Hermès Faces Headwinds in Asia-Pacific as Chinese Luxury Demand Softens

Hermès, the luxury goods giant renowned for its iconic Birkin bags and artisanal craftsmanship, reported mixed results for Q1 2025, with its Asia-Pacific region—excluding Japan—struggling under the weight of declining traffic in Greater China. While the brand’s global sales grew a modest 7% at constant exchange rates, the critical Asia-Pacific market (excluding Japan) saw growth of just 1% at constant rates, signaling persistent challenges in one of its most vital markets.

Regional Performance: Asia-Pacific Under Pressure, Japan Shines

The Asia-Pacific region (excluding Japan) contributed €1.971 billion to Hermès’ Q1 2025 revenue, a 2.7% increase at current exchange rates but only 1.2% at constant rates. The slowdown was attributed to a downturn in traffic in Greater China since late 2024, which analysts link to macroeconomic uncertainties and shifting consumer sentiment. Despite this, Hermès’ client loyalty and value strategy—emphasizing exclusivity and premium pricing—helped stabilize sales.

In contrast, Japan delivered a robust 17.2% growth at constant rates, driven by strong local demand. The broader Asia region (including Japan) grew 5.1% at current rates, highlighting Japan’s outperformance but also underscoring the drag from Greater China.

Product Division Highlights: Leather Goods Thrive, Watches Lag

The Leather Goods and Saddlery division, Hermès’ largest contributor (43.9% of revenue), grew 10% at constant rates, fueled by new products like the Médor and Mousqueton bags. This resilience suggests that core leather goods remain a bulwark in high-growth markets like China, even amid traffic declines.

However, the Watches division faltered, shrinking 10% at constant rates, likely due to weak demand for its timepieces in Asia. Hermès aims to reverse this with new product launches, such as the H08 watch, though the segment’s underperformance remains a concern.

Strategic Moves to Counter Weakness

Hermès is doubling down on selective expansion and store revitalization to reignite momentum. In Q1 2025, it reopened the Taichung store in Taiwan after expansion and renovated its Bangkok Central Embassy store, signaling confidence in the region’s long-term potential. Additionally, the brand’s vertical integration model—controlling production from craftsmanship to distribution—allows it to manage costs and maintain quality, shielding it from broader supply chain volatility.

The company also emphasized its artisanal craftsmanship and responsible practices, including decarbonization initiatives, to reinforce its premium positioning. These strategies align with evolving consumer preferences for ethical luxury, particularly among Asia’s affluent buyers.

Challenges and Risks

The report highlighted geopolitical uncertainties and tariff tensions as risks for the luxury sector. In China, concerns over economic growth and regulatory shifts—such as recent scrutiny of overseas travel and spending—could further dampen demand. Meanwhile, competing brands like LVMH and Kering are aggressively expanding their Asian footprint, intensifying competition.

Conclusion: Resilience Amid Headwinds

Hermès’ Q1 2025 results reflect a cautious but resilient performance in Asia-Pacific, where Greater China’s softness contrasts with Japan’s strength. While the brand’s strategic focus on exclusivity, craftsmanship, and selective expansion provides a buffer against short-term challenges, its long-term success hinges on navigating geopolitical risks and restoring demand in China.

Investors should monitor Hermès’ store openings (e.g., plans for new workshops in France to boost production capacity) and product innovation in underperforming categories like Watches. The brand’s loyal customer base and pricing power position it to capitalize on a potential rebound in luxury spending, but near-term growth will depend on stabilizing traffic in Asia’s key markets.

In summary, Hermès’ Q1 results underscore the fragility of luxury demand in Asia amid macroeconomic headwinds. Yet, its disciplined strategy and premium positioning suggest that it remains well-equipped to weather the storm and emerge stronger as conditions improve. For investors, patience and a focus on the brand’s long-term fundamentals may yield rewards in the years ahead.