4. Kelly and Birkin Bags
are most popular
Bags are hadmade
in France
Only 7,000 Birkins
made per year
4
Leather Goods
V. Pisipati | Hermès Brand Extension | Buying & Merchandising
5. Equestrian: Prèt-a-Porter:
Men’s Collections
Women’s Collections
Outwear
Footwear
Hermès began as a
harness fabricator
for European nobility
China is the largest
market for Hermès
equestrian products
5V. Pisipati | Hermès Brand Extension | Buying & Merchandising
6. Scarves & Ties: Jewelry & Watches:
90 cm x 90 cm
65 grams
An Hermès scarf is
sold every 25
seconds at a global
store during
Christmas
Gold
Silver
Diamonds
Leather
6V. Pisipati | Hermès Brand Extension | Buying & Merchandising
7. Tablewear & Home: Fragrance:
Hermès Puiforcat St.
Louis is a separate
store in some
locations
Crystal glass
manufactured by
St. Louis
Since 1951, the
company has created
over 30 scents
Women’s and Men’s
fragrance
7V. Pisipati | Hermès Brand Extension | Buying & Merchandising
8. Hermès distinguishes its products from competitors’ on six key
dimensions
The company focuses on slow fashion, rather than new,
temporary trends
About 50% of Hermès’s products are leather goods
which include handbags, wallets, and purses.
The company continues to avoid mass production and
process automation
Hermès goods are almost entirely handmade in France.
To ensure attention to detail and uniqueness, only one
craftsman will work on an item start to finish
Hermès currently has 328 stores worldwide, with
revenues of $5.46B in 2014
The company is still 72% family owned, though LVMH recently
acquired a 21% stake in the company
Asia is projected to constitute 66% of Hermès sales by 2025
8
Hermès Brand Overview
V. Pisipati | Hermès Brand Extension | Buying & Merchandising
9.
Qingdao (1)
Dalian (1)
Suzhou (1)
Shenzhen (1)
Ningbo (1)
Wuhan (1)
Nanjing (1)
Chengdu (1)
Kunming (1)
Hong Kong (7)
Beijing (5)
Hangzhou (2)
Macau (3)
Shanghai (4)
Guangzhou (2)
Harbin (1)
Shenyang (1)
Hermès opened its first store in Beijing in 1997, and has since
expanded to 34 stores across 17 Chinese cities.
In just over 10 years, the Chinese market evolved from being
non-existant into the largest customer base for Hermès.
Hermès plans to open one store per year from 2016 onwards,
starting in Chongqing, Sichuan Province
Retail Stores: China / Shanghai
Hermès: 34 / 4
Louis Vuitton: 50 / 4
Gucci: 71 / 9
9
Distribution in China
V. Pisipati | Hermès Brand Extension | Buying & Merchandising
11. A store’s product mix is chosen by the local store director to best fit its customers
There is no central buyer at Hermès; each store retains buying autonomy
Store autonomy allows Hermès stores in China to choose products that are most
likely to succeed with Chinese customers. If a product is unavailable at one store,
it can be requested from another store in Shanghai
Out of over 300 global stores, no two Hermès stores carry the same product mix
11
“Multi-Local” Buying & Merchandising
V. Pisipati | Hermès Brand Extension | Buying & Merchandising
13. Hermès customers buying leather goods can choose
from a wide variety of colors and leathers to customize
their individual product
Hermès will spend from several months up to four years
creating an item
The customization strategy increases variation in
production and lead times, but reduces the need to hold
numerous SKUs in store inventory
Item customization is also a unique selling point of
Hermès compared to Louis Vuitton and Gucci
Customized Merchandise
13V. Pisipati | Hermès Brand Extension | Buying & Merchandising
14. Luxury brands that own their own retail stores are better able to drive revenue and
control the in-store product mix than brands who rely on wholesalers and franchisees
The brand has more control over its visual merchandising and buying strategy
Hermès owns nearly all of its retail outlets. It does not rely on wholesale distribution or
franchise distribution, with few exceptions.
