One of the earlier luxury companies in China, Hermès came to the Chinese market in 1997 and now has 19 stores in the country. The brand plans to launch a fifth Hermès global store on Huai Hai Road in Shanghai in 2012.
Hermès sales has been stellar with a 20% sales increase in the first half of 2010, mainly driven by China sales – where sales have increased 100% year-on-year in the past several years.
Leo Lui, President of Hermès China, reveals why Hermès is succeeding in China and how they plan to capitalize on the soaring Chinese luxury market.
China is one of the three largest luxury markets in the world and Hermès is very profitable there. China was relatively spared by the global financial crisis in 2008, Hermès China sales remain stellar with strong double-digit growth.
Largely due to the Chinese government who have made many improvements, “Beijing is now the most modern capital in the world after the Olympics, with greenery. There are 25 cities with modern airports and high-speed trains. It’s amazing, which is why all the luxury companies are rushing to China these days, ” according to Lui.
Lui expects the company to continue with “very strong double digit growth every year. This is all due to the rapid growth of the Chinese economy in the last ten years. So many Chinese have made money in property and on the stock market.”
Growing Chinese Customer Sophistication
Chinese consumers are becoming well traveled. Hermès China’s customers buy worldwide – buying an Hermès jacket in Paris, a suit in New York and shoes in Shanghai.
While this may concern some luxury brands, Hermès does not see this as a threat. Hermès stores around the world carry different product offerings. In fact, it appears Hermès merchandising model encourages the global shopper. Hermès is one of the few companies that has no central buyer. “The manager at each one of our 300 stores selects the two seasonal collections for spring/summer and autumn/winter. So no two stores carry the exact same selection,” according to Lui.
What they expect when they buy in China is more customer service, more personalized offers, more advice and recommendations. Hermès works hard to deliver this personal service while using the opportunity to communicate its craftsmanship and heritage.
Chinese consumers want to know all about how a Birkin bag is made, Hermès history, and culture.
“We explain to them it takes 18 hours to make one bag and four years to train one leather craftsman to make one. They want to know why they have to wait a few years for a crocodile bag. This is the case for Hermès locations everywhere. Well, crocodile bags require so many years because we take the best part of the crocodile, the belly, and we have to use three different crocodiles and it takes four years to raise one crocodile.”
Like other Hermès customers, Chinese consumers are patient and will wait for their coveted Birkin bags.
The company is a champion of slow fashion and stays away from selling trendy fashion. Hermès products don’t become passé. The company is still selling the 1984 Birkin bag, the 1956 Grace Kelly bag, Hermès silk scarves created 70 years ago. Typically, Hermès scarf takes two years to make – “the first year to create the story of the scarf, and the second year to print it in 30 different colors,” said Lui.
Best Performing Locations
Shanghai, Beijing and Guangzhou remains the most important markets for Hermès with potential from second tier cities.
Best Performing Products
Leather bags, silk scarves, ties, and watches are Hermès best-selling products. Unique to China, men’s ready-to-wear is a top seller as well because China is more traditional and is still a men’s market. Generally, women’s ready-to-wear is the top seller in most other markets for Hermès.
In Part II of Inside Hermès China, we will look at Hermès’ competition, growth strategy and views on China luxury trends.
China International Business
image credit: hermes