We continue our look inside Hermès China’s competition, growth strategy and views on China luxury trends.
Competition among luxury brands in China is becoming fierce. Hermès differentiates itself from other luxury goods brands such as Gucci and LVMH by its size. Hermès is much smaller, focus much more on customer service and brand image, and of course their top-notch products. They started with 100 staff in China in 2006 and now they have 300 people.
Much have been speculated about competition from rising local brands. Leo Lui, President of Hermès China, doesn’t see their impact on Hermès sales in the near future. He thinks it will take some time before that happens.
“The cake is too big. Many people can share it. One difficulty we have is that since the market has been growing so rapidly, finding good sales staff has been a real challenge. It’s very difficult to find the right store managers and sales associates. I’m proud to say that Hermès has a very low turnover rate, about 10%. Human resources are the most important asset and we treat our employees very well.”
China Luxury Market Trends
China’s luxury market has been growing rapidly.
Many Chinese are successful with their own business and usually want to show-off their success. According to Lui, “the first luxury item is a watch. Also one of the biggest changes is that, say ten years ago, 80% of the buyers in China were male. Now it’s 50-50. More and more taitais and successful career women have entered the market, making up those 50%. Many young women, professional university graduates who work for multinational companies as middle managers, are buying Hermès. They want to show that they have good taste. Right now Hermès two biggest consumers are university graduates and entrepreneurs.”
The Chinese consumers prefer accessories like handbags, silk scarves, and watches because they are symbols of success that can be attained much faster. While the customer demographic will change, the main trends should remain intact.
Another trend is that most successful stores in China are in the malls and this trend is not expected to change much. Choosing the best location or mall is still key to a store’s success.
Some luxury brands are grappling with shoppers going abroad because of price, taking business away from the home market. It is estimated that over 150 million Chinese travel and shop every year, be it Hong Kong or Paris.
Hermès is not particularly alarmed by Chinese shoppers going abroad.
Lui noted that generally the Hermès costumers don’t care about the price difference. “Some do look for a better price, but others just want the convenience of shopping in China. Here they can talk in Chinese with our store associates. They can get better service from staff who recognize our VIPs. Customer service is very important in China. More and more second and third-tier city residents are shopping in Beijing and Shanghai for convenience.”
Growth Strategy and Expansion
Hermès marketing strategy in China is less about direct advertising and more about building a deeply loyal customer base and a carefully crafted image. Its 3,800 square meters global store in Shanghai, expected to open in 2012, will focus on selling the brand heritage — sharing Hermès culture — than just selling products. The company will have more cultural activities, including art galleries and museums, and provide more tailor-made services for VIP customers.
“Three years ago, we had an exhibition on silk in Beijing and Shanghai. We had a men’s ready-to-wear show in Shanghai. We organize concerts and dances to enhance cultural experience. We hosted an exhibition on horses in the Forbidden City in 2007,” noted Lui.
Hermès eyes organic growth. It will expand existing store including in Plaza 66, where the store will increase to 700 square meters from 200 square meter. They are adding a fifth global store in Shanghai. For the past four years, Hermès has been expanding fast in China. With initial stores in Beijing, Shanghai, Guangzhou, Dalian and Hangzhou, Hermès is heading into the second-tier cities like Harbin, Nanjing, Chengdu and Kunming. They will open three to four new stores a year in second tier cities. They’ll open in Suzhou next month and then Shenyang next year.
Hermès select cities based on the purchasing power and the location, that it has a good shopping mall.
What is striking is that Hermès is very comfortable and confident in its brand identity, sophisticated in its marketing strategy and measure in its growth and expansion. Hermès success in China so far is largely due to its ability to navigate the Chinese market more on its terms than the dictates of the market momentum.
China International Business
image credit: hermes