This degree of ownership allows Hermès to protect brand equity by preventing
products from being inappropriately discounted and to continue rotating products
rather than focusing on converting inventory into cash during periods of low turnover
Hermès only relies on wholesale distribution for fragrance, watches, and home goods,
and is more susceptible to economic fluctuations in those categories
Hermès reports that its brand-owned stores out-perform its wholesale and franchised
distribution channels, accounting for 80% of the brand’s revenue
Wholly-Owned Distribution
14V. Pisipati | Hermès Brand Extension | Buying & Merchandising
15. Post-Purchase Service:
Hermès China puts every customer on a VIP list, inviting
them to special events and new launches
Customers can bring any damaged or aging Hermès
products into the store to be reconditioned by a
craftsman in either Paris or the nearest maison
VIP Customer Service:
Hermès China aims to “treat every customer as a VIP”
The China sales staff is trained to offer more brand and product
education than in other markets, as Chinese customers ask
many questions to learn about the brand and what makes its
products unique
Chinese customers are willing to wait for waitlist leather goods
just as in other global markets
Hermès only has a 10% turnover rate among sales staff, which
enables it to maintain an engaged, experienced staff to
interface with customers compared to other brands
Branded Retail Environment
15V. Pisipati | Hermès Brand Extension | Buying & Merchandising
16. Strengths:
Customers can experience the brand universe
Each Hermès store can choose its own product
mix and merchandising strategy
Shanghai sales staff can provide product and
brand education to customers
The Shanghai Maison offers an additional level
of selection and exclusivity
Custom orders can be registered and dispatched
to Paris from Shanghai storefronts
Hermès is in less Chinese cities than its
competitors, increasing brand exclusivity
Weaknesses:
Less brand awareness than competitors who
have expanded further into China
Hermès Puiforcat St Louis store is separate from
the Hermès boutique in Plaza 66. Customers are
often unaware the store exists
Potential to be too exclusive at the expense of
significant revenues from Tier II and Tier III cities
Continued use of discounts will hurt brand
equity in China
Retail Strategy
16V. Pisipati | Hermès Brand Extension | Buying & Merchandising
17. All stores in Shanghai are directly owned by Hermès
Hermès stores in Shanghai are designed to provide a complete sense of luxury, conveying a
feeling of tradition and value of the brand to customers
The stores are located in prestigious locations
All stores are similar to one another in terms of their visual merchandising displays
Products are displayed in different sections for different product categories and collections
Sales staff is always available with an in-depth knowledge of Hermès
The sales staff are trained to be friendly and helpful, but not to push products on customers.
They encourage customers to ask questions, and can provide significant detail about products
and the brand
Retail Environment
17V. Pisipati | Hermès Brand Extension | Buying & Merchandising
18. Online Channel
Refined and simple design
Chinese-language version (unlike competitors)
Nearly all products that are available at the store
are present online
Customers also have an option for online
assistance during and after a purchase
Products are delivered directly to the customer’s
home.
18V. Pisipati | Hermès Brand Extension | Buying & Merchandising
19. The Hermès online store looks refined and simple.
To cater to the Chinese customer,s Hermès has their online store in the Chinese language, which many
other competitors have still not done.
All products that are available at the store are present online.
One may also find more variety online than in their local store, since stores all have unique product mixes
The website is easy to browse for the given product one intends to buy.
Different product lines are categorized clearly i.e. jewelry, watches, leather, fragrances, home, equestrian,
and prèt-a-porter
Customers can make an account which manages their personal details and subscriptions to newsletters,
tracks orders in progress, and customizes their next visit to Hermès.com based on their purchase and
browsing habits.
Customers also have an option for online assistance during and after a purchase.
Products are delivered directly to the customer’s home.
Online Channel
19V. Pisipati | Hermès Brand Extension | Buying & Merchandising
20. Mobile Channel
Through a whimsical mobile application - “Silk Knots,”
Hermès is displaying its iconic silk scarf collection in
addition to the brand lifestyle, creating awareness
among younger consumers.
“Silk Knots” uses videos and animated pictures to teach
users the many ways in which a silk scarf can be tied.
Creating an interactive app engages consumers, and the
educational component can establish a relationship.
The Silk Knots app demonstrates added value for
Hermès’ signature scarves by providing ways to extend
the product’s functional value.
