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. But let's begin by talking about 2019, and will be happy to begin 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 Hermes, showing the loyalty of our customers in all markets. It's also thanks to the creative abundance in all of our metiers. And we're going to be talking to you about results and profits as well as revenue. In 2019, Hermes' 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, and we created jobs. We'll continue to talk about that later, and we continued our commitment to being responsible and sustainable company. We extended and enriched our exclusive international online and offline network to close to local cultures. Let's talk specifically about activity now highlights.
Sales reaching 6 point €9,000,000,000 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. So 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 2.3 $1,000,000,000 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 €1,500,000,000 mark, up more than 13% after restating for the sale of the Galleria store in 20 18. Good cash flow, restated net cash is 4,600,000,000 dollars as of 31 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 point 5 net income, which means annual growth rate is 14% on revenues and 18% growth in profits for
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 it's still a 10 year period is important. Wealth of Creations in the year were very successful, especially I alluded to men's and women's ready to wear the collections by Nadage, Veronique and leather goods collections such as new models of Simon Hermes, the So Hermes model, the Birken Faubour and the Chimair line. We have new designs for men's silk with Cosmography, for instance. We also have new color versions, Rue De Gala, Jungle Love, successful launches of the Arceau men's watch.
The astronomy calendar category in Geneva. And then we have black to light in the jewelry line designed by Pierre Hardy. A new perfume, Jardins Sur Lagoon, launched at the beginning of the year and Au Poivre, a variation of 3 dirhams Hermes 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 Iverte etilliers, May 2019 and 4 other projects are underway and they will be spread out in the coming years. We've already laid the first laid the first one of the leather goods workshop in Gruyenne, Giron and Montreux in Cenen Marne for an opening in 2020. 2 other projects were announced this year, 1 in Louviers in Normandy in 2021 and 2 in the Ardennes by 2022. It will 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 Joanie site in, Haut Vienne and Pierre Benite for textiles. Distribution network extension, new territories open. We've opened 5 new stores in 2019, 2 stores in the USA or 1 in Orlando and another one in the meat packing district in New York, 2 in Asia, 1 in Phuket in Thailand, another one in Xiamen in China. And for the first time for a decade, we 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. We have an Amisto in a patisserie. Visually, it works well. And we may not have done things differently. It's a different code, rework the patisserie and then open the store.
So 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 new 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 MS. Cn site.
In communication, we had a lot of events in 2019 within 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 Hermes Orlais Mure, Hermes at work, demonstrating the quality of our designers on the caries, Hermes Cariesburg and Honjo in Paris at the end of the year. And we had great success with our fashion shows, be it in the tennis club in Paris for women's, it's where Ormobilier National for men's fashion show and acceleration of events in London and Korea for men's ready to wear men's universe. MS continues to organize these wide reaching events with an event in Shanghai called Please Check-in around leather, jewelry events in Black to Light, which represented in Paris and events in Asia and New York. We changed the editorial line of the Mont Hermas in 2019. And we have the 10th edition of the SOUR Hermas at the Grand Palais.
The winner was riding an Hermes saddle. So quite obviously, we wanted to continue the responsible and sustainable development of Hermes, and we continued our dynamic of job creation because we had more than 1100 new jobs in 2019, taking the number of total employees at 15,417 at the end of December. Nearly 2 thirds of these recruitments were done in France. And our good results also allow us to allot a 5th free share plan for employees worldwide announced in July 2019. Attachments 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 centers with a policy to develop with training schools in house or outside an environment for exchange of know how human sized manufacturing units where everybody can call each other by their first name. We support also other initiatives, Presse 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 as a majority in France, internalize with long term relationship with our suppliers. We also work on R and D to the best possible materials.
The support of diversity is it goes without saying, starts with the construction of our manufacturing units, sustainable building and HQE high quality, 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 Hermes Cup 1 and 2 as of 2021. And finally, Hermes objects are there to last artisanal mode of production in small quantities, best manages the unsold items. And Airbus object is one that can be repaired, and we did 200,000 repairs in the course of the year.
Commitments in we've taken long term commitments. 10% of executive managers' variable remuneration is subjected to CSR criteria, as part of special collective initiatives such as Fashion Pack, which was unveiled at the G7 Summit in Weir Reitz and extra financial allocations through the significant improvement at Sustainalytics or OICOM, just to mention a few. Let's be right on Climate, Water and Forests. Geographical distribution, 2019, all geographical zones are growing. You see Europe 1st, plus 8% with a solid performance carried by the United Kingdom and Italy.
