INNOVATION DRIVES FASHION FORWARD

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FEATURE | Reserved For 182 Years, Does Hermès Need To Join The Chase For Young People?

September 20,2019

In China, many luxury brands are sparing no effort to reach out to the younger generation, and are even beginning to “play” with them: Louis Vuitton released the Endless Runner video game and invited Chinese fashion blogger gogoboi to guest run the brand's official WeChat account. Prada teamed up with artist Cao Fei to create a special project named ‘Code Human’. Chanel is already a "senior player" of Tik Tok.

In such a vibrant environment, Hermès low key approach is especially surprising. So does today's Hermès need to go after young customers to reach out to a wider range of new consumers?

Luxe.Co: Does the 182-year-old Hermès need to be younger and more digitized?

You choice: 

A.No need.

B.Need. 

No Need!

"In the first two quarters of fiscal year 2019, Hermès performed well in all regions and across all lines of business." said Axel Dumas, the CEO of Hermès and the sixth generation of the family. In the first half of the fiscal year 2019, Hermès group's net sales rose 15% to 3.284 billion euros, reflecting year-on-year growth at constant exchange rates of 12%.

For the public, the reason for choosing Hermès is simple -- it is undoubtedly the world's top luxury brand.

For the industry, this is an evergreen tree that still maintains the highest operating profit margin in the industry, reaching a staggering 34.3% in the 2018 fiscal year -- which means not only that Hermès products enjoy a high brand premium, but also that the company's management and marketing costs remain relatively low.

Hermès, who holds the record in the global handbag auction, has proved its authority in the luxury industry with the handbag Himalaya Niloticus Crocodile Diamond Birkin (size 30) fetching nearly $380,000.

The enduring popularity of Hermès handbags has also led to an unprecedented enthusiasm for luxury handbags in the secondary market. According to Jefferies, an investment bank, Hermès second-hand handbags grew by 432% in the second-hand luxury market between 2010 and 2016. In a survey of consumers by The Real Real for The 2018 Christmas season, Hermès became the most popular luxury brand among female consumers, especially the Birkin, Kelly and Constance models, which saw a 7% year-on-year increase in prices.

Both the record set in the auction house and the popularity gained in the second-hand market continue to strengthen the unique brand value of Hermès and its irreplaceable position in the hearts of luxury consumers.

Need?

Led by the founding family, employing more than 14,000 people worldwide, Hermès continues to enjoy steady sales growth and high profit margins. The challenge ahead of them is on two fronts: growth and innovation.

In the fields of fashion and luxury, brands always need a larger base of users and markets, and adapt to changes and self-innovation.

Today’s China can be a challenge for Hermès:

On the one hand, Chinese consumers have not yet formed a strong brand awareness and loyalty to luxury brands. On the other hand, Chinese consumers are bombarded by numerous new and old brands every day -- these brands are grabbing their attention and drawing their consumption desire and purchasing power.

We often see references such as: "Hermès" of cars, "Hermès" of restaurants... Hermès is often used by other industries to describe its highest standards, and such cross-industry recognition is a level that no other brand can reach. In the short to medium term, Hermès doesn’t need to worry about its brand essence be diluted by selling more products. In other words, brands only need to manage the "relative scarcity" between them and market demand.

Therefore, if Hermès’ exposure frequency is too low, or keeps too much distance with customers, or if there is no way for people to understand or experience Hermès' "noble spirit", there is a great risk that it will gradually fade away from the minds of young people, and the emotional connection with users will become weak or even broken.

Today's Hermès: Change is Happening Quietly

In every way, it is clear that Hermès is quietly seeking change along a carefully chosen path.

  • Production:Improve production capacity
  • Catagory:Enrich entry categories and highlight the lifestyle pyramid
  • Store:Expand in the China market, tell stories, experience
  • Marketing:Explore online communication and interpret the concept of sustainability
  • Sales:Reform the "aging" official website and upgrade the e-commerce business

Production:Improve production capacity

Previously, customers had to wait for years to buy a Birkin. Back in 2008, Hermès responded to growing demand by eliminating the waiting list system. In order to improve the supply situation, it was necessary to increase capacity, but at the same time to maintain strict process standards.

In order to solve this problem, the brand has been planning to steadily add leather workshops in France since 2012. This initiative has yielded significant results since the first quarter of 2014, when leather goods returned to double-digit growth.

So far, Hermès is still under a measured rate of capacity expansion. Last April, two new leather workshops were opened to boost productivity. In May, Hermès opened its 17th handmade leather workshop in the small town of Fitilieu, France. At the same time, leather workshops in Gironde and Seine-et-marne are in the pipeline, each of which will create 250 new jobs and help Hermès become more responsive to demand.

Catagory:Enrich entry categories and highlight the pyramid of lifestyle

In March 2019, Hermès announced that it would launch its first beauty collection in 2020, followed by personal care products. Axel Dumas, the CEO of Hermès, has expressed his hope that Hermès could become a global company in the field of beauty products. Beauty products, as an entry-level product, are often seen as the door to the world of luxury. If a young girl buys a lipstick today, she is likely to be a loyal customer of Birkin in the future.