The app educates Hermès customers about the true
potential of the product, ensuring that shoppers achieve
greater satisfaction from the product.
20V. Pisipati | Hermès Brand Extension | Buying & Merchandising
21. The Hermès family continues to maintain a majority share of the company
The growth strategy is much more conservative than its competitors, with no more
than one new store in China per year
The brand believes in a scarcity strategy to sustain its high brand equity and positioning
at the top of the luxury pyramid
The company would prefer to not be able to meet demand than to expand too widely,
especially in the case of Kelly and Birkin bags
Hermès utilizes waitlists for its high-selling leather goods to increase scarcity and the
unique value of its products
Hermès is able to restrain its growth and focus on existing retail operations as a direct
result of being family-owned, unlike larger conglomerates like LVMH and Kering Group
which must continue driving expansion to achieve targets set by shareholders
Endogenous Growth Strategy
21V. Pisipati | Hermès Brand Extension | Buying & Merchandising
22. 150M Chinese residents travel abroad each year to go shopping (Hong Kong, Macau, and Paris)
Hermès has found that many of its customers purchase Hermès products when travelling outside
of mainland China
The brand wants to shift the balance to 50% of purchases being made in mainland China by
providing better curated product offerings and customer service / relationship management
strategies for the local market
The typical Hermès customer does not display a change in behavior when faced with higher prices
for Hermès products in different markets, which suggests they would be willing to purchase
products within China if there are additional non-financial incentives to do so
Rebalancing Externalized Sales
Paris: 30%
International Hermès Purchases by Mainland Chinese Residents:
Hong Kong / Macau: 30%
Mainland China: 40%
22V. Pisipati | Hermès Brand Extension | Buying & Merchandising
23. Push / Pull Strategies:
Hermès uses a globsl pull-strategy. It does not tailor its advertising strategies or pricing
to individual markets in an effort to remain consistent with its heritage and maintain brand
perceptions of exclusivity and scarcity.
The brand’s goal is to create desire in an indirectmanner, rather than pushing advertisements and
marketing communications to potential consumers
Hermès believes that individuals who value quality and craftsmanship will purchase its products,
without needing to be “sold” on its products
Hermès does not advertise its products, with the exception of fragrances
Rare Exceptions: Hermès held a discount sale for the first time in 2014, held at the Hyatt
Regency in Hangzhou to clear unsold stock accumulated over the past two years. Most of the
items available were men and women's clothes and shoes, which carried discounts of 20%-50%.
23V. Pisipati | Hermès Brand Extension | Buying & Merchandising
24. Pull Strategy
Product placement with taste-makers and style icons builds word-of-mouth advertising
and indirect media coverage via blogs, magazines, and television.
24V. Pisipati | Hermès Brand Extension | Buying & Merchandising
25. Shang Xia is Hermès’s first Chinese brand - unique blend of
Chinese design and Hermès’s craftsmanship.
“Building on 5,000 years of unique inheritance, and in the spirit of
dialogue between tradition and modernity, SHANG XIA integrates
the warmth, balance and harmony of Chinese grace into all its
products.” – Shang Xia
Collections are comprised of furniture, fine decorative objects,
and luxurious accessories and garments.
Shang Xia also creates an annual series of limited edition cultural
objects designed to celebrate Chinese traditions and classic
artisanal works.
The brand has a retail presence in China, Beijing, and Paris
Shang Xia represents a unique manner for the Hermès brand to
access more Chinese customers, localizing its ideals of tradition,
quality, and craftsmanship in a way that better relates to the
Chinese market
Future Investments
25V. Pisipati | Hermès Brand Extension | Buying & Merchandising
26. Buy-out or force closure of franchised stores in China Tier I and Tier II cities to increase
control over distribution network and merchandising strategy
Consider closing Plaza 66 boutique and relocating it to a higher-traffic area like the Kerry
Centre or a stand-alone store on Huaihai Road
Close any stand-alone Hermès Home – Puiforcat stores, and merge them with existing
Hermès boutiques in the next three to five years in order to increase brand awareness of
tableware and furniture, and to gain control of the China distribution strategy for those
product categories
Recommendations for Improvement
26V. Pisipati | Hermès Brand Extension | Buying & Merchandising
27. Open new Hermès boutiques in additional Tier II and Tier III cities where Louis Vuitton and
Gucci already have a presence, as Tier II and Tier III cities now represent the majority of
China’s GDP. Priority cities for expansion include Wuxi, Xiamen, and Xian.