France, plus 8% as well, progressing despite the negative impact of the social events in the course of the year Japan, +8 percent, progressing solidly within end of the year pace with purchases linked to a hike in VAT in October and new platform, ms.com, was inaugurated in June. Asia, excluding Japan, plus 18, is continuing its growth in Greater China despite the Hong Kong event impact as well as the South Asia. The region has increased the Qingtao store and Hyundai in Korea. The new digital dynamic movement of the whole zone after the opening of Orlando store and the Meatpacking District store, as well as in Mexico of Maseric, Vancouver and San Francisco, which were renewed and enlarged in the second half of the year. All of this gives us the geographical distribution, which is almost stable.
And this remains the balance and limits our exposure of any one country in particular. We've gained one point in Asia Pacific as compared to the previous year. For Metiers, all Metiers are progressing, within particular, I would say the fashion and jewelry, leather plus 11 is progressing. This is thanks to our projects development projects that I mentioned, new workshops and leather workshops and increased the ones that have just been created with good local anchoring, developing employment and creating social value. The Clothes and Accessory division plus 17% confirms its beautiful dynamic growth through the success of the ready to wear fashion accessories and shoes in particular.
Silk and textile plus 8% is growing with the collections which highlight diversity of materials and variety of creations. Perfumes plus 4 carried by the success of Tear D'Amers and Trulie D'Amers as well as the novelty, the new perfumes. Watches plus 12% show the solid performance of sales, which reflects the creativity of the collections. As I said, Hermes has already been rewarded 4th time running by the Grand Prix of the watchwear deliver and other Matias plus watch stablewear are growing with a very good progression of our jewelry our jewelry collection. Here again, a breakdown of the materials is stable as compared to 2018 and balanced where leather represents 50% of the activity.
Let me give the floor to Eric Algued, our CFO.
I'll begin by recalling the ways and means of implementing IFRS 16 standards we're applying for the first time for a full fiscal period. This is to do with lease contracts applicable from 1 January 2019. Just to remind you, the standard calls for booking a right of use at a rental use on the balance sheet. For Hermes Group, this pertains solely to leases for premises, real estate leases, strictly 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 countries in it this way.
Therefore, we've restated all financial statements annual and half yearly starting from fiscal 2018. Those negative impact on net profit applying IFRS 16 means increasing operating profitability for 2 year period by around 0.4 points in exchange for that. Financial income includes cost of lease liabilities to between €25,000,000 in 2019, which is the interest cost on lease liabilities. Total balance sheet around €10,000,000,000 increased by around €1,000,000,000 by booking right of use under assets and under liabilities, a lease of liability. Now the cash flow chart, operational cash flow increases due to depreciation of rights of use and a counterpart of this is inclusion of repayment of lease liabilities to the tune of 203,000,000 in 2019.
Definition of available free cash flow and alternative performance indicators has been adjusted in our cash flow statement corresponding to our cash flow generation plus or minus in WCR minus 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 points, that's around €18,000,000 We'd observe the dilutive impact due to the conversion effect was offset by gains on option hedges to the tune of approximately 20 €20,000,000 On the other direction, gross margin saw the benefits in 2019. The positive impact of increased is slightly above the increase in cost of sales. Furthermore, a leverage effect on indirect production costs, thanks to the strong increase in sales. Communications spending making 5.2% of sales versus 5% of sales in 2018.
Other selling, marketing and admin expenses excluding rent and lease stable between 2018 2019 due to the increased selling teams and other things during the year. Other income and expenses, €604,000,000 €407,000,000 of this is depreciation, are depreciated over the length of the duration of the lease. Other income and expenses also includes €114,000,000 in expenses having to do with the free share plan, up €40,000,000 versus 2018 due to the plan granted 2,300,000,000 mark, up 13% versus 2018. This is growing at almost the same pace as growth 2018, operating income is up by 10%. Now, expressed in as a percentage of revenue or sales, 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 €69,000,000 similar to the losses booked in 2018. This includes 3 main elements. Firstly, interest on IFRS 16 lease debt, euros 24 some million plus the booking of hedging transactions for currency transactions. Half of this amount is premiums premiums options and the other half is a discount on currencies. Furthermore, there's proceeds from compensation on cash and investments to the tenant of around €13,000,000 Taxes on profits, 33.1 percent as opposed to 32.5 percent in 2018.
