Hermes thrives on Chinese craving for niche luxury

Shanghai: Luxury goods were the currency of Chinese corruption for decades, until Beijing stepped in two years ago to block the flow of fine baubles into the hands of government officials — and stem the flood of profits into the coffers of luxury goods companies.

Hermes, the luxury dynasty best known for its sought-after Birkin and Kelly handbags, is one of the few luxury brands that has prospered despite Beijing’s abstemiousness campaign. “So far we haven’t seen any impact on our figures,” says Axel Dumas, chief executive of Hermes.

The French company does not break out mainland sales, but sales in Asia (excluding Japan) rose 17 per cent in the first-half of 2014, while first-half sales for its rival LVMH in Asia (excluding Japan) were up only 3 per cent.

And despite the generally gloomy atmosphere around luxury in China these days, in September Hermes opened its first mainland maison, in Shanghai, to complement those in Paris, New York, Tokyo and Seoul.

It might seem like the worst time to do such a thing, but Dumas is not in the least bit worried. That could just be the self-confidence that comes with representing the sixth generation of the company’s founding family. But it is more likely that his optimism reflects a more important underlying fact about why the French luxury group continues to do well in the middle kingdom, despite the most challenging luxury market conditions in a decade.

Hermes represents what China aspires to be: not just another nouveau riche nation with more money than taste, but a country of sophisticated affluence and understated extravagance.

Dumas thinks time is on the company’s side, as Chinese consumers outgrow their tendency to show off with luxury brands and develop an appetite for savouring them. Most retail analysts agree: Chinese consumers are growing keener on niche top-level brands such as Hermes and less fond of logo-laden, mass luxury rivals such as LVMH and Gucci.

Torsten Stocker, retail partner at consultancy AT Kearney in Hong Kong, says: “Hermes’ more classic style fits well with the high-end Chinese consumer’s shift to less ostentatious items.”

Cao Weiming, Hermes head in China, agrees: “Two to three years ago, we started to see some changes, even before the anticorruption campaign began, as the market moved naturally toward greater sophistication, where consumers are more brand-knowledgeable than show-off.”

That transformation will take time; but that is one thing the French house prides itself on having.

It takes many years to train its craftsmen. It takes forever to get through the waiting list to buy a Birkin bag. It even took seven years to build the Shanghai maison.

Dumas points out that his family’s connection with China stretches a long way back: his grandmother, who was born in the early 20th century, when many French writers and artists indulged a passion for the “far east”, was a fan of mah-jong.

Gestures toward that Chinese heritage pepper the Beijing store, including horse-themed dinnerware for the current lunar year of the horse. Indeed, Hermes is so keen on winning over this market that four years ago it launched its own Chinese luxury brand, Shang Xia — one of the few mainland brands that celebrates its Chineseness, rather than apologising for it.

Everything in the Shang Xia collection of clothing, jewellery, furniture and objects d’art has a story: a cashmere felt coat is inspired by the wool felt saddle blankets used by Mongolian horsemen; a jade “ladder to heaven” necklace echoes the bamboo undergarments worn in imperial China to keep heavy ceremonial fabrics away from sweaty skin.

It is the first Chinese lifestyle brand built from the ground by a leading European luxury house. Making it a success will take time, even decades.

— Financial Times