two more factory because they reach their full target until 4 November and since they know they quantity demand will always increase, their goal in 2012 to raise the quantity demand until 14 percent. They think Europe debt crisis would not effect their selling on 2011. They are thinking about increasing the price of their product due to the increase price for raw materials. In my opinion the demand and supply of Hermes product keep stable from last year Hermes is one of the most expensive and popular among other luxury brand.
Specializing in leather, perfume, luxury goods, it based in Paris, France. branded product are now crucial for people with a high income. Even though the price of the goods is out of nonsense people still buy that branded goods. A little bit story about Hermes brand background is back in June 1993 Hermes started their publicity in coincidence. In Paris bourse or stock exchange. That time the equity sale generated excitement to Hermes. The equity sale help Hermes family by allowing members to liquidate their holding in Hermes without arguing over the share.
Nowadays Hermes value around $19. 2 billion. Hermes have 328 store in the world. despite the global economy and a really bad unemployment in Europe high end brand still explode in profitability and sales. The sales growth slow facing the increasing economic problem. Mostly the buyers of this brand is Chinese shoppers who frequently come to Paris only to buy luxury items because in Paris it cost less than the luxury brand price in china. I assume That is how the demand happen because people want it, there are people who can afford it and they actually bought it.
It seated on the articles French birkin bag maker plan to build two more leather factory in 2012 I assume it’s because the quantity demand increase because there are a lot of people who’s willing to pay for this expensive goods, other thing is because they have willingness and ability to pay for birkin. So I assume the demand go up and the supply also increase because of this new factory project. Why people willing to buy this expensive products is also because of the publicity.
For me I think Hermes product is inelastic in a country which have a higher income. ut in country that have lower income it is elastic because if the price of Hermes increase people who have normal income can not afford it anymore because their income is not going to be enough if they buy this luxury good. but I think Hermes is not necessarily important because in my opinion it is elastic there are other goods that didn’t cost as much as Hermes and the function is totally the same. There also other luxury brand which the price is so much cheaper than Hermes but it’s still affordable enough for people who have normal income. in the article they said the factory also going to increase the supply of product in 2012.
I think it’s because the quantity demand increase pretty high on this Hermes product, I heard that people have to wait and write their name on the waiting list for 5 moths, a year, even there are people who’s been in the waiting list for 6 years to get the Hermes bag. And there are actually people who is willing to wait for it. so Hermes demand keep rising but the supply stay put. price Quantity demand Hermes bag made by hand that is one of the factor that make it really expensive and very rare and the production is very limited that’s why they cannot fulfill the quantity demand because the process of making it took such a long time.
I think that Hermes have to adopt the technological change which is they have to develop the goods and have to find a way to produce the product in a better way so they can expend their quantity. In another way Hermes have a really high quantity demand, because of the limited items and the production that is why Hermes company wanted to build more factory. So in this case Hermes are facing shortage, which is Hermes is under production while the quantity demand keep rising.
But I think if they produce more Hermes without people order it first there will be a surplus, since Hermes product is very expensive, not everybody can afford it. f they over produce Hermes bag, people cannot guarantee that Hermes will sold every of their product or not. A shortage will bring opportunity for black market, because of the demand, black market can sell the product at higher prices than in the store itself. This year Hermes already fulfill their target on selling their product. And they already set a goal for the factory to increase their production so they can fulfill their demand on holiday season.
Because of the limited production they have to make everything on time so they can meet the demand that people ask. In the article stated Hermes rose 2. 2 percent to 250. 5 Euros and was up 1. 8 percent . The profit from bag that they are making is 26. 3 billion Euros. then Hermes join with other luxury brand, they assume that the margin would be only a little bit higher this year, but from the report the sales of Hermes the profit is out of the expectation. so I think the demand of Hermes bag is rise high. Other case is Hermes stock tumble in September 2011, other company try to take over Hermes I assume because of the high demand of Hermes other company try to take over Hermes. It stated on the article that because of dept in Europe it will give a major effect on Hermes selling.
Hermes may increase their prices in 2012. I believe that it is because the raw material prices increase so it will effect the price of the product it self and the company surely want gain the same benefit that they previously get. And I think it will effect on the demand, supply, and also the income effect because of the price of product goes up people start thinking about buying the product so demand will decrease, the supply will be less because of the price of raw materials increase, So it related to the income effect. Even though in Paris facing the dept of Europe, in Asia the sales on Hermes rise up to 34%.
So the demand of Hermes still increase in Asia. In conclusion I think Hermes is an elastic brand. In this case they are trying to build two other factory because of how much quantity demand that they have to fulfill, there are a lot of demand in this article because of how much people wanted this product and they actually been in wait list for a long time just to get this bag, and I also believe in Hermes brand there are demand curve because there are a relationship between quantity demanded and the price of Hermes and when people use Hermes product it influence other people to buy the exact same thing.
I agree that Hermes have to build another factory but they also have to used the technological change method so they can produced the product easily. Even though Hermes facing a few problem but the quantity demand of Hermes always increase.