I would call you, the 2018 tax rate had been reduced by 0.8 because of the nontaxable capital gain that was a result of selling the Galleria premises in Hong Kong. Net income going 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, it was 22 point 7%. Now let's talk about investments and cash flow.
Operating investments, €478,000,000 in 20 19 versus €312,000,000 in 2018. €263,000,000 which is 55% spent on developing the retail network, particularly with the purchase of Sydney store premises. The inauguration is slated for June of 2020 plus cost of new sales. Axel alluded to this, including the main Hacking District in New York and Orlando and also Ximen in China. Also refurbishment and enlargement costs of around 15 stores are included here, including San Francisco, Vancouver, Amsterdam, Hawaii and Shalees and costs in Russia, just to mention a few of them.
€107,000,000 invested in production, mainly leather production sites, projects in Bouillon, Montreux and Louvier, Adelutu, textiles with the refurbishment and extension of our weaving and printing production sites in Lyon. Lastly, dollars 108,000,000 invested in real estate in Pont and in Singapore. 2018. 2019 saw strong growth in cash, up around €1,000,000,000 Thanks to €2,100,000,000 cash generation and stability in working capital requirements as in 2018, thanks to good control of inventory throughout the retail network. After financing €478,000,000 in operating investments and paying and paying dividends, euros487,000,000 an ordinary dividend of €4.55 per share plus share buybacks for €53,000,000 net cash position reaching almost €4,600,000,000 end of the year.
Under IFRS standards, net cash is €4,400,000,000 after deducting investments whose maturity is above 3 months around €200,000,000 worth. Dividend, such as the approval by the next shareholders meeting will be €5 per share, which is up 10%, almost exactly in lockstep with operating income pay up therefore will be 34.5%, slightly up compared to 2018, which is 33.8 percent, just to remind you of that.
Thank you, Eric. It's a pleasure for me to present the outlook. The outlook hasn't changed guidance. Thanks to its unique corporate model, Hermes is pursuing its long term development strategy based on creativity, maintaining control over know how and ever best quality. So in the medium term, 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 year's trend, the strengthening of the craftsmanship build business model of sustainable and responsible growth. It is by allying the state of craftsmanship that I must renews its creative work in all the mid years. In 2020, MS celebrated innovation, gesture, constant innovation, the fruit of creativity and the excellence of hand craftsmanship. Hermes recently launched its 16th division, midyear 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 here.
I will not be trying it on, the lipstick. Introducing products such as a double sided scarf, and this is innovations. I've managed to sprint the car on both sides of the years of research and development. Here it is. Looks simple, like the figures presented to you by Eric, but there was a lot of work that went into it and innovations such as cuff bracelets, line of anodized aluminum, all of this.
And then the new flagship being opened in Sydney, we bought the walls as it were in the course of the 2nd semester and 15 enlargements of the year. And we continue to roll out the e commerce platform in Hong Kong, Macau and at the end of the year, Korea. So much for the year. So 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?
So 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 2 years, there's a crisis somewhere. It started with the nineeleven in the U. S, then there was SARS in Hong Kong.
There was financial crisis in the U. S. Say Fukushima in Japan, of course, of the 20th century, terrorist attacks in Paris, in Barcelona, in Madrid, in London, climate related events. And unfortunately now, like every 2 years, we have a crisis that is pandemic crisis affecting everybody. The priority in MS is, first of all, the health of the employees and to make sure that everybody is doing well.
So we have an everyday stock taking and up until now no employee in Hermes 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. So what can we say at this stage? What we can say at this stage this year, it's a good or bad year. We can't have the figures for Asia before the end of the Q1 because the Chinese New Year lent a lot of structure to the quarter and which moves in the course of the year.
So you can't really have a comparative situation that is legible before the end of the month of March. But 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. And today, we see a possible and progressive reopening of the stores because today you only have 4 stores which are still closed. So 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.
So 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. So 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, legible in the Q1 when we will publish the results of the Q1. What can we say with regard to MS? So what we can say is that since our production is up 80, perhaps, 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. And 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. And obviously, we are waiting for the end of the pandemic. We are following the indications of the WHO IQ to see when China will bounce back.
