Thank you for attending. We're going to present to you 2019, which was an excellent year, and I'm sure you'll have a lot of questions about 2020. Let's begin by talking about 2019, and we'll be happy to begin with and happy with these great results. It's a real pleasure to be meeting with you here on our premises. I'd like to thank you for coming. This year, 2019, saw remarkable performance at Hermès, showing the loyalty of our customers in all markets. It's also thanks to the creative abundance in all of our métiers. We're going to be talking to you about results and profits as well as revenue. In 2019, Hermès' uniqueness made it possible for us to have very high growth rates. We were able to further strengthen our independent artisans business model.
We stimulated creative abundance through the theme of the year, The Dream. We created jobs. We'll continue to talk about that later. We continued our commitment to being a responsible and sustainable company. We extended and enriched our exclusive international online and offline network to be close to local cultures. Let's talk specifically about activity now. Highlights. Sales reaching EUR 6.9 billion, up more than 15% at current exchange rate and up 12% at constant exchange rates. Again, this is very sound growth, especially driven by volumes, not a lot of Scope effects nor price effects. It's particularly virtuous growth, very positive. Very sound growth in our stores. We've seen growth in all geographies and in all business lines. Recurring operating income reached EUR 2.3 billion, which is up more than 13%. Recurring operating profitability reached 34% of sales after taking into account IFRS 16.
We'll talk about that standard later. Consolidated net profit for the first time, going beyond the EUR 1.5 billion mark, up more than 13% after restating for the sale of the Galleria store in 2018. Good cash flow. Restated net cash is EUR 4.6 billion as of 31st December, end of the year. We can see changes in revenue and net income here. We see that over the 10-year period, we basically tripled revenue and multiplied by 2.5 net income, which means annual growth rate is 14% on revenues and 18% growth in profits over the past 10 years. Over the 10-year period, we achieved a great deal. Of course, we have been around for much longer than that, but still a 10-year period is important. Creation.
A wealth of creations in the year, very successful, especially I allude to men's and women's ready-to-wear, the collections by Nadège, Véronique, and the leather goods collections, such as new models, the Simon Hermès, the Sangle Hermès model, the Birkin Faubourg, and the Chimère line. We have new designs for men's silk with Cosmographia Universalis, for instance. We also have new color versions, Rouge de Gala, Jungle Love. Successful launches of the Arceau men's watch. The Heure de la Lune got the grand prize in the astronomy calendar category in Geneva. We have Black to Light in the jewelry line designed by Pierre Hardy. A new perfume, Un Jardin sur la Lagune, launched beginning of the year, and Eau Poivrée, a variation of Twilly d'Hermès, was also revealed at that time.
In production, we have continued to remain faithful to our artisanal roots, local anchoring. We've inaugurated our 17th leather goods workshop in Isère, Fitilieu, May 2019, and four other projects are underway, and they will be spread out in the coming years. We've already laid the first stone of the leather goods workshop in Guyenne, Gironde, and Montereau in Seine-et-Marne for an opening in 2020. Two other projects were announced this year, one in Louviers, in Normandy in 2021, and two in the Ardennes by 2022. It'll become our 21st leather goods workshop. All our leather goods workshops are situated in France. We've inaugurated a new shoe manufacturing site in Italy, and expansion is planned for the Saint-Junien site in Haute-Vienne and Pierre-Bénite for textiles. Distribution network extension, new territories opened.
We've opened five new stores in 2019, two stores in the U.S.A., one in Orlando and another one in the Meatpacking District in N.Y., two in Asia, one in Phuket in Thailand, another one in Xiamen in China. For the first time for a decade, we've opened a new country, Warsaw in Poland. That is the one you see in the photograph, a beautiful store that I encourage you to visit because it is a former bakery, patisserie. An Hermès store in a patisserie. Visually, it works well, and we may not have done things differently. It's a different code, sort of reworked the patisserie and then opened the store. Of course, we adapt to the local customers. After Europe and China in 2018, the new Internet platform was rolled out in 2019 in Japan in June, and Singapore and Malaysia in October.
The new platforms continue to meet with great success, with the traffic, customer flow, and conversion rate, great success. In China, we didn't have an online store before the opening of our hermes.cn site. In communication, we had a lot of events in 2019, with, in particular, the enrichment of our films, the footprints across the world, pursuing meetings between craftsmen, artists, and clients with events, demonstrating our know-how with Hermès Hors les Murs, Hermès At Work, demonstrating the quality of our designers on the Carrés, the Hermès Carré Club in Paris at the end of the year. We had great success with our fashion shows, be it in the Tennis Club in Paris for women's ready-to-wear, or Mobilier National for men's fashion show, an acceleration of events in London and Korea for men's ready-to-wear, Men's Universe.
Hermès continues to organize these wide-reaching events with an event in Shanghai called Please, Check-In around leather, jewelry events, and Black to Light, which were presented in Paris, and events in Asia and New York. We changed the editorial line of Le Monde d'Hermès in 2019. We had the 10th edition of the Saut Hermès at the Grand Palais. The winner was riding an Hermès saddle. Quite obviously, we wanted to continue the responsible and sustainable development of Hermès. We continued our dynamic of job creation because we had more than 1,100 new jobs in 2019, taking the number of total employees at 15,417 at the end of December. Nearly two-thirds of these recruitments were done in France. Our good results also allow us to allot a fifth free share plan for employees worldwide, announced in July 2019.
