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Hermès in China Hermès in China

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.worth: Hermès, Shang Xia & Grassroots Luxe in China

Thursday, Dec 2, 2010, 3:48 PM / China



This is the first of two installments focusing on Shang Xia, Hermès’ new brand designed specifically for the China’s upscale consumers.

At first, Hermès’ latest bid for the Chinese upscale market seems like a brilliant, unprecedented, and risky scheme. On the one hand, selling Chinoiserie to the Chinese could be one of the greatest post-capitalist marketing victories of all time. On the other hand, the Chinese bourgeoisie might give the project a pass and continue to opt for Gucci sunglasses and Vuitton bags, much as it has for the past decade.

With the unveiling of Shang Xia in Shanghai, Hermès hopes to create a new portal into the Chinese luxury market with made-in-China, made for China products that are manufactured using Chinese craftsmanship and materials exclusively from the mainland. Like its Parisian parent company, the Shang Xia boutique will sell ready-to-wear, accessories and home decoration, but at a lower price point than its Parisian parent brand.

Shang Xia’s success is contingent on whether its target consumers are willing to buy into a mainland-only sub-brand. Not only that, but a sub-brand that touts “made in China”, a term synonymous with fast, cheap and fake, as part of its brand story. With Shang Xia, Hermès risk lies less in the possibility for losing cash on an experiment. The company’s real risk lies in the potential for “losing face” in the Chinese market by contaminating its image through what could be considered a lesser, cheaper incarnation of itself.

Has the market research been encouraging? Not really. According to Jing Daily, a recent survey by Pao Principle, concluded that China’s wealthy elite are interested in quality, selection and exclusivity and that they “want to buy items that are shown in New York, Tokyo and Paris brand boutiques—not in Hong Kong”– or Shanghai. So why would the venerable house of Hermès take the chance?

Before answering that question, it’s important to understand that Hermès is no stranger to China. It has 16 stores in the mainland alone, including a flagship in Shanghai, and reports a significant increase in revenue during the last two quarters of 2010, much of it driven by sales in China. However, when compared to an LVMH acronym brand, the 173 year-old purveyors of silk scarves and handbags will always seem a little marginal. This is because unlike the LVMH companies, Hermès is unconsolidated, independent and generates about 95% of its revenue from its namesake brand only.

The house of Hermès has always insisted on doing things its own way. Until its IPO in 1993, the company had been owned and run by the descendants of Thierry Hermès, who began the company as a harness workshop in 1837. During the 1980s and 90s, the company had become so insular, exclusive and rich (each member of the Famille Hermès made it onto the Forbes billionaires list after the IPO) that the brand became known as one of the “best guarded jewels” of Paris. In the past 15 years, Hermès has managed to evolve by merging the high luxury and authenticity of old-world craftsmanship, with sophisticated, even risky collaborations with Martin Margiela and Jean-Paul Gaultier, who have continually remixed the label’s aesthetic. Read Part Two here.

Catherine Levy | TribaSpace

Product Groups: Leatherwear, Streetwear, Accessories, Millinery, Sportswear, Shoes, Eyewear, Denim, Jewellery, Casual Wear, Footwear, Bridalwear, Couture, Ready-to-Wear
Markets: Women's, Men's, Children's, Other

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