So 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 is 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, 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's the upcoming stages might be in terms of geography or possibly adding other products online that aren't there yet?
3rd question, you don't give any margin guidance and I suspect even less so due to the virus. But if we think of the major margin drivers, I'd like to know henceforth at current exchange rates, what are the expectations vis a vis exchange rate impact? And 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? Two questions. First of all, on the Metiers, I believe there's no business line in Metiers, 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. So we can say that we are bringing our products very quickly. Next, I've always tried to make sure that each MHIA reaches its own potential.
There's a great deal of potential in each of the different Metiers. When I took charge of the group, we had around 50% in leather goods, even worse than that, more than that. An an interesting thing to point out in the midshades, there are 2 sort of extremes in our industry that go that function well. Fashion, 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 Hermes, very long term view, our idea is to make sure that we are bringing to the fore matches 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, very well.
A return to jewelry in recent years and leather is holding up very, very well as well. When I did my first internship at Hermes, it was it seems a while back now, but back in 1988, 56% of our revenues was silk, 9% was leather. It just goes to show things can change. Now why was 2019 fantastic? Because all the metiers 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, other questions. Yes, e commerce. I won't give you the figures on e commerce.
Now, 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, then we don't display them on the e commerce sites.
Growth through our 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, you can't compare it exactly with other areas. So, you can't compare it exactly with other areas. So yes, there is growth in the Internet, which is well beyond the 15% growth we mentioned to you. Okay.
Alfred, Eric will answer this. Yes, 4 things I'd mentioned for 2020. 1st, positive impact, which is the currency effect. All in all, on the strategic currencies, there's an improvement around 4% or 5 percent. But as I mentioned, we had a $20,000,000 gain on options in 2019, which is non recurring in 2020.
An impact on structural costs, 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 is on a 6 month effect in 2019 around €1,000,000 and you'll double that to make for the full year effect in 2020. I'm from 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 you might expect, in the event 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 you 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 people traveling less more generally? Maybe the U. S? Should we factor this into our full year equations? Air mass 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 talked about a good week or poor week.
And then there's the timeline for the Macy's and Creative People. It's about a year. You design the next creation, deliver the previous one and so forth. And then industry's timeline, industry space is 4 years. When you start a production site, it takes about 4 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.
So every 6 months is 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, hit their orders of novelties and products and so forth. That's why our inventory pretty much self adjusts, naturally adjusts. Then 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. So 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 or 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 question. Now on to travelers more generally. There are 2 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. Next, as to other customers, non French and non Chinese. I have no indication that there'd be any drop in traveling. But what about Korean customers in South Korea?
We saw when in Singapore, there were events, Singapore customers had an impact. So Chinese tourists are impacting travel retail. There's another subject. The question is, where will this virus head? What countries will it go to?
And 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 Robins, Morgan Stanley. I have two questions. The first one, if you could come back to the evolution of your customers in terms of nationality and age in 2019. You don't use the recipes your competitors to target millennials and key opinion leaders. But despite that, you have great success with the millennials nonetheless.
So if you could comment on that. The second question is on cosmetics. Could you please give tell us about the launches to be expected in the 12 to 18 months to come in terms of products? And in terms of retail, you had mentioned that normally you will be using your own retail network. But 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. And we are seeing the strength of our local customers in the countries. And this is something that I follow and I'm really proud of. Give you an example, the Japanese customers maybe some brands invested less in Japan than others to invest more in China, example. We stayed we redid our stores, refurbished our stores on network.
And today, we have Japanese customers, very strong, very well anchored. That's why we can make a +8 over the year. And H zone is managed multi locally. We've got Chinese teams that in China and Italians in Italy. So this allows us to actually have multi strategies as a function of each country.
And then of course, you've got in house internal rules where we don't pay somebody for writing an article, but be it an do have key opinion leaders who write to the beauty of the brand, have an opinion which is personal. There is a movement in Asia where your very young customers coming, they have the resources and they buy. Sometimes this enthusiasm on millennials are not millennials. 1, we're only aging, so demography is such that there's more millennials. And secondly, it's overweighted in Asia because young customers have millennial customers, to have millennial customers, Asian customers and sometimes the 2 are synonymous.
And 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 failures. Director of Jewelry, when I was in Jewelry department, you can have some failures. But we try to have more successes than failures to find customers and to invent the desire of tomorrow rather than responding to the desire of today.