Attachment to diversity, professional equality between men and women, gender diversity has been strengthened. Anchoring in the regions, of course, we are part and parcel of a development logic of the territorial sort of centers, with a policy to develop skills with training schools in-house or outside, and environment for exchange of know-how, human-sized manufacturing units, manufacturing units where everybody can call each other by their first name. We support also other initiatives, sponsorship of competence with local associations such as Réseau Entreprendre 93 association. We also want to limit our imprint, footprint. We have strong controls on our supply chain so that we have traceability of our raw materials and production, the majority in France, internalized with long-term relationships with our suppliers. We also work on our ready to find the best possible materials. The support of biodiversity goes without saying.
It starts with the construction of our manufacturing units, sustainable building, and HQE high environmental quality standard construction. Partnerships have been made with WWF, for example, to make sure that we have a good control of our impact on the environment and on biodiversity in particular. Limiting our carbon footprint goes through decoupling growth with that of consumption and carbon neutrality of internal activities of Hermès Scope one and two as of 2021. Finally, Hermès objects are there to last. Artisanal mode of production in small quantities best manages the unsold items, and Hermès object is one that can be repaired, and we did 200,000 repairs in the course of the year. Our commitment, we've taken long-term commitments. 10% of executive managers' variable remuneration is subjected to CSR criteria.
Hermès participation collective initiatives such as Fashion Pact, which was unveiled at the G7 summit in Biarritz, and extra financial allocations through the significant improvement and sustainability, just to mention a few. That's the rant on climate, water, and forest. Geographical distribution 2019, all geographical zones are growing. You see Europe first with +8%, with a solid performance carried by the United Kingdom and Italy, France +8% as well, progressing despite the negative impact of the social events in the course of the year. Japan, +8%, progressing solidly with an end- of- the- year pace with purchases linked to a hike in VAT in October, a new platform, hermes.com, was inaugurated in June. Asia, excluding Japan, +18%, is continuing its growth in Greater China despite the Hong Kong event impact, as well as South Asia. The region has increased the Qingdao store and Hyundai in Korea.
The new digital platform was rolled out in October in Singapore and in Malaysia. Americas, finally, +12%, confirms the good dynamic movement of the whole zone after the opening of Orlando store and the Meatpacking District store, as well as in Mexico, Vancouver, and San Francisco, which were renewed and enlarged in the second half of the year. All of this gives us a geographical distribution which is almost stable, and this remains balanced and limits our exposure of any one country in particular. We've gained one point in Asia Pacific as compared to the previous year. Per métier, all métiers are progressing with, in particular, I would say, the fashion and jewelry. Leather, +11%, is progressing.
This is thanks to our development projects that I mentioned, new workshops and leather workshops, and increasing the ones that have just been created with good local anchoring, developing employment, and creating social value. The clothes and accessory division, +17%, confirms its beautiful dynamic growth through the success of the ready-to-wear fashion accessories and shoes, in particular. Silk and textile, +8%, is growing with the collections, which ally diversity of materials and variety of creations. Perfumes, +4%, carried by the success of Terre d'Hermès and Twilly d'Hermès, as well as the novelty, the new perfumes. Watches, +12%, show the solid performance of sales, which reflects the creativity of the collections. As I said, Hermès has already been rewarded fourth time running by the Grand Prix d'Horlogerie de Genève.
Other métiers, plus watches, tableware, are growing with a very good progression of our jewelry collection. Here again, a breakdown of the métiers is stable as compared to 2018 and is balanced, where leather represents 50% of the activity. Let me give the floor to Éric du Halgouët, our CFO, to present the annual results.
Good morning, everyone. I'll begin by recalling the ways and means of implementing IFRS 16, the standards we're applying for the first time for a full fiscal period. This is to do with lease contracts applicable as from 1st January, 2019. Just to remind you, the standard calls for booking a right of use at a rental use on the balance sheet. For Hermès Group, this pertains solely to leases for premises, real estate leases, particularly store leases, and this includes fixed rent as well as minimum guaranteed rents when leases cover variable rent. Now, this is a full retrospective basis that we're using. Not many CAC 40 companies went this way. Though it's a negligible income impact on net profit, applying IFRS 16 means increasing operating profitability for a two-year period by around 0.4 points.
In exchange for that, financial income includes a cost of lease liabilities to the tune of EUR 25 million in 2019, which is the interest cost on lease liabilities. Total balance sheet around EUR 10 billion, increased by around EUR 1 billion by booking right of use under assets, and under liabilities, a lease of liability. Now, the cash flow chart. Operational cash flow increases through depreciation of rights of use, and a counterpart of this is inclusion of repayment of lease liabilities to the tune of EUR 203 million in 2019. Definition of available free cash flow and alternative performance indicator has been adjusted in our cash flow statement corresponding to our cash flow generation, plus or minus WCR, minus investments, minus the repayment of lease or rent debt. Current operating income, 34% of sales, which is slightly down compared to 2018.
