Hermes has long been preparing for the launch of the beauty business, and the entire process is personally overseen by CEO Axel Dumas
According to sources quoted by FashionNetwork, French luxury brand Hermès, which has been making leather handbags as its core business since its inception, has finally decided to take a bold step and officially enter the beauty industry.
In a recent interview with French media Le Monde, Hermes CEO Axel Dumas revealed that in the increasingly competitive industry, it is very necessary for brands to fully deploy the cosmetics, perfume and personal care markets to enhance the brand’s competitiveness.
It is reported that Hermès has been preparing for the launch of the beauty business for a long time, and the entire process was personally supervised by Axel Dumas. The relevant timetable has been determined in the process tour exhibition last weekend, but the brand has not announced further details.
In fact, like other luxury brands, Hermès has launched a perfume product line since the 1930s but has not received much attention from the group. It is only displayed in humble corners in stores, as a small gift and The role of accessories existed, and it was not until 2004 that Hermès appointed Jean-Claude Ellena as the first exclusive perfumer.
In 2016, Christine Nagel succeeded Jean-Claude Ellena as the new creative director of the Hermès perfume business. In 2017, the brand released a Twilly perfume with a silk scarf, which quickly became popular with young consumers. In the past January, Hermès launched the new perfume Un Jardin Sur La Lagune by Christine Nagel.
In addition to perfumes, Hermes also tried to diversify on this basis in 2014, launching bath products. According to the latest data, Hermès perfume sales currently account for only 5% of the group’s total sales, which is estimated to be about 300 million euros, which is also much lower than the proportion of beauty sales of Dior and Chanel.
Why embrace beauty?
Hermès has realized that the core product is too single.
With the continuous improvement of the new generation of consumers’ environmental protection concepts, the luxury industry has started a wave of banning animal furs since 2017. Chanel, Gucci, Burberry, and Versace have become the most popular luxury brands in the world. A member of the Alliance.
According to fashion headline data, compared to Chanel, Louis Vuitton, and other luxury goods groups at Gucci, Hermes relies heavily on handbags, accounting for more than 50% of revenue, and platinum bags account for about 15% of its handbag sales.
Some analysts said that Gucci and Chanel’s abandonment of animal fur has been a big blow to Hermès. In this environment, Hermes, which still insists on using rare animal skins as raw materials to make high profits, has been isolated and will be isolated. Facing huge challenges and pressures.
According to a research report released by online service GreenMatch last year, 90% of millennial consumers said they would switch to other brands because of different values, and Gen Z also admitted that brands that take proactive measures for sustainable development and bear moral responsibility are more positive. And think that these values are more important than price. In 2015, 72% of Gen Z expressed their willingness to spend more on products produced sustainably, compared with 55% in 2014.
Hermes relies heavily on handbags, accounting for more than 50% of revenue, while platinum bags account for about 15% of its handbag sales.
The data also reflects a certain extent the bottlenecks of Hermè’s performance. According to the fashion headline data, although Hermes’ sales in the second quarter of last year maintained high single-digit growth, the handbags and harness departments slowed sharply, and the relevant departments recorded a growth rate of only 3.6%, a significant increase from 10.5% in the same period in 2017. Decreasing is also the sector with the lowest increase except for the watch business.
In the fiscal year ended December 31, 2018, Hermès sales increased by 10% year-on-year to 5.966 billion euros, a record high, but rival Louis Vuitton successfully entered the 10 billion euro mark during the same period, and Gucci’s revenue exceeded last year for the first time. 8 billion euros and it surpassed Hermes for the first time in 2017.
Along with the tumbling performance and market value, the share price of Gucci’s parent company Kering Group (KER.PA) soared 3.21% to 495.5 euros at the close of last Friday, a cumulative increase of 23% since this year. The market capitalization is about 62.3 billion euros. Anti-Hermes (RMS.PA) 58.64 billion euros, and two and a half years ago, Hermès’ market value was almost 1.5 times that of Kering.
At the same time, compared to the garment business, which is more affected by the global geoeconomics, the prospects of the global beauty market are still optimistic. High-end beauty, Asia-Pacific markets, online and travel retail is becoming the troika for the growth of the global luxury fashion giants. If you exclude perfume, only luxury brands that are still absent from the beauty market are Hermes and Louis Vuitton.
According to a study by PricewaterhouseCoopers, the global beauty industry sales recorded 412 billion euros in 2017 and a compound annual growth rate of 3.9% from 2012 to 2017. The agency continued to point out that the global beauty industry will continue to grow in the future. Further growth, the compound annual growth rate will reach 5%, and by 2021, the annual sales scale will exceed 500 billion euros. This is undoubtedly a big cake for Hermes, whose performance growth is lagging.
Proving Ground for Luxury Brand Rejuvenation
Hermès’s backwardness lies in its hesitation about youth.
As an established luxury brand with a history of 182 years, superb craftsmanship and scarcity have been a moat for Hermes for many years, but digitization and youth have become an almost irresistible trend in the industry. Whether it is Prada, Chanel or Louis Vuitton, New attempt.
Faced with the drastic changes in the environment, Hermès is not indifferent. Since last year, it has expanded the scope of its official website e-commerce business. It even joined hands with WeChat in China to open up online and offline innovative interactive marketing models, but it still lacked innovation at the product level. Outside of the extremely high threshold of platinum bags, no new “it bag” has appeared so far, which can not help but question whether Hermes’ strategy has gone awry.
Some insiders said that Chanel, which also has a history of hundreds of years, may be able to become a benchmark on the road of Hermès’ rejuvenation.
Chanel has never given up on its insistence on the attributes of luxury goods, and its completely different strategy in the ready-to-wear business and the beauty business has been a topic of discussion in the industry.
As we all know, the reason why Chanel is able to defend the attributes of luxury goods for a long time mainly depends on the clothing business with the symbolic meaning of the brand, but the brand is well aware that sales from the clothing business cannot drive the operation of the luxury group’s giant system. For Chanel, the beauty business with a relatively low entry barrier is not only a “cash cow”, but also an outlet that breaks the ceiling of traditional luxury goods. ‘
According to Chanel’s first public financial report, under the strong promotion of the beauty business, the brand’s total fiscal year 2017 sales increased by 11% year-on-year to the US $ 9.26 billion, or approximately 8.3 billion euros. Operating profit was the US $ 2.69 billion, and net profit recorded 18 Billion US dollars, of which the group spent a total of 1.46 billion US dollars in marketing and promotion, fashion shows and events, an annual growth rate of 15%, unmatched by other brands.
To continue to provide freshness to young consumers, Chanel puts a lot of budgets every year on the marketing of the beauty business, and its product layout and promotion ideas have become more and bolder.
In August last year, Chanel was the first to launch a men’s beauty series Boy de Chanel, which includes four color foundations, matte moisturizing lip balm, and four-color eyebrow pencils, in an attempt to stimulate the accelerated growth of its beauty business. Surprisingly, the series was not launched in Paris, but in South Korea, where male consumers are more beautiful.
Chanel has shown interest in the Korean market early on. When Chanel released the 2016 early spring vacation series in South Korea a few years ago, Bruno Pavlovsky, the global fashion president, said that the Korean market is the target that the brand hopes to cultivate in the next few years. “This country is different from other Asian countries and more different from what we see in the US or Europe. For us, it is time to enter this market,” he said. South Korea is a vibrant country because of this. The electronics and entertainment industries are very creative. He also revealed that Chanel ’s sales in South Korea have seen double-digit growth recently, but declined to disclose specific figures.
According to a research report by L2, South Korea is currently the ninth-largest beauty market in the world, with a turnover of US $ 12 billion last year. Sephora, a multi-brand beauty chain under LVMH, is also eyeing this market and plans to open an independent store in South Korea in the third quarter of 2019. Also, more and more Chinese are buying luxury goods in South Korea, and Chinese tourists to South Korea have begun to rebound since last year.
However, the launch of men’s beauty products also reflects some of Chanel’s current anxiety. Over-reliance on the beauty business as a source of income has put greater pressure on the group’s strategic and beauty businesses. With the rapid development of Louis Vuitton, Gucci and Dior’s core businesses, Chanel needs to first make the beauty business catch up with the former.
At the same time, Chanel continues to develop pop-up stores in major cities around the world, from last year’s COCO Cafe pop-up stores to various online H5 promotion activities, WeChat online perfume sales, and then to Shanghai K11 At the cosmopolitan limited-time makeup pop-up store held by Miss Coco, Chanel explored various online and offline marketing methods in the beauty business. Its only purpose was to achieve more direct communication with young consumers. Earlier Chanel also opened an account called on Instagram to collect buyer shows on the platform about brand beauty products.
Earlier this year, Chanel extended the expansion of the beauty business to the experience level and opened a new beauty boutique in Worcester Street, SOHO, New York. In addition to selling various makeup, skincare, and fragrance products, consumers can also experience personality Services.
It is reported that the store is divided into different areas according to product characteristics and services, including cleaning, care, base makeup, eye makeup, lip makeup, skincare consultation, perfume, private makeup area, and Coco Lab, etc. Consumers can create an Online account, in addition to keeping track of your experience and favorite products in the store, you can also book beauty treatments in the store.
Some analysts have pointed out that beauty not only creates new impetus for luxury brands in terms of performance but also provides consumers with more freshness. On the one hand, it can be used as a test field for the trend of luxury brands’ younger trends, thereby obtaining richer market data, On the other hand, it also broadened the consumer groups targeted by the core business, indirectly inducing drainage for handbags and ready-to-wear departments.
Crowded beauty market
People in the industry are worried that Hermes only realized the opportunities in the beauty industry at this time, and whether it has missed the best period. After all, apart from Hermes, there are only a handful of luxury brands that have not yet launched a beauty line.
Fashion Headline reported earlier that the high-end cosmetics of L’Oreal Group, Estee Lauder Group, and LVMH and Chanel accounted for about 70% of global sales. Among them, L’Oreal Group owns luxury brands such as YSL, Lancome and Armani, and Estee Lauder Group’s brand matrix also includes luxury brands such as Tom Ford and Marni.
Gucci also accelerated its penetration into the luxury beauty market last year. After creative director Alessandro Michele launched her first perfume in May 2017, Gucci suddenly opened a new Instagram account @guccibeauty last September. In just six months, the number of posts on the account reached 278, and 260,000 followers have been harvested.
Driven by the continued popularity of high-end skincare products and makeup, L’Oreal’s sales in 2018 increased by 3.5% year-on-year to 26.9 billion euros, and comparable sales increased by 7.1% year-on-year, recording the largest increase since 2007, including China’s Asia-Pacific market. Rose 20.4% to 7.41 billion euros, already exceeding the North American market.
The Estee Lauder Group specifically pointed out in its financial report that, stimulated by the strong performance of China’s KOL strategy and online channels and tourism retail channels, the Group’s second-quarter sales increased by 7% year-on-year to US $ 4.01 billion, of which the Asia-Pacific market exceeded 1 billion for the first time The dollar hit a record high.
The latest second-quarter earnings report of beauty group Coty also showed that sales of its luxury beauty unit, which includes Gucci perfumes and Burberry beauty businesses, increased by 7% year-on-year to $ 1 billion. Procter & Gamble Group, driven by its high-end brand SK-II, saw its sales increase by 30% in 2018, which has been rising for 17 consecutive quarters.
Although LVMH never disclosed the specific sales figures of Dior’s beauty business, industry insiders estimate that the brand’s beauty department’s annual wholesale sales are about 2.5 billion euros, half of which are perfumes, and cosmetics are about 30% And skincare products are about 20%. The largest markets are China, the United States, France, Japan, and the United Kingdom.
In addition to competitors at the same level, more and more emerging brands created by Instagram beauty bloggers are a major challenge for Hermes to enter the beauty industry. Reports have shown that millennials and Gen Z groups have paid less attention to brands and prefer more cost-effective niche brands.
Last week, the 21-year-old Kylie Jenner officially surpassed Facebook’s founder to become the youngest self-made billionaire in history. His assets may have exceeded $ 1 billion and joined the billionaire club. In the past year, Kylie Cosmetics, its make-up brand alone, has increased revenue by 9% to $ 360 million, mainly due to its 120 million followers on Instagram, which have become Kylie Cosmetics’ most direct audience.
Besides, beauty blogger Huda Kattan also launched the personal beauty brand Huda Beauty as early as 2013. Chinese online celebrity Zhang Dayi sold 20,000 personal brand lipsticks in 2 hours in 2016. Some analysts indicate that in the era when traffic is king, mastering traffic means mastering influence and voice.
Unlike a brand that normally seeks to expand, Kylie Jenner and other beauty brands born in the social media era need almost no professional digital marketing efforts, and Hermès currently has 8.29 million followers on Instagram.
What’s more, pressing for traditional beauty giants is that Seed Beauty behind Kylie Cosmetics is becoming a fast fashion in the industry. As the influence of the internet celebrity economy has increased, such producers have also begun to increase. From product design to production, it can take no more than one week. All workflows of private label manufacturers have ready-made models to keep abreast of current beauty trends.
After the traditional fast fashion got into the bottleneck period, it began to bet on the beauty market. In December last year, Zara released the first lipstick series Zara Ultimatte, led by British makeup artist Pat McGrath, who has worked with luxury brands such as Dior and Armani. It includes 12 colors of lipsticks and suits from 7.95 to 19.95 euros. The range is only available on social media platforms and official websites, and the brand says it will also vigorously develop the perfume market.
Some analysts believe that Hermes cannot be unaware of the congestion of the track, but the introduction of beauty is by no means fun. To be able to take the full initiative to control, Hermès chose to develop its own new beauty product production line instead of leaving it to a third party to take care of it.
At the same time, Hermès is continually consolidating its core leather handbag business. To meet the needs of Chinese consumers, the brand has added three leather workshops in the past two years, and in 2017 it increased its leather goods production capacity to 8%. As of now, Hermès has a total of 15 production bases around the world. The brand is expected to set up two new factories in France by 2020 to meet the rising consumer demand for leather goods. In the brand’s latest autumn/winter 2019 collection, accessories favored by young consumers such as waist packs and watches have also become the focus.
To be sure, the question of rejuvenation is no longer a multiple choice question for Hermès, but mandatory. Axel Dumas also admits that Hermes now urgently needs to break away from the traditional gap to narrow the gap with competitors because of the Millennium One generation has become a key group that will shape the direction of the luxury market in the next decade.
Success does not depend on entering the market sooner or later. When the market is in rapid dynamic change, the latecomers with unique vision may occupy a greater advantage. The most fundamental thing is still the competitiveness of the product itself.