Now for cosmetics, we are starting if we want to be cautious, it's also because we remain cautious with regard to the launch of the 16 midyear. We want to learn. I can't say that we have a plan because we want feedback and experience some products that not only just sold in our stores because you need to have a lot of space, 24 colors, plus, plus. Anyway, so we want to create with a 100 and start with 100 and 80 points of sale, 80 in Hermes and 90 outside of Hermes. Opening outside with Harrods, Galleria, Fayette, the simpler ones in the U.
S. And Seoul. And 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 5, 6, 8 years ago, the big difference is the digital because there's a large part of the distribution of the retail that will be made through the digital, MS Digital and perfumes. So we'll see it as many doors as perfume because it requires no more work and space, but it's supposed to take a 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. And then we will be thinking add maybe a 3rd line, a 3rd area, which would be the Queens to have the 3 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. But what we have seen during the events in the Q4 is if you travel, yes, to Hong Kong, if you're Chinese and you buy more in China, It's not a very relevant indicator for us because often we find effect sort of leverage effect from one to the other. So 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 2 2003, at that time, it was very tourist destination for the Japanese, 70% of the sales was made to the Japanese at that time.
And then the SARS came. Hong Kong was difficult for the local customers as well because they didn't want to go out onto the streets and scared of the virus obviously. And at the same time, we had a very strong increase of our sales in Japan that offset. So there'll be those rebound effects and one situation offsetting another? And it's impossible to quantify it.
Good morning. If you would 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 sort of put on to 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? And thirdly, the fact that one can choose more secondhand, can that concern you? Do you perceive a change that could be projected in the long term? And then for the anodized alumina cuff bracelets, you also make rings.
Is that the introduction of a new material? Or is it to have products that are more accessible? 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 is 0 and we'll all be at an equal footing. But where we have to be very cautious in this kind of 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 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. But then of course, that does not replace the closure of the store, the lack of customer flow in the stores, even if they are common customers between the online and offline that the customers are sometimes different. Internet will not be replacing the closed doors. 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. But it gives you a good idea of what is the desirability.
And for CSR, of course, it's the 1st year, 10% of the variable remuneration competition of the managers is based on CSR criteria. There are 3. 1st is decoupling energy consumption with growth. 2nd 2nd is local anchoring and job creation. 3rd is gender equality in the group.
These are 3 criteria, which are assessed, some quantitative, some qualitative assessed. Question is off microphone. Can microphone be given? We are to manage myself with price and Henri Luebber, who is heading the EMEA Hermes Sleepings Partnership. 2nd hand, well, that was your question.
You asked me a tricky question here. I'll tell you why. 2nd hand, I find it great and often there is no sale in our case. It's the granddaughter who brings the grandmother's store to the store that we sort of refurbish. The real market of the second hand is repairs in them, is repairing a product.
And there's a second hand market, which is different, which is selling new bags as a second hand. Otherwise, they won't have the right to do so, but more costly than what you find in the stores. So is that something that harms in the long term? Well, I think it's a pity for the customers. We try to produce a maximum, set the 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. So the aim is to increase production, satisfy everybody and to have people and sometimes it's secondhand, sometimes you also have counterfeited products that get mixed in and so forth. So sometimes people get disappointed when they've paid a lot money for something that is fake. So our main aim is to continue to produce. And I think there's an advantage in buying these bags in Hermes is that sometimes it costs you less than the second hand and more likely to be authentic.
And 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? Just as for not making it not expensive.
Now 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. So maybe it'd be part of success or maybe not.
I'm from Kepler. I've got 3 questions, 1 on the U. S. And 2 on China. Great increase in revenues in the U.
S, 2 stores were opened, I know that. But why such great performance in Q4? Was this local customers? Or was this partially due to increased travel, tourism? Now 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 1st 2 weeks of February. My intuition tells me that the power of the Hermes 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 you're 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, It's always been the case, U. S. Nationals from differing backgrounds. To tell you, Frank, with the U. S.
Is the country that I thought was most interesting during the year. There would be a great week than 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, but 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 has been looking good in the U. S.
This is all made for our strong success compared to 2018, which had also been a very good year going beyond the $1,000,000,000 mark. So the trend is great. Oh, it's difficult to do a weekly interpretation. When the U. S.
