China'S Luxury Market Revival, Herme Group Is Strong In International Luxury Brand Operation

Herme group is a listed company that has been operating steadily for three consecutive years to achieve rapid growth in its performance. The reason why it chose to concentrate its resources on international luxury brand operation is mainly due to China's high-end quality consumption.

Is stepping into the golden stage of development.

To seize the historic opportunity brought by the trend of China's consumption upgrading, Herme group (002356) is rapidly shifting its strategic focus to the field of quality consumption.

After the continuous acquisition of Shanghai Europe blue, noble department store and rainbow group's mainland China business (including Chen Qiao fashion, rainbow Shenzhen, rainbow Zhuhai, Ying Cai expansion 4 subsidiaries) and the upcoming luxury e-business platform, Shang Mei network, Herme group (002356) has become one of the largest online and offline luxury brand operators in the country, and is also the only one in the A share market.

Herme group is a listed company that has been operating steadily for three consecutive years to achieve rapid growth in its performance. The reason why it chose to concentrate resources on the international luxury brand operation is mainly due to China's high-end quality consumer market is entering the golden period of development.

Strong recovery of China's luxury consumer market

Bain's latest research report on China's luxury goods market in 2017 shows that the mainland's luxury goods market has achieved a strong growth of 20% in 2017, a record high in the past 6 years.

After many years of deceleration, mainland China's luxury consumption first rebounded in 2016, and its growth rate was 4% from -2% in 2015. Although the market has generally predicted that the growth trend will continue in 2016, the growth rate of 20% in 2017 is still beyond everyone's expectations.

The analysis shows that the recovery of China's luxury goods market is driven by multiple factors.

First of all, "the income of residents plus the growth of the middle class" is the foundation for the recovery of China's luxury goods market.

In recent years, the per capita disposable income and per capita consumption expenditure of urban residents in China have continued to grow. Meanwhile, the middle class in China has also risen rapidly.

According to McKinsey, the number of millionaires in China will rank first in the world by the year 2018, and will become the largest number of well-off families in the world in 2021.

The rise of the middle class has provided a steady stream of customers for the growth of the luxury market. According to McKinsey's tracking data, the proportion of Chinese affluent people (whose families earn more than 300 thousand yuan per year) is increasing. In 2008, the proportion of Chinese affluent people in the luxury group increased from 1/3 to 50%, which accounted for 88% of China's luxury consumption. The average household expenses for luxury goods amounted to 71 thousand yuan, two times that of France or Italy families.

Second, the rise of young consumer groups has added momentum to the recovery of China's luxury goods market.

Bain's report also believes that the rise in consumption of Chinese luxury goods is different from that in the past because the "millennial generation" has accelerated the growth of luxury consumption.

"Millennial generation" generally refers to the adult population after 2000. The age is about 20-34 years old. Compared with their predecessors, this generation of young people is more willing to pursue fashion and high quality lifestyle, and have a deeper understanding of luxury goods.

With the expansion and purchasing power of the millennial generation, coupled with branding efforts to promote digital marketing, more brand operators to reduce the regional geographical spread, and the Chinese mainland government to continue to promote consumer upgrading, I believe that the mainland China's luxury market's endogenous growth momentum is still strong.

Again, overseas luxury consumption return is also the main reason for the domestic luxury market recovery.

According to the wealth Quality Institute, in 2016, Chinese consumers accounted for 46% of the world's personal luxury goods sales, of which 77% of consumption occurred overseas, totaling up to 92 billion 800 million yuan (about 640 billion yuan). As of 2016, the proportion of Chinese consumers consuming luxury goods overseas has been over 70% for 5 consecutive years.

Behind the huge purchase of international brand luxury goods by overseas buyers is the fact that in the past, international brand enterprises have been pricing too much in mainland China, plus tariffs and other factors, resulting in a huge price gap between the international luxury brands at home and abroad, resulting in a large volume of domestic high-end consumption flows overseas.

At present, the phenomenon of luxury consumption outflow is changing with the narrowing of the luxury price difference at home and abroad. In 2016, the growth of Chinese consumers' luxury purchases at home for the first time exceeded that of overseas. In 2017, the trend of luxury consumption returning to the domestic market was more obvious.

Based on good expectations, McKinsey predicts that the 2016-2025 year Chinese consumer luxury market will grow by 9% CAGR, much higher than that of other countries (3%). By 2025, the luxury consumption of 7 million 600 thousand wealthy families in China will reach 1 trillion yuan, accounting for 44% of the global luxury market.

McKinsey also believes that the global luxury market growth of 65% in 2016-2025 years will be driven by the Chinese market.

