Market Study: Hermes in China

21Jul2013

Hermès International S.A. is a French high fashion house established in 1837. Today, it specializes in leather, lifestyle accessories, perfumery, luxury goods, and ready-to-wear. Its logo, since the 1950s, is a Duc carriage with horse. In 2000, Hermes moved its clothing segment to China, managed by family member Claude Brouet. After 28 years at the head of the firm, Jean-Louis Robert Frédéric Dumas-Hermès retired in January 2006. Known for his charm and expertise on luxury, he died in 2010 after a long illness. Patrick Thomas, who had joined the company in 1989 and who had worked with Jean-Louis as the co-CEO from 2005, replaced him that month. Thomas became the first person outside of the Hermès family to head the company. Jean-Louis’s son Pierre-Alexis Dumas is the artistic director.

Chinese and U.S. markets are driving Hermes recent success

A recent report shows that Hermes China and the U.S. market helped improve the company’s outlook in the second half of the year. According to a report on July 19 by “Le Figaro”, a French daily newspaper founded in 1826 and published inParis, Hermes’s sales amounted to 1.3 billion euros in the first half of this year, an increase of 21%. The second quarter of sales reached 600 million euros. Hermes handbags sales growth is expected to continue in the second half of the year as it is expected to rise to 12-14%. The analysis shows that sales growth in the first of the year was mainly due to the Chinese market. The U.S. sales market is also growing. Among them, Hermes’ turnover rate of increase in the Americas went up to 33.9% and rose 30.2% in Asia (excluding Japan). Currently, Hermes has more than 20 outlets in mainland China.

For quite a long time, the market share of Hermes in China was smaller than that of LV and Gucci. As an important strategy for Hermes to open its market in China, the company specially created an exclusive brand for its Chinese customers. Founded in 2008, Shang Xia is a brand for the art of living that promises a unique encounter with the heritage of Chinese design and craftsmanship. Together with the celebrated Hermes Group, renowned designer Jiang Qiong Er established Shang Xia with a mission to create a 21st-century lifestyle founded on the finest of Chinese design traditions. Shang Xia means “Up-Down” in Mandarin, a phrase that is meant to convey a concept of yin-yang harmony. Two years after the Shang Xia project was launched, the brand finally made its debut on September 16 at a small press conference and presentation at an upmarket Shanghai venue, followed by a low-key in-store opening party and a VIP dinner cruise. Its initial line of about 200 designs of furniture, tea, dishware, apparel, jewelry, and accessories ranges from 180 yuan to 500,000 yuan, or about $19 to about $54,000. Non-Shang Xia Hermès products are priced a little higher with some of the brand’s best watches running over 1 million Chinese yuan. A Shang Xia spokesperson said sales of its products were going well so far, with tea sets, cashmere, and jewelry among the top products.

Creating a new brand with lower priced products is a great strategy to target some middle-income consumers with similar luxury products. At the same time, many analysts point out that Hermes’ strategy also is an effort to recuperate its slower development in the Chinese market. The brand will also be distributed in Paris in one of the large department stores. This move seems to have all its business strategic motivations, yet Hermes risks its brand reputation as it will be practically impossible for the new brand not to be associated with Hermes. Many customers may consider it the ”cheaper” line of the reputed French brand.

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Picture Source: Hermes Watch