Starting with beauty products, Hermès will gradually expand into personal care products, while consolidating the existing perfume line. Cosmetics, skincare and perfume will be targeted at preferences in the US, Asia and Europe respectively. Hermes' perfume division, which currently accounts for about 5% of sales, is also in the Hermès category for many young entry-level consumers. In 2014, its perfume division carefully launched a diversification strategy, launching the body care line Hermè Le Bain on the basis of perfume, which laid the foundation for the launch of beauty products today. Beauty and personal care products will complement perfume in the future, achieving what Axel Dumas calls "growing hand in hand".

Another easily overlooked category is the watch, which accounts for about 3% of Hermès’ sales. In the first quarter of fiscal year 2019, the watch division posted a year-on-year growth of 22.3%. Hermès’ watchmaking division, which is just over 40 years old, is relatively young, but it is trying to innovate.

In the hotly contested market for luxury bags, Hermès has long built a lifestyle pyramid that no other brand can emulate, from entry-level beauty products to watches and niche designs to furniture.

Home products as the brand’s next core category, recently achieved outstanding growth. In its just-released second-quarter results, Hermès’ "other business" division --- the Art of Living and Hermès Tableware, sales jumped 20.8% year on year.

Store:Expand in the China market, tell stories, experience

In April, Hermès, which has always been careful about its store location, opened an "alternative" boutique (below) at 46 Gansevoort St in Meatpacking District New York and opened its first in-store coffee bar to embrace the experience for young consumers.

Since 2018, Hermès has opened Silk scarves & Vinyl record pop-up stores in Madrid, New York, Seoul and Beijing that silk scarves designs serve as covers for vinyl records, drawing young consumers' attention to the integration of scarves with music and art.

Last week, Hermès opened a new store in Xiamen, China, which combines the style of "Hakka Earth Building" and invited artisans to show the production process of the brand's products. How can customers better understand Hermès level craftsmanship? The most direct way is to get close to the craftsmen and producers.

This is the 26th outlet in China for Hermès, which is known for its careful channel expansion strategy (below). The opening of this store echoes Axel Dumas's important strategic plan for the China market in June this year: "Strive to open a new city every year".

Looking back at Hermès’ recent financial results, "China" has been the focus of the brand's international expansion -- even as the global luxury industry slowed in 2012 and only two new stores opened globally, both of which were located in China (Wuhan and Taiwan). While this careful international offline channel expansion strategy continues, Hermès still adhering to the principle of "quality over quantity". But for the China market, Hermès is very open -- up to the 2018 fiscal year, the brand has opened new stores in Hong Kong, Changsha, Xi’an, and renovated and expanded their Shanghai IFC store. In 2019, the brand opened its 26th store in Xiamen China.

Axel Dumas revealed that the brand's Chinese customers are getting younger and younger, and they have become the youngest group of Hermès customers.

Marketing:Explore online communication and interpret the concept of sustainability

How to tell the brand's story to younger generation in new media and new ways is one of Hermès’ biggest challenges. On Weibo, comments and interaction rates on Hermès’ official account are lower than others. Intentionally or unintentionally, Hermès maintains a subtle distance from social media users.

In reality, Hermès has been doing online marketing in China in the past two years. For example, building an online store for silk scarves, the 2015 arm-wrestling contest (show bracelet), and advertising on WeChat Moments on Chinese Valentine's Day.

In terms of social responsibility, sustainability is also one of the challenges for Hermès. From focusing on animal welfare and strengthening requirements and regulations for crocodile skin suppliers, to sustainable use of natural raw materials such as horse mane hair, to the community power of its 52 French workshops, Hermès has never stopped innovating in the field of sustainability. In recent years, consumers now have a more concrete understanding of this concept through the form of "Festival des metiers".

It is worth mentioning that the concept laboratory --- Petit h, founded in 2010 by Pascale Mussard, the sixth generation successor of Hermès family, is one of the sustainable innovations of the brand. It uses leftover crocodile skins and other leftover materials from Hermès to make creative products, each of which is unique.

Sales:Reform the "aging" official website and upgrade the e-commerce business

Perhaps many may have forgotten that in 2001, Hermès was the first luxury brand in the industry to launch an e-commerce site.

Last year, Hermès official website, which was once criticized as "aging", completed its upgrade, which gave the brand a qualitative leap in its e-commerce business, which previously had long lagged behind its peers. In the same year, its official e-commerce website in China was launched.

In the first half of the fiscal year by June 30 this year, Axel Dumas highlighted the fact that the online channel in China has brought much more traffic and sales to Hermès than expected. In addition, Axel Dumas also said that he is considering the establishment of cooperation with local e-commerce companies in China, given the local characteristics of the digital luxury in China.

Hermès may not be changing the fastest, but the brand's past and current moves suggest it is trying to use subtle moves to keep the market hot while maintaining relative scarcity. At the same time, it is also looking for the right type of online marketing to build stronger emotional connections with more new consumers.

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