M.A Final Project Proposal
Brand Extension Plan for Hermès in the United States
Savannah College of Art and Design Luxury and Fashion Management Yao Lu
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Table of Contents
1.0 Biography 2.0 Abstract 3.0 Company Overview 4.0 Market Overview 5.0 Target Market 6.0 Methodology 7.0 Research Design 8.0 Annotated Bibliography 9.0 References 10.0 Appendix 2
1.0 Biography
Hi, my name is Yao Lu. I’m from Jinan, China. I received my B.A. from Shandong Art University in exhibition design. I love luxury products and I’m interested in building my own brand, so I came to SCAD to make my dreams come true. I’m studying M.A. courses in Luxury and Fashion Management. It’s a good opportunity for me to learn the knowledge about marketing strategies, brand promotion, and supply chain management. Because I believe there are no rules to life, I always follow my dreams to discover my passion.
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2.0 Abstract
Nowadays, more consumers are adopting healthier and more balanced lifestyles, and they pay more attention to life quality. Many designers of apparel have witnessed the growing casual and confortable trend in sleepwear.
An overall trend is toward healthier living and increased awareness of the benefits of sleep. More people are thinking about sleep and taking it seriously and treating it like the important thing that it is. As part of this trend, recent Fashion Week runway shows for brands like Gucci, Céline and Givenchy bring languid, sleepwear-inspired silhouettes to the runway. Who doesn’t want to dress comfortably and be fashionable at same time? Our lifestyle demands comfort, so there will be a potential opportunity to increase the different categories of intimate wear in the sleepwear industry. The silhouettes in the sleepwear world have become more versatile, even a fashion statement, and are likely to buy luxury sleepwear. Hermes, as a top luxury brand, base on the brand image and heritage,Hermès has a strong passion for vertical integration as a marketing strategy, it has stable loyal customers.Hermes sells only a terrycloth shawl robe in its brick and mortar stores and related products like swimwear. Since the sleepwear industry keep an increasing trend, it’s a big opportunity for Hermes to extend its sleepwear categories. This proposal will introduce the background of Hermes and current sleepwear industry and explore customers’ attitudes to sleepwear products, especially for luxury products. The proposal will also explain why it is important for Hermes to extend its sleepwear products and how to improve brand image to the public.
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3.0 Company Overview 3.1 Area of Interest
Hermès is one of the world’s leading leather companies. For over 175 years, Hermès has shown a combination of rich heritage, exquisite craftsmanship, eye for detail and high levels of quality and professionalism through the entire manufacturing process. This gives Hermès a position of superiority in the very competitive world of luxury. The brand philosophy is deeply entrenched in the platforms of “quality” and “refinement”.
The main strength of the Hermès brand is the love for craftsmanship. Hermès products are available in the following categories: leather goods and saddlery, men’s and women’s ready-to-wear, footwear, belts, gloves, hats, silks and textiles, jewelry, furniture, furnishing fabrics, wallpaper, tableware, fragrances, watches and petit H. Hermès has always been a significant proponent and user of the “limited edition” strategy and also limits distribution of its products in its stores. Hermès has a strong passion for vertical integration as a marketing strategy. Hermès has expanded its array of merchandise to include 30,000 different items. over 7 different categories. Recently, sleepwear industry’s development indicates a potential market share for luxury brands. I find the brand like Gucci, Céline and Givenchy show languid dresses appeared on the runway, bringing sleepwear-inspired silhouettes. Dolce & Gabbana’s, Louis Vuitton show were full of silk sleepwear sets. Pajama dressing has become a high fashion trend during this years. However, some customers, want to wear clothing that is comfortable and fashionable at the same time, they want to show their unique life style in daily life. Extending sleepwear categories can add values and maintain Hermès’ brand images, which also according with Hermès vertical integrate marketing strategy. What’s more, it is important for brands to gain a large market share in the luxury sleepwear industry, since comfort is a fashion trend in recent society. 5
3.2 About Hermès
The top luxury brand Hermès International S.A. (Hermès) was established in the year 1837. Headquarter in Paris, France, Hermès specializes in leather goods, ready-to-wear, shoes, watches, textiles, jewelry, accessories, perfumes, table wear, and home furnishings. The target market ranges from 30- 60years old, both men and women. Hermès sells its products through its own retail stores, official websites, and small boutiques in luxury department stores.