Election, sometimes people spend time watching the debates and not in stores. We've seen this previously. Anyway, 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 have that opportunity for extra space and it's doing very well indeed. But then you've got great results in New York in 1 week and the following week a little bit more difficult.
But in California, California is doing well versus other countries where every single week are basically the same. The U. S. Fluctuates from 1 week to the next. But ending up the end of the year at plus 12, we're very pleased.
To talk about China now, when a store is closed, you have 0 sales, 0, just like everybody else. Then there in store traffic considerations. Our stores, stand alone stores that are not in main traffic areas are still seeing customers, whereas in malls, a lot of foot traffic, people are more worried and tend to come to the malls. So traffic patterns haven't normalized yet in malls 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. It's very strong customer base. Now Chinese New Year is 8, 10 day period, 15 day period basically with a strong buying. Then there's a week of traveling where people buy outside of China.
We didn't benefit from the 15 days and it was in January and Chinese purchasing saw some of the benefits, but there wasn't 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 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. Next, WHO seems to be seeing its peaking.
We don't know. We'll see. For the time being, we're resuming operations, normalizing things, but we can't say in store traffic is normalized in China yet. Let's talk about communication now. You saw in our financials, we went from 5% to 5.2% communication budget.
This is because our communications manager showed that David is expensive. So I don't know what she's saying to us now. This is precisely the time to invest even more, she's saying. So 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 Hermes. There are often 2 considerations. 2 thirds of our spending are spending on events, it's very powerful and 1 third is media spend, different from the competitors. Conventionally, it will be 2 thirds media media spend and onethree events.
We do it the 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. So we'll be settling this. We'll see how much how many events we might cancel, how many events money might be reinvested in other types of 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 this proportion for the group in terms of activity, sales and production?
What are the 4 Chinese stores that are still closed? Okay. Hong Kong. Yes, we did experience in Q4, there was a reduction in Chinese travelers to Hong Kong, offset by sales in Mainland China. And we saw our local customer base held up very well.
So Asia Pacific Q4 was up 13%, I believe, if I'm not mistaken, which is very, very good. Now if we look at give you some greater granularity, Q4, there's a stronger increase than usual in Mainland China and somewhat of a downtick in Hong Kong. Other question on Italy, this is very, very recent Italy. This is brand new events. Again, no Hermes employees impacted.
The Milan store remains open. As I said, 80% of our production is in France. There's a little bit of ice 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 4 stores closed in China, of course, Wuhan, Xi'an, Hello, Juan first.
I've got 2 brief questions. First one, are you considering price increases this year? Question number 2, 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, I'm always optimistic. I tend to be a worrying optimist.
First, a couple of 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, then 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. So, 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, whereas 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 is. It takes 16 hours to make an Hermes bag. That 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, you can do it for yourself. 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 than there's less of an uptick, but that's broadly the trend per annum.
Anton Rios, Societe Generale. I have a question on the Japanese market. There's a weakness specific to all sectors on Q4 on local customers, the 1st 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.
So is the same trend, but this is a specificity of the Japanese market, which in 10 years has gone from 100 percent Japanese to some what tourists said with the Chinese customers in particular. So today, Chinese customers are not So 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 to 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 is 26, Hong Kong is 7, Macau is 4 and Taiwan is 6. So it gives you 43 stores in Greater China. So we had 11 stores closed in Continental China and 4 in Macau when Macao closed down. Makeup for the lipstick, the stick is made in Italy. The stick, what you call, heza in French, the stick is made Italy.
Women's Wear Daily. Question on your reflection in China. Do you think you'll join an e commerce platform like jidi.com or Alibaba, the Pavilion. Well, for the moment, our priority is to have the solidarity with the Chinese teams, Chinese and that is what is of concern to us today and looking at all the little signs, including the bottlenecks in Shanghai, USA, which is a good thing. Now on e covers, so we have great success on our website.
So the priority is to continue that. Then some products, perfumes will also be sold on other selective distribution, not exclusive, selective distribution on perfumes. Will we do a test of pop up stores and 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 to see an independent site as ours to have as much customer traffic. Earlier, we would have thought one would have thought one could have existed with other platforms that you mentioned. But then again, Well, thank you. Thank you very much.
It's the irony of life to present the best figures since years in the atmosphere of the top full banks, which we're an international company accepts the international problems when they arise and they crystallize. And I hope that we will deal with it above all in a human manner. Thank you very much.