Three days before Christmas, the savvy folks over at godly luxury company Hermès quietly announced that they would launch a new brand in China called Shang Xia.
The label will incorporate Chinese raw materials and local craftsmanship tailored to the specific desires of the Chinese luxury consumer, who, as we mentioned last week, loves Western brands like Armani and Chanel.
Why is this such a big deal? Well, Herm√®s–the most well-respected luxury brand in the world–doesn’t take risks. If they’re willing to launch an entirely new concept, there’s got to be a sure-fire financial gain behind it, right?
I asked my go-to China expert, Patricia Pao, what her thoughts were on the acquisition. Pao, a luxury consultant who in the past worked for LVMH and Elizabeth Arden, has spent the last year researching China’s affluent consumer. “Herm√®s purchased Shang Xia to provide an entry price point into the market so that they wouldn’t have to compromise the pricing of their own brand,” says Pao. “They’re also appealing to the Chinese desire for unique, exclusive merchandise that can be found only in mainland China.”
Herm√®s isn’t the first luxury company to try this strategy. Fancy pen maker Mont Blanc has a collection of pens specific to its Chinese audience. And last year, Swiss watchmaker Bedat & Co. introduced Red8, a watch brand that’s produced in China, and though available globally, is geared towards Bedat’s Chinese customer.
Yet while we’re likely to see some other big luxury companies taking a similar approach over the next year, it’s going to take a long time for the money to start rolling in.
“I think this is a risky strategy in the short term because Chinese luxury buyers prefer Western brands,” says Pao. “Local brands don’t carry as much prestige. H√®rmes can do this because they’re privately held, family-owned and committed to building this brand for the next 100 years. And by then, I have no doubt that Shang Xia will be an established luxury goods brand.”