This change is due mainly to gross margin losing 0.9%, including, as expected, the negative effect of foreign exchange hedging to the tune of 1.2 percentage points. That's around EUR 18 million. We'd observe the dilutive impact due to the conversion effect was offset by gains on option hedges to the tune of approximately EUR 20 million. On the other direction, gross margin saw the benefits in 2019. The positive impact of increased price is slightly above the increase in cost of sales. Furthermore, a leverage effect on indirect production costs, thanks to the strong increase in sales.
Communication spending making 5.2% of sales versus 5% of sales in 2018. Other selling, marketing, and admin expenses, excluding IFRS 16 stable between 2018 and 2019 due to the increased selling teams and other things during the year. Other income expenses, EUR 604 million. EUR 407 million of this is depreciations, half of which are for tangible assets. The other half is rights of use that are depreciated over the length of the duration of the lease. Other income expenses also includes EUR 114 million in expenses having to do with the free share plan, up EUR 40 million versus 2018 due to the plan granted to all employees midway through 2019. Recurring operating income goes beyond the EUR 2.3 billion mark, up 13% versus 2018. This is growing at almost the same pace as growth in revenue.
After factoring in the net capital gain of EUR 54 million due to the sale of the premises at Galleria Hong Kong 2018, operating income is up by 10%. Now expressed as a percentage of revenue or sale. Current operating income, 34%, is near its record level in 2017/2018, in spite of the negative impact of currencies in 2019. Financial results are a loss of EUR 69 million, similar to the losses booked in 2018.
This includes three main elements. Firstly, interest on IFRS 16 lease debt, EUR 24-some million, plus the booking of hedging transactions for currency transactions. Half of this amount is premiums on options, and the other half is a discount on currencies. Furthermore, there's proceeds from compensation on cash and investments to the tune of around EUR 13 million. Taxes on profits, 33.1% as opposed to 32.5% in 2018. I'd recall you, the 2018 tax rate had been reduced by 0.8 because of the non-taxable capital gain that was a result of selling the Galleria premises in Hong Kong. Net income going beyond EUR 1.5 billion, up 9% compared to 2018. This growth is 13% if we restate for the sale of the Galleria premises, which is up almost exactly in line with the increase in operating income. Net profitability reaching 22.2%, near its record level of 23.6% reached in 2018.
If we restate for the capital gain of Galleria, was 22.7%. Let's talk about investments and cash flow. Operating investments, EUR 478 million in 2019 versus EUR 312 million in 2018. EUR 263 million, which is 55%, spent on developing the retail network, particularly with the purchase of Sydney's store premises. The inauguration is slated for June 2020. Plus cost of new sales. Axel alluded to this, including the Meatpacking District in New York and Orlando, and also Xiamen in China. Refurbishment and enlargement costs of around 15 stores are included here, including San Francisco, Vancouver, Amsterdam, Hawaii, and in Russia, just to mention a few of them. EUR 107 million invested in production, mainly leather production sites. Projects in Boulogne, Montreuil, and Louviers I'd allude to. Textiles, with the refurbishment and extension of our weaving and printing production sites in Lyon.
Lastly, EUR 108 million invested in real estate in Pantin, among other locations. There are IT and digital projects. We're continuing our development of our digital platform in Japan and in Singapore. 2019 saw strong growth in cash, up around EUR 1 billion, thanks to EUR 2.1 billion cash generation and stability in working capital requirements as in 2018, thanks to good control of inventory throughout the retail network. After financing EUR 478 million in operating investments and paying dividends, EUR 487 million, an ordinary dividend of EUR 4.55 per share, plus share buybacks for EUR 53 million, net cash position reaching almost EUR 4.6 billion end of the year.
Under IFRS, net cash is EUR 4.4 billion after deducting investments whose maturity is above three months, around EUR 200 million worth. Dividend, subject to approval by the next shareholders meeting, will be EUR 5 per share, which is up 10%. Almost up exactly in lockstep with operating income. Payout therefore will be 34.5%, slightly up compared to 2018, 33.8%, which is 33.8%, just to remind you of that.
Thank you, Éric. It's a pleasure for me to present the outlook. Well, the outlook hasn't changed. Guidance, thanks to its unique corporate model, Hermès is pursuing its long-term development strategy based on creativity, maintaining control over know-how, and ever best quality. In the medium term, despite economic, geopolitical, and monetary uncertainties around the world, the group confirms an ambitious goal for revenue growth at constant exchange rates. 2020 will follow previous years' trend, the strengthening of the craftsmanship builds business model of sustainable and responsible growth. It is by allying the spirit of enterprise and craftsmanship that Hermès renews its creative work in all the métiers. In 2020, Hermès celebrated innovation gesture, constant innovation, the fruit of creativity, and the excellence of hand craftsmanship. Hermès recently launched its 16th division, Hermès Beauty, in March, introduced limited introduction in different stores and to the Internet.