The founder, Thierry Hermes, started handcrafting horse harnesses in 1837. The shop served European noblemen, creating the finest wrought bridles and harnesses for carriages. In the 19th century, faced with the ascent of the automobile and corresponding obsolescence of the carriage, Emile-Maurice Hermès began to diversify into travel- and sport-related leather goods (Hermès International S.A.). In 1920, the company launched a line of clothing, watches and gloves. In 1922, the company introduced its first handbags; since the 1950s, Hermès, with its Duc carriage with horse logo, began utilizing the iconic orange boxes. Hermes’ iconic bags are famous throughout the world. In 1956, Hermes launched a hand bag named “Kelly,” which was named after Princess Grace Kelly was seen carrying it. During the 1970s, Hermès expanded its product line, strengthened the brand’s youth appeal, and extended vertical integration. By 1990, Hermès had expanded its array of merchandise to include 30,000 different items. Much of what bears the still-discreet Hermès label changed from the object of an old person’s nostalgia to the subject of young peoples’ dreams.’ Vertical integration of Hermès helped promote the company’s explosive growth, and its annual sales and net profit have grown even faster. Hermes sales are made up of 47 % leather goods-saddlery, 23 % ready-to-wear and accessories, 11 % silk and textiles, and 7% other Hermès Métiers (Hermès). Over the course of the following years, Hermès will pursue its strategy based on the creativity and quality of its products, the reinforcement of its know-how in each of its markets, as well as the development of new client areas. 6
3.3 4Ps Analysis Price: Hermes has set its price by conception, manufacturing and distribution. Therefore, the high-end position of its products enables the company to set its price by avoiding competitive influence. Its marketing strategy is to be unique and highly exclusive, so that it maintains exclusivity and low supply. All Hermès products are made almost entirely in France in workshops, which places a strong emphasis on quality. The price of the products eventually goes very high. In an effort to target only elite and affluent consumers, it applies a prestige pricing strategy that limits access to the brand. A more expensive price is valued more. Place: One of the key strategies is retail environment. The company operates in the worldwide market including France, Japan, Europe, USA and Asia Pacific, which are hot fashion districts. The company has distributed its products through 307 exclusive shops around the world which can reinforce its brand image. The distributions in many upscale worldwide countries like Japan, China, the USA and Europe are an international strategy of Hermes to expand its customer base and increase sales.
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Promotion: Unlike other brands, Hermès constantly maintains the core value of the brand by not practicing mass advertising to reach higher sales volume which helps the brand to communicate easily with its specific target groups. Hermès mostly advertises in print media that can smartly provide attractive colors, themes and fabulous images in luxury and high fashion magazines such as Vogue. To increase the value of its products, Hermès uses celebrity names for its products; for example, “Kelly and Berkin bags” is named after Grace Kelly and Jane Berkin. To boost the reputation of its products, Hermès asks famous actors in the movies to use their products. It website supports various languages for different countries to promote its latest products and services and to respond to customer questions. Hermès corporates communication through rich content events and Hermès foundation with higher effort. Brand communication and marketing strategies of Hermès always remain consistent with the principles of “heritage” and “exclusivity” of the company. The company also sponsors events that have a direct fit with the image and the legacy of the company. In sync with the company’s heritage and association with horses, Hermès sponsors lots of horse racing events around the world. In addition to these, Hermès uses strategic collaborations with independent artists and designers to raise visibility of its products. Product: Hermès’ core business is based on saddlery makