French luxury house Hermès is set to open a new store in the city of Changsha by summer. The move marks the debut of an Hermès store in a second-tier city in China.
Chinese cities are divided into four tiers according to their GDP and other factors. First tier cities, like Bejing, Shanghai, and Chengdu, have a GDP of over $300 billion, while second tier cities generally have a GDP ranging between $68 billion and $299 billion.
International luxury brands have typically chosen to set up physical stores in the country’s metropolitan areas and first-tier cities. But recent studies have shown that lower-tier cities like Changsha will have more “high-income” residents and consumers than Beijing by 2030.
Hermès has become the latest player in the sector—following the success stories of Gucci and Louis Vuitton—to benefit from the recovery of the luxury retail sector in China. According to the company’s first quarter financial report for 2017, it scored to a double-digit growth rate of 11.2 percent, growing to 1.35 billion euros. This increase was mainly driven by the strong demand of Chinese consumers for its silk scarves and Birkin bags.
“All geographical areas have grown and we saw an acceleration of sales in mainland China, Hong Kong and Macau, which we have not seen for a while,” global chief executive of Hermès International Group Axel Dumas told the Financial Times.
Dumas said that the strong China market helped to offset the downward trend in the home market of France and helped the brand re-emerge from its latest wave of doldrums.
Hermès expanded its distribution networks in the Greater China region throughout 2016. It opened a store in the MixC Shopping Mall in Chongqing—which is one of the most popular tourist destinations in China and has garnered the nickname “Mountain City”—as the brand expected to cash in on the influx of travelers there. Hermès also launched a pop-up store in the China World Shopping Mall in Beijing, according to the annual report, and renovated its store inside the Beijing Peninsula Hotel.
The French luxury label further stepped up its game in Hong Kong and Macau over the past year despite the fact that the retail environment in the region suffered from a “tourism winter” from mainland China. According to the firm’s annual report, in July, it re-opened the store in Hong Kong International Airport and, in August, launched a new store inside the Wynn Palace Hotel in Macau.
The aggressive expansion into the Greater China region stands in stark contrast to Hermès’ European markets. The annual report indicated that it closed down stores in several mid-size cities in France. On the other hand, Bloomberg reported that the brand is in the process of recruiting more workers in Europe to boost their production in order to meet the huge demand for handbags in Asia.
Another benefit to the brand, as per Dumas, is the evolving fashion taste in China, including Chinese consumers’ waning interest in showing off big logos.