For those who are in the room this morning, you can observe some of the beauty objects lying here, presented here. I will not be trying it on, the lipstick. Introducing products such as a double-sided Carré, this is innovations. I've managed to print the Carré on both sides after years of research and development. Here it is. Looks simple, like the figures presented to you by Éric, there was a lot of work that went into it, innovations such as the cuff bracelets, the line of anodized aluminum, all of this, the new flagship being opened in Sydney. We bought Deauville in the course of the second semester, 15 enlargements in the course of the year. We continue to roll out the e-commerce platform in Hong Kong, Macau, at the end of the year, Korea. Much for the year.
I suggest that we move on to questions. Maybe I'll ask myself a question to deal with a subject as what about the virus? I'll tell you what we are able to say at this stage. Now, as you know, for those who come often to these presentations, I think since the 21st century, we've entered into the VUCA world, volatile, uncertain, complex, and ambiguous, and every two years, there's a crisis somewhere. It started with the 9/11 in the U.S., then there was SARS in Hong Kong, there was financial crisis in the U.S., Fukushima in Japan. Of course, with the 20th century, terrorist attacks in Paris and Barcelona, in Madrid, in London, climate-related events. Unfortunately now, like every two years, we have a crisis that is pandemic crisis affecting everybody.
The priority in Hermès is, first of all, the health of the employees and to make sure that everybody is doing well, so we have an everyday stocktaking, and up until now, no employee in Hermès has been affected by this virus. This virus arrived in a country that's important for our industry, that's China. Important moment for the country, that is the Chinese New Year. What can we say at this stage? Well, what we can say at this stage, this year, with the group idea, we can't have the figures for Asia before the end of the first quarter because the Chinese New Year lends a lot of structure to the quarter, and which moves in the course of the year. You can't really have a comparative situation that is legible before the end of the month of March.
What we can say, however, is that there has been a strong closure of customer flow and stores because of the security measures. 11 stores were closed, 15 if you include Macau, 15 stores were closed for health reasons. Today, we see a reopening possible and progressive reopening of the stores because today you only have four stores which are still closed. We see that we are entering into an operational normalization in China, which is not the normalization of the customer flow, but we managed to open the stores. We're managing to open the stores today. Obviously, this has been affected, and the Chinese have not been able to travel as much as they would normally with regard to the Chinese New Year. This is something that we've been following very closely every day.
It's not limited to China, as you know, because there are cases now in Asia and Singapore, South Korea, and now in Italy. Indeed, there is an impact which will be more legible in the first quarter, when we will publish the results of the first quarter. What can we say with regard to Hermès?
What we can say is that since our production is up 88% in France, there's no supply chain problem for us, and we don't think we will have one except for the Italian situation. Secondly, our fundamentals, which are the desirability of our products. We have all the reasons to believe that this desirability over and beyond the events remains as is. Then the attention that we've been giving to local customers allows us to bounce back with regard to a drop in tourism in certain countries. Obviously, we are waiting for the end of the pandemic. We're following the indications of the WHO, like you, to see when China will bounce back. That's what I can tell you about this at this stage.
Good morning. I'm from HSBC. I've got three questions. 2019 really saw extra performance of other sectors other than leather, if you look at them all in all. Do you believe this was due to various launches, special launch situations, or do you think that in the longer run, not taking into account coronavirus impact, but in the longer run, might this be sustainable, some categories of product reaching higher levels, greater maturity? A second question, e-commerce. You mentioned some additional sites in various countries. Could you give us some figures, specifically growth in e-commerce sales in 2019, and how much of your revenue this represents, and what the upcoming stages might be in terms of geography or possibly adding other products online that aren't there yet?
Third question, you don't give any margin guidance, and I suspect even less so due to the virus. If we think of the major margin drivers, I'd like to know, henceforth, at current exchange rates, what are the expectations vis-à-vis exchange rate impact? Also, new product launches this year. I'd like to know, do you think there'll be specific cost changes or price changes that we should be aware of and factor into things?
Three questions. First of all, on the métiers, I believe there's no business line in métier which has reached maturity. Look at plus 11 for leather goods performance, which shows the excellent productivity we had in 2019, a bit beyond our targets. Furthermore, this shows that there's very strong demand for our products and for novelties. You can also see this in our financial WCR, is pretty much stable in spite of the growth.
We can say that we're bringing out products very quickly. I've always tried to make sure that each métier reaches its own potential. There's a great deal of potential in each of the different métiers. When I took charge of the group, we had around 50% in leather goods. Even worse than that. More than that. An interesting thing to point out in the métiers, there are two sort of extremes in our industry that function well. Fashion does well, ready-to-wear, shoes, and then also at the same time, what you sometimes call hard luxury, which is jewelry, watches. Especially jewelry in recent years, which has demonstrated success, watches seeing new momentum. There's still a great deal of potential there in all those business lines.
If we take a long-term view of Hermès, very long-term view, our idea is to make sure that we are bringing to the fore métiers with our style that are the products that our customers are looking for. We're not a marketing company. We're there to come up with the most beautiful product offering and see what people are interested in. We see there's been a return to fashion, a return to jewelry in recent years, and leather is holding up very well as well. When I did my first internship at Hermès, it seems a while back now, but back in 1988, 56% of our revenues was silk, 9% was leather, which just goes to show things can change. Now, why was 2019 fantastic? Because all the métiers did beautifully.