Choose one Tier III city where Louis Vuitton and Gucci are not already present, and invest in
a new boutique as a long-term market development opportunity (ex. Yizheng))
Expand Shang Xia brand into additional Tier I cities (Guangzhou, Macau, Hong Kong)
Recommendations for Improvement
★
★
★
27V. Pisipati | Hermès Brand Extension | Buying & Merchandising
28. Launch a market-specific push strategy for China, focusing on promoting French culture and
lifestyle, such as “La Vie Parisienne” – French culture is currently very chic in China with
opportunities for further commercialization
Sponsor at least one event per year – Hermès could partner with Shanghai institutions like
Jialiang Equestrian Club and Nine Dragons Hill Polo Club
Hermès should provide Kelly and Birkin bags to select style icons in China to drive word-of-
mouth marketing and indirect media buzz (pull strategies)
Recommendations for Improvement
28V. Pisipati | Hermès Brand Extension | Buying & Merchandising
29. Hermès will launch a special edition of the Kelly bag in collaboration with Mexican-Chinese artist Liliana Ang
Liliana Ang is an emerging contemporary artist, specializing in surrealist and figurative mixed media work that
explores themes of feminine identity and blended cultural heritage.
The content of Liliana Ang’s work will blend well with the Hermès brand of women’s leather goods which have
become an iconic luxury piece in the context of defining one’s identity. As the brand continues globalizing, the
idea of blended cultural heritage also resonates, especially as the brand targets the China market
The design series will also add a fresh perspective to the Hermès brand, helping broaden its positioning and
appeal to a younger customer demographic without diluting brand value
Past works
by Liliana Ang:
Merchandising Proposal: Hermès “Identity” Collection
29V. Pisipati | Hermès Brand Extension | Buying & Merchandising
30. Product Samples:
The four special-edition
handbags will feature dyed
and woven leathers
containing textures and
prints inspired by the
works of Liliana Ang
Each bag will be
sold for ¥120,000
“Identity” Collection
30
H H
H H
V. Pisipati | Hermès Brand Extension | Buying & Merchandising
32.
Shenzhen (1)
Hong Kong (1)
Beijing (1)
Macau (1)
Shanghai (1)
Guangzhou (1)
Collection Launch in China
Hermès will introduce the collection
only in one store in each of the Tier 1
Mainland Chinese cities where it is
present. It will also place products into
one store in Hong Kong and Macau.
32V. Pisipati | Hermès Brand Extension | Buying & Merchandising
33. • Within Shanghai, the Identity Collection will be available for sale at the Shanghai Maison
• This collection will not be available for custom order, it can only be ordered in the four
variations offered by the brand
• The online channel will provide information about the collection’s concept, but items from
this collection will not be for sale online
• 10 of each bag will be stocked in the Shanghai Maison, increasing its exclusivity and scarcity
(Four variations, ten stocked units / store)
• The collection will be launched with a VIP cocktail reception and press conference – one in
Shanghai, and one in Hong Kong
• The artist, Liliana Ang, and Chief Designer will be at each launch event and involved in all
request from the media for interviews
Retail Strategy:
33V. Pisipati | Hermès Brand Extension | Buying & Merchandising
34. • Collection aesthetic may be too specific for Chinese
customers and not translate into sufficient
• The distribution plan is based on the scarcity strategy
used by Hermès. A risk is that the distribution of
“Identity” is too narrow, at the expense of potential
lost sales
• Customers may be unwilling to buy a non-customized
handbag for the ¥120,000 price
• The store must generate significant buzz from this
collection in order to justify the development costs of
the items and prove valuable to the brand
• With greater artistic specificity, luxury products
become narrower in their potential target consumer
groups
• The long-term value of the “Identity” pieces sold will
depend on the continued success and visibility of the
artist
Risks and Threats
34V. Pisipati | Hermès Brand Extension | Buying & Merchandising
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37V. Pisipati | Hermès Brand Extension | Buying & Merchandising