One of the earlier luxury companies in China, Hermes came to the Chinese market in 1997 and now has 19 stores in the country. The brand plans to launch a fifth Hermes global store on Huai Hai Road in Shanghai in 2012.
Hermes 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 Hermes China, reveals why Hermes is succeeding in China and how they plan to capitalize on the soaring Chinese luxury market.
Stellar Profits
China is one of the three largest luxury markets in the world and Hermes is very profitable there. China was relatively spared by the global financial crisis in 2008, Hermes 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. What they expect when they buy in China is more customer service, more personalized offers, more advice and recommendations.
Lui sees a thirst for product knowledge by the Chinese consumers who want to know how a Birkin bag is made, Hermes 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 Hermes 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 Hermes customers, the Chinese consumers are patient and willing to wait for their Birkin bags.
Hermes China's customers buy worldwide - buying an Hermes jacket in Paris, a suit in New York and their shoes in Shanghai. While this may concern some luxury brands, Hermes does not see this as a threat. Hermes stores around the world carry different product offerings. In fact, it appears Hermes merchandising model encourages the global shopper. Hermes 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.
Understated, Timeless Luxury Brand Identity
Hermes China brand identity is the same as Hermes International. It is always about craftsmanship, exceptional materials and the best quality.
The company, a champion of slow fashion, stays away from selling trendy fashion so products don't become passé. Hermes is still selling the 1984 Birkin bag, the 1956 Grace Kelly bag, Hermes silk scarves created 70 years ago. Typically, Hermes 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. In France, every French girl expects to receive an Hermes scarf as a birthday gift when she turns 17," said Lui.
Best Performing Locations
Shanghai, Beijing and Guangzhou remains the most important markets for Hermes with potential growth from second tier cities.
Best Performing Products
Leather bags, silk scarves, ties, and watches are Hermes best-selling products. Unique to China, men's ready-to-wear is a top seller 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 Hermes.
In Part II of Inside Hermes China, we will look at Hermes' competition, growth strategy and views on China luxury trends.