It won't necessarily always be the case, no doubt about it, but sometimes you've got years where the stars are in full alignment. Sorry, yes, your other questions. Yes, e-commerce. I won't give you the figures on e-commerce. Of course, e-commerce, we're continuing to open in several countries, lots of them. Whenever we open a new site, we add to the product range. We have a rule of thumb for e-commerce. We only show on our sites products that are available for sale. If we don't have them in store inventory, we don't display them on the e-commerce sites. Growth through a new site. Well, it's due to the improvement in the site, which is increased conversion rates, increased traffic, and it also is thanks to additional geographies.
When you add new countries, the U.S. or Europe or areas that we relaunched with a new site, that led to improvement. China is a country we opened anew, you can't compare it exactly with other areas. Yes, there is growth in the internet, which is well beyond the 15% growth we mentioned to you. Éric will answer this.
Yes, four things I'd mention for 2020. First, positive impact, which is the currency effect. All in all, on a strategic currency, it says an improvement of around 4% or 5%. As I mentioned, we had a EUR 20 million gain on options in 2019, which is non-recurring in 2020. A second point, the launch of Hermès Beauty, Axel mentioned. That'll mean we'll be investing more in communication in 2020. Lastly, two further elements having an impact on structural costs. The full year effect of strengthening our structures, which we began in 2019, and lastly, I mentioned this, the full year effect of the free share plan. It was only a six-month effect in 2019, around EUR 40 million, and you'll double that to make for the full year effect in 2020.
[Non-English content] Lucas.
Hello, I'm from Bernstein. I have a question on your scheduling that you're adhering to. I'm trying to figure out speed, flexibility, which you have in cost-cutting, in the event, as we might expect, if demand were very sluggish in the first half of the year. Also, I'd like to know, how fast could you ramp back up your whole activity to be ready for any rebound in demand in the second half of the year, which we may well expect. Is this your rationale? Furthermore, you talked about pandemic. Are you starting to see impacts, not just on Chinese customers, but if you look at trends by nationality, are you seeing further impacts, a second-tier impact? Are people traveling less, more generally, maybe the U.S.? Should we factor this into our full-year equations?
Answer. Hermès is a fairly unusual business. We're highly integrated. We've got a great deal of production facilities in-house. The job for the executive committee is to take into account all three phases, the phase of retail, which is weekly. That's the timeline. You talk about a good week, a poor week. There's the timeline for the maîtres and creative people. It's about a year. You design the next creation, deliver the previous one and so forth. Industry's timeline, industry's phase, is four years. When you start a production site, it takes about four years to bring it fully online. These are very timelines that you have to be constantly regulating and doing trade-offs and so forth. For the time being, it's business as usual, in spite of it all.
In other words, we're continuing with all of our investments, all of our long-term industrial investments, because we see we've got the demand, and the desirability certainly continues to be here. As to collections and purchasing, they're a very clear, straightforward system. Each store has freedom to purchase as it sees fit. Every six months, there's an adjustment based on demand. As this happens in February, we have what we call in our jargon our podium. That's where every store manager places his or her orders of novelties and products and so forth. That's why our inventory pretty much self-adjusts, naturally adjusts. To take a very short-term consideration, we're cutting costs if need be in retailing. For the time being, though, we can say that the system is self-regulating. The Asia area is mainly an area of variable rent. Basically, things are self-regulating for the time being.
Of course, in our strategies, we've already factored in capacity to contain costs or not, but we're not at that stage yet where we're actually thinking that through. As I said, we've got a strategy. For instance, communication is focused on local customers. This is the time to continue investing in our local customers to increase desirability of our brand amongst local customers. That was on the first questions. On to travelers more generally. There are two points, basically. Firstly, this should probably have an impact on travel retail. The Chinese customers travel a great deal. That's a big portion of travel retail generally. As to other customers, non-French and non-Chinese. I have no indication that there'd be any drop in traveling. What about Korean customers in South Korea? We saw when in Singapore there were events, Singapore customers that had an impact.
Chinese tourists are impacting travel retail. There's another subject. The question is, where will this virus head? What countries will it go to? What will the local impact be if the virus does appear in a country? At this juncture, we are just keeping an eye on how things are changing and evolving.
Hello, Edouard Aubin, Morgan Stanley. I have two questions. The first one, if you would come back to the evolution of your customers in terms of nationality and age in 2019. You don't use the recipes of your competitors to target millennials and key opinion leaders. Despite that, you have great success with the millennials nonetheless. If you could comment on that. The second question is on cosmetics. Could you please tell us about the launches to be expected in the 12 to 18 months to come in terms of product and in terms of retail? You had mentioned that normally you will be using your own retail network, in the medium and long term, to what extent will you be using an external network for the distribution of products?