The market environment has changed dramatically and the era of capital integration has arrived. The luxury goods industry is facing a "shuffle".

Although China's luxury industry began to recover in 2016, those small and medium international brand agents still did not take much advantage, because the recovery was driven by a large number of middle class and young groups. The demand for such consumer groups has more personalization and diversification characteristics, and the market environment is quite different from before.

The new market environment requires higher operation and management capabilities of operators. It is difficult for international brand agents to grow up in extensive market environment.

Globally, in addition to the three luxury brands such as LVMH, Li Feng, Kai Yun and the top brands of Hermes, Chanel and Prada, the rest of the luxury brands are mostly represented in the proxy mode or expanded by direct + agent mode.

From the experience of Hongkong, most of the resources of brand operation rights are concentrated in the hands of large groups such as the Kowloon warehouse group (including Junsi, Hua STIR), the new world group, and the Feng's group (its advantageous brand). Compared with small and medium-sized agents, the large group has stronger strength in operation and management capabilities, capital strength, market influence, online and offline integration capabilities, and so on, naturally helps better promote the marketing of international brands.

The luxury industry in mainland China will probably follow the Hongkong model. The resources of brand operation right will gradually be concentrated on large groups. The luxury brand operation industry will also usher in a large-scale "shuffle". The traditional agents with certain strength and resources will be gradually acquired by large groups, and agents with weaker competitive power and weaker resources will be phased out by the market.

Herme group has strong involvement in capital advantage and has entered the first camp of luxury business.

In fact, the shuffle of luxury brand operation industry in mainland China began in 2017, and 002356.SZ, a A share listed company, started its strong integration of domestic luxury brand operation industry by virtue of its capital advantage.

It has acquired many leading domestic enterprises in Shanghai, including Ou LAN, noble department store and rainbow group's mainland business in China (including Zhen Qiao fashion, rainbow Shenzhen, rainbow Zhuhai, Ying Cai expansion 4 enterprises).

In the early 2018, it announced the plan to acquire the leading vertical luxury goods supplier: "Shang pin Bai Zi" and "Yu Cheng Xin".

After the acquisition of the above target, Herme group has more than 200 or so offline entity stores network in more than 150 high-end shopping malls of more than 50 cities nationwide, and the international brand operation rights resources reach 40.

Take the Armani brand as an example, after the completion of the acquisition, Herme group monopolized 80% of the domestic market share, and the channel advantage and discourse power were highlighted.

More importantly, in the future, Herme group can integrate the huge offline channel and brand operation right resources with the online platform of "Shang pin net", forming the most competitive online and offline integration platform in the field of domestic luxury brand operation.

In just a year or so, Herme group has entered China's luxury operation through a series of industry integration through its capital advantage.

The first camp.

Grasp the key resources of brand operation right, integrate resources under online and offline, open up future growth space.

After acquiring many online and offline quality channels for many international luxury brand operators, the next task of Herme group is to integrate these channels and brand resources effectively and form a resultant force, and build a leading competitive edge on this basis, aiming to become a luxury brand in the country.

Absolutely leading enterprises.

To this end, Herme group not only absorbed a large number of luxury brand operators, but also appointed Yu Yang, general manager and director, who has more than 20 years of experience in the field of international luxury brand operation.

The new management will help Herme group to establish a more efficient operation and management system through all aspects of resource integration, and to combine the assets and resources acquired in the international brand operation field to maximize the economic benefits and growth potential of these assets.

Wang Lei, chairman of Herme group, has also indicated to the outside that the company's future goal is to create a vertical business model of luxury goods, making use of the huge system of about 200000 high-quality members to create a new mode of online and offline integration and development in the field of luxury goods.

In the future, Herme group will also build its own big data system, use the Internet big data mining to find more potential customers, and at the same time, use the existing channel network to build a member consumption system of brand interaction. By integrating the original members of the operators, a membership system with more than 200 thousand high-end consumers will be formed to achieve the sharing and coordination of resources and channels between brands and shopping malls, reduce the purchase cost of international brands in the domestic market, narrow the gap between domestic and overseas brands, enhance the attractiveness of brands in the territory, and guide overseas high-end consumption to return to China.

When the time is ripe, Herme group will expand other consumption areas, such as bags, jewelry, wine, and the future development of free brand products.

In addition to the line channels throughout the country and the high influence online platform, the most important core advantage of the herm group is its 40 international brand operation rights. Because the world's influential international luxury brands are very limited, the new entrants take the international luxury brand operation right very hard. The more brand operation rights of a company, the more initiative of the future development.