Hermès Eyes China's Pork Prices as Key Economic Indicator Amid Market Weakness

French luxury brand Hermès is closely watching China's pork prices as a significant indicator for its future performance, according to executive chairman Axel Dumas. Despite a stable financial report, the company's stock recently fell over 11%.

Dumas highlighted that China's pork prices, real estate market, and stock market are three key factors influencing Hermès' development. This focus underscores the importance of China's domestic market, which represented 43% of the brand's revenue in the first half of the year, and previously reached up to 52%.

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Whether China's pork prices rebound is an important indicator for observing the company's future performance.

Hermès, like other European luxury brands such as Louis Vuitton (which still derives over 29% of its sales from China), is feeling the strain of declining consumer spending in the Chinese market. This trend is also affecting other industries; for example, Volkswagen is experiencing weakening performance due to increased competition from China's domestic automotive sector, potentially leading to significant layoffs.

Adding to the economic picture, China's pork prices have fallen for 10 consecutive years. Even companies like Winstar Optoelectronics have exited the market. Despite the perception of a large market consuming approximately 700 million pigs annually, the hog farming industry is broadly unprofitable. In the first half of this year, 20 Chinese hog farming companies reported a combined loss of 18.33 billion yuan (approximately $2.5 billion USD). Therefore, Hermès may have a long wait for a rebound in Chinese pork prices.

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This is the first time I've seen the market outlook for Birkin bags linked to China's pork prices. It feels novel and worth noting.