For the customers, you've seen the geographical zones haven't really changed. We are seeing the strength of our local customers in the countries. This is something that I follow, and am really proud of. Give you an example, the Japanese customers. Maybe some brands invested less in Japan than others to invest more in China, for example. We redid our stores, refurbished our stores, worked on our network, and today we have Japanese customers, very strong, very well-anchored. That's why we can make a +8% over the year. Each zone is managed multi locally. We've got Chinese teams in China, and Italians in Italy. This allows us to actually have multi strategies as a function of each country. Then, of course, you've got in-house internal rules where we don't pay somebody for writing an article, be it an influencer or a journalist.
Maybe we use fewer key opinion leaders, but we do have key opinion leaders who write for the beauty of the brand. I have an opinion which is personal. There's a movement in Asia where you have very young customers coming. They have the resources, and they buy. Sometimes this enthusiasm on millennials or not millennials, one, we're all aging, so demography is such that there's more millennials. Secondly, it's overweighted in Asia because it's young customers. You have millennial customers, Asian customers, and sometimes the two are synonymous. The success that we have in Asia is because we also have a lot of customers who are millennials. As I say every time, we don't have a marketing department, so we never make a product for a millennial or for a given nationality. We try to have more successes than failures.
Director of jewelry, when I was in the jewelry department, you can have some failures. We try to have more successes than failures and to find customers and to invent the desire of tomorrow rather than responding to the desire of today. For cosmetics, we're starting. If we want to be cautious, it's also because we remain cautious with regard to the launch of the 16 Métiers. We want to learn. I can't say that we have a plan, because we want feedback and experience. There's some products that are not only just sold in our stores because you need to have a lot of space, 24 colors, plus. We want to start with 180 points of sale, 80 in Hermès and 90 outside of Hermès. We're opening outside with Harrods, Galeries Lafayette, the simpler ones in the U.S., and Seoul.
With this, we will see. The idea is to grow as a function of the successes and the development and the control over our supply chain. If we had launched it five, six, eight years ago, the big difference is the digital, because there will be a large part of the distribution of the retail that will be made through the digital, Hermès digital, and just perfumes. We will see it as many doors as perfume because it requires more work and space, but it is supposed to take the classic distribution, classic retail, like our perfumes. We continue with cosmetics, makeup that will come with foundation cream and nail polish to have a complete offering of makeup, even though the lipstick is the most important in terms of figures. Then we will be thinking, we are already reflecting. If it is not ready, we will not.
To add maybe a third line, a third area, which would be the creams. To have the three areas and be a worldwide brand.
Is it possible to give us a little more about the weight of the Chinese outside of China?
That's very variable. That is not something that we actually calculate, so I can't give you a figure, really. What we have seen during the events in the fourth quarter is if you travel, yes, to Hong Kong, if you're Chinese, then you buy more in China. It's not a very relevant indicator for us because often we find effects, sort of leverage effect from one to the other. We prefer to focus on the growth of the local customers in each of the countries. Let me give you an example. What happened with SARS in 2003.
At that time, it was a very touristic destination for the Japanese. 70% of the sales was made to the Japanese at that time. The SARS came. Hong Kong was difficult for the local customers as well because they didn't want to go out onto the streets. They were scared of the virus, obviously. At the same time, we had a very strong increase of our sales in Japan that offset. There'll be those rebound effects and one situation offsetting another, and it's impossible to quantify it.
Good morning. If you will allow me, I have a short question on the virus. At this stage, do you have an idea about the consumption that could have been put onto the digital? Is that quantifiable? On the CSR, you spoke about the 10% that was already your case for the managers. Could you give us more specifications? Thirdly, the fact that one can choose more second-hand. Can that concern you? Do you perceive a change that could be projected in the long term? Then for the anodized aluminum cuff bracelets, you also make rings. Is that the introduction of a new material, or is it to have products that are more accessible?
Okay, I'll try and answer all the questions more or less well. It's difficult to know exactly what is the share of what we would have had or not had. When you have a store that closed down, your sales are zero, and we'll all be at an equal footing. Where we have to be very cautious in this kind of a crisis is you always have side effects.
First thing that we did in the beginning, out of security, was a few days we closed down the internet because what does internet do? There's a delivery person who goes around from house to house, and it's very bad in terms of health protection. Today, we've put in place procedures within the Chinese context, and we do see that there is a demand. The demand on the internet remains at the level that we'd expected. That's why I said we still have the desirability of our products in China today. Of course, that does not replace the closure of the store, the lack of customer flow in the stores. Even if there are common customers between the online and offline, the customers are sometimes different. Internet will not be replacing the closed stores.
This is also what we see when there are strike days, where there is no peak on the internet during a strike where it's difficult to get around. It gives you a good idea of what is the desirability. For CSR, of course, it's the first year. 10% of the variable remuneration compensation of the managers is based on CSR criteria. There are three. First is decoupling energy consumption with growth. Second is local anchoring and job creation. Third is gender equality in the group. These are three criteria which are assessed, some quantitative, some qualitative assessed. Question is off microphone. Can microphone be given?
We are two to manage. Myself, who's Prize, and Aur´elie Boyer, who is heading the Hermès sleeping partnership? Secondhand. Well, that is a question.
