Hermes saw profits drop and growth slow last year despite a boom in the UK and plans to focusmore strongly on emerging markets for future growth to compensate for uncertain prospects in its
home German market.The parcel logistics group aims to become an “e-commerce enabler” for retailers in Europe aswell as overseas, and will invest in new services and its network in Germany and the UK, executivessaid at the company’s annual press conference in Hamburg today. It is also tightening up onsub-contractors in Germany after media criticism of working conditions and pay levels lastyear.
In 2011, Hermes, a subsidiary of the Otto Group, increased revenues by 4.7% to €1.8 billion,after a strong 18% revenue increase in 2010. Parcel volumes rose by 4.8% to 389 million, and theoverall number of shipments totalled 430 million. Hermes increased the volume of parcels from thirdparty customers outside the Otto Group by 13% to 252 million last year, meaning that externalcustomers now account for 65% of parcel volumes.
But profits, which were not disclosed, dropped back due to weaker demand in other businessessuch as air and sea freight, and product sourcing, CEO Hanjo Schneider admitted. “We are below lastyear. But we still had a good result,” he stressed.
In Germany, Hermes Logistics Group, the parcels distribution business, increased revenues by amoderate 3% to €986 million, while volume figures were not disclosed for competitive reasons. “Thisis a result we can be satisfied with,” said Germany managing director Frank Iden. Hermesrestructured some of its operations last year and exited the mail market with the closure of thePrimeMail joint venture with Swiss Post, but also invested in the expansion of its depot network.These changes will enable the German business to focus on profitable growth in future, Idenstressed. Schneider criticised Deutsche Post DHL for starting “a price war” and called on thepostal regulator to tackle cases where the Bonn-based competitor abused its market domination.
This year Hermes plans to improve its services in Germany by investing €15 million in 18,000 newscanners for real-time parcel tracking and will offer a new subscriber identification service inits parcel shops for the new De-Mail electronic mail service which is being launched in competitionto Deutsche Post’s ePostbrief. In future, Hermes also plans to introduce three-hour deliverytime-slots (mornings, afternoons and evenings), Schneider added.
The company announced that it is responding to heavy media criticism of working conditions atits 450 delivery sub-contractors with diverse measures. New contracts will ensure thatsub-contractor couriers are paid by the hour, not on a piece-rate, with target hourly pay rates of€7 – 8.50, and that sub-contractors do not pass on deliveries to lower-paid “sub-sub-contractors”.In addition, there will be external audits of pay levels and working conditions at sub-contractorsthis year and firms which do not receive quality certification will have their contractsterminated. Iden stressed, however, that internal surveys showed most sub-contractor drivers weresatisfied with their jobs and 60% would recommend the work to others.
The boom market last year for the group was the UK where revenues soared by 22% to €303 millionand volumes increased by 20%, including 40% growth at Christmas. UK CEO Carole Woodhead said thatthe company has a 95% first-time delivery success rate compared to an industry average of 83%, andmore than 80% of its business is on three-year contracts. Hermes expanded its British network to 20sites with a hub in Warrington, northern England, and a Gatwick depot in 2011.
“Our target this year is 15-20% sales growth,” Woodhead said. Hermes UK, the country’s secondlargest home delivery service, will launch its new parcel shop network in June with initialcoverage of the country’s top 25 urban areas through 522 parcel shops in diverse shops and otherretail locations and then extend this to 1,000 locations by the end of the year ready for the peakseason. “These will offer customers more choice and more convenience,” she explained. Customerswill be able to pick up parcels and make returns at the parcel shops. In addition, the network willbe extended to 25 depots this year ahead of a larger northern England hub in Warrington due to openin 2013.
In Russia, the Hermes-DPD joint venture, which launched at the end of 2011, now has 300 parcelshops in eight major cities and aims to establish a network of 1,500 shops in 44 cities by 2014.Hermes aims to generate revenues of some €50 million and to break even in Russia by that year,Schneider said.
Looking ahead to prospects for this year, Schneider said he was “very optimistic” about the UKbut Germany was difficult to forecast. “The start of the new business year has been promising, andeven now, although transport logistics and distribution are particularly susceptible to high fuelprices, we are ahead of our figures for last year. And despite the continuing uncertain economicprospects, we remain optimistic about our growth chances in 2012 and about achieving our ambitioussales targets. To this end, we are looking to employ a further 500 new staff in 2012.”
“Our strategy of establishing Hermes as a worldwide service partner for the retail industry hascome up trumps,” the Hermes chief stated. “An increasing number of international retailers aremaking use of our individual service modules or are combining them, such as procurement andtransportation. In the future, we are looking to become more involved in e-tailing – by alsoexpanding on our own web-enabling activities. Ultimately, it is highly likely that clients who wecan encourage to use the web as a sales channel, will also be calling on Hermes for other logisticsand retail-related services.”
Schneider reiterated the medium-term target of €2.5 billion in revenues by 2015 and ofovertaking DHL to become German B2C parcels market leader. He also stressed that the group nowcovered 90% of the European B2C market through its own businesses, with the rest covered bypartnerships. “Our European B2C strategy still exists,” he commented.
Addressing the longer-term strategy, Schneider said Hermes wanted to position itself as “ane-commerce enabler” and “online service provider” for retailers on a worldwide basis by expandinginto emerging markets such as Russia, Brazil and China, while also offering Europe-widedistribution for US and other non-European retailers. “We will have to look beyond Germany forgrowth,” he declared.
“In 2012, we will be building on and internationalising our digital services significantly,always with an eye on emerging markets in BRIC countries. The online offerings of many retailers,for example those in Brazil, provide enormous potential that we are looking to tap, bringing in ourexperience in the clothing and consumer goods segments.”
Schneider highlighted the new B2B online portal Keen On Fashion, which offers buyers the chanceto procure from designers worldwide, including lesser-known names. “We believe we can occupy acompletely new market segment here,” he claimed. Currently being tested in Germany with 1,300retailers and 40 brands, the portal will be rolled out worldwide by the end of 2012 with some 2,500retailers and 100 brand providers.