You asked me a tricky question here. I'll tell you why. It's not very nice. Secondhand, I find it great, and often there is no sale. In our case, it's the granddaughter who brings her grandmother's store to the store that we sort of refurbish. The real market of the secondhand is repairs in Hermès, repairing a product. There's a secondhand market which is different, which is selling new bags as secondhand. Otherwise, they wouldn't have the right to do so, but more costly than what you find in the stores. Is that something-That harms in the long term. I think it's a pity for the customers. We try to produce a maximum, sell to real customers who will be able to enjoy their bag and not sell it for more secondhand. There's a rare company where the secondhand is more expensive than you.
The aim is to increase production, satisfy everybody, and sometimes the secondhand, sometimes you also have counterfeited products that get mixed in and so forth. Sometimes people get disappointed when they paid a lot of money for something that is fake. Our main aim is to continue to produce, and I think there's an advantage in buying these bags in Hermès, is that sometimes they'll cost you less than the secondhand and more likely to be authentic. For the aluminum cuff bracelets, we never think of price. For the moment, we only make the bracelets. We've got several. No rings for the moment.
On the price, is it more expensive, less expensive?
Trust us for making it not expensive. The idea is to have something very light and different. We got leather ones, that style in aluminum. We found this manufacturer of aluminum in California, and we liked him, so we made a project with him, and we'll see. We haven't really sold them yet because we haven't really delivered them. They'll be delivered in April, May. Maybe it'll be part of success, or maybe not. [Non-English content]. Aurélie.
Hello, I'm from Kepler. I've got three questions, one on the U.S. and two on China. Great increase in revenues in the U.S. Two stores were opened, I know that. Why such great performance in Q4? Was this local customers, or was this partially due to increased travel tourism? China virus. I understand that you need to wait for the end of March to see the full impact. Some industry players have talked about a drop in revenues on the order of 80% or 90% in February, or the first two weeks of February. My intuition tells me that the power of the Hermès brand is so strong that the drop in revenue during the period was probably lower also, especially since you closed fewer stores. Is my intuition right? I tried to phrase that right.
That was beautifully phrased.
I have a last question, though, on advertising spending in China. Since February, have you reduced advertising spend in China, or are you keeping your media plan as is, precisely to prepare for a return to normalcy?
Okay, three questions. First of all, the U.S. First of all, it's a country with a large number of local customers. That's always been the case. U.S. nationals from differing backgrounds. To tell you frankly, the U.S. is the country that I thought was most interesting during the year. There would be a great week, then a poor week. You'd ask the teams why, they couldn't tell you. End of the year, plus 12. The trend is great. The stores we opened were all successes, mainly with local customers. We also think of the reopening of Waikiki, where we had a lot of tourists, especially Japanese business, very successful. The basics, yes.
We've got local customers in the U.S. The economy's been looking good in the U.S. This has all made for our strong success compared to 2018, which had also been a very good year, going beyond the $1 billion mark. The trend is great. It's difficult to do a weekly interpretation. When the U.S. elections, sometimes people spend time watching the debates and not in stores. We've seen this previously. There's strong, very good momentum in the U.S. marketplace. We'll continue investing there. Think of the San Francisco store we reopened. It's doing beautifully. It's one of the biggest size store in the group. We had that opportunity for extra space, and it's doing very well indeed.
You've got great results in New York in one week, and the following week, a little bit more difficult, but then the state of California is doing well, versus other countries where every single week are basically the same. The U.S. fluctuates from one week to the next. Ending up the end of the year at +12, we're very pleased. To talk about China now. When a store is closed, you have zero sales, zero, just like everybody else. There are in-store traffic considerations. Our standalone stores that are not in main traffic areas are still seeing customers, whereas in malls, a lot of foot traffic, people are a little more worried and don't tend to come to the malls. Traffic patterns haven't normalized yet in malls currently. We were impacted.
I don't know if we'll hold up better than the others or not, but we were impacted as everyone was by the events, especially in February. There was a good trend in January, no doubt about it. There was demand. I believe we've got local customers outside of China that's a very strong customer base. Chinese New Year is an eight, 10-day period, 15-day period, basically, with strong buying. There's a week of traveling where people buy outside of China. We didn't benefit from the 15 days. That was in January, and Chinese purchasing saw some of the benefits, but there wasn't the subsequent traveling and travel purchases. There were some difficulties to open some of the stores. Some of them had to be closed. Some of them had to shorten their hours and have one separate team of employees and so forth.
Our number one priority in China, as I've said, are health considerations. We're taking health measures for both employees and customers alike. WHO seems to be saying it's peaking. We don't know. We'll see. For the time being, we're resuming operations, normalizing things. We can't say in-store traffic has normalized in China yet. To talk about communication now, you saw in our financials we went from 5% to 5.2% communication budget. This is because our communications manager, Charlotte David, is expensive. Now what's she saying to us now? This is precisely the time to invest even more, she's saying. For the time being, we haven't cut communication spend. We may be boosting it, possibly doing more digital and more other communication. We're not going to be cutting communication that's been earmarked for cosmetics. Afterwards, though, that's the beauty of Hermès. There are often two considerations.
Two-thirds of our communication spending are spending on events. It is very powerful, and one-third is media spend. Different from the competitors. Conventionally, it'd be two-thirds media spend and one-third events. We do it the other way around. Some events necessarily will be canceled. We're not going to bring 300 people into the same room right now on certain events. We'll be settling this. We'll see how many events we might cancel, how many events' money might be reinvested in other types of communication if those events are canceled.
Cécile Le Coz, Investir.
I'm from Investir magazine. Earlier, you mentioned Hong Kong. Give us an update. What was the drop in activity? Has everything been offset elsewhere? You also mentioned Italy. What's its proportion for the group in terms of activity, sales, and production? What are the four Chinese stores that are still closed?
Hong Kong. We did experience in Q4, there was a reduction in Chinese travelers to Hong Kong, offset by sales in mainland China. We saw our local customer base held up very well. Asia-Pacific Q4 was up 13%, I believe, if I'm not mistaken, which is very good. Give you some greater granularity. Q4, there's a stronger increase than usual in mainland China and somewhat of a downtick in Hong Kong. Your other question on Italy. This very recent Italy. These are brand-new events. Again, no Hermès employee is impacted. The Milan store remains open. As I said, 80% of our production is in France. There's a little bit of ready-to-wear and some footwear made in Italy. At this juncture, at this stage, I repeat, we don't have any supply chain problems in Italy. The four stores closed in China, of course, Wuhan, Xi'an, Harbin, and Shenzhen.
[Non-English content] Mario.
Hello, from First. I've got two brief questions. First one, are you considering price increases this year? Question number two, growth in leather, often limited by your production capacity. If there were a drop in demand this year and you maintain capacity, you might have a magnificent year next year, thanks to production shifts.
Thank you for imagining a magnificent year. I'm always optimistic. I tend to be a worrying optimist. First, a couple things. On price hikes this year, we've already done everything. Often it has to do with the increased production costs. Overall, about a 1% increase in cost. There's a Eurozone increase in cost, that's where we've got most of our costs. Currencies have changed. We didn't increase in some areas, so we could reduce price variations from one area to another due to currency changes. Next point.
Still, we can say that all of our leather sells immediately. There can't be any big fluctuation and go beyond what we can actually produce. Other areas that have more subcontractors that are less vertically integrated, they can do ups and downs fairly easily, ramp things up or down. We have to stay pretty much at the same level all the time. We know where we're going to end up by the end of the year. We know our production. It takes 16 hours to make an Hermès bag. The bag is made in France. We've got our craftsmen and women. They work 36-hour, 37-hour work weeks. You can do the back-of-the-envelope calculation, even though we don't do this for you publicly, but you can do it for yourselves. We've got, for the time being, all the raw materials we need to produce.
We're always trying to make sure our production hovers around 7% or 8% per annum, sometimes more, sometimes less of an uptick, but that's broadly the trend per annum. [Non-English content] Antoine.
Antoine Riou, Société Générale. I have a question on the Japanese market. There's a weakness specific to all sectors on Q4 on local customers the first weeks of January. Have you observed a normalization of the number of the customers, sort of normal traffic?
Yes, Q4 was affected by the increase in VAT in October, with sales higher than what we could have expected before, and a big drop and normalization, which finishes, which ends Q4. It's the same trend, but this is a specificity of the Japanese market, which in 10 years has gone from 100% Japanese to somewhat tourists, and with the Chinese customers in particular. Today, Chinese customers are not traveling, so I would say as a function of the houses and the share of the local customers, that is Japanese customers, there will be a different impact on Japan. The Japanese are worried too.
Juliette Garnier.
Juliette Garnier for Le Monde. Can you just tell us how many stores do you have in China, and where do you manufacture your lipsticks, please?
In Greater China, if we take continental China, it is 26, Hong Kong is seven, Macau is four, and Taiwan is six. It gives you 43 stores in Greater China. We had 11 stores closed in continental China and four in Macau when Macau closed down. Makeup for the lipstick, the stick is made in Italy. The stick, what you call in French. The stick is made in Italy.
Women's Wear Daily. Question on your reflection in China. Do you think you will join an e-commerce platform like JD.com or Alibaba?
The pavilion. For the moment, our priority is to have the solidarity with the Chinese teams, the Chinese, and that is what is of concern to us today, and looking at all the little signs, including the bottlenecks in Shanghai, U.S.A., which is a good thing. On e-commerce, with great success on our website. The priority is to continue that. Some products, perfumes. Perfumes will also be sold on other selective distribution, not exclusive, selective distribution on perfumes. Will we do a test of pop-up stores on WeChat? Why not? We are quite open, but this was a surprise. It was our will and the surprise of others, given the success, and we were surprised too, to see an independent site as ours to have as much customer traffic. Earlier, we would have thought one could have existed without the platforms that you mentioned, but then again.
Well, thank you. Thank you very much. It's probably the irony of life to present the best figures since years in an atmosphere of full angst. We're an international company, accepts the international problems when they arise, when they crystallize, and I hope that we will deal with it above all in a human manner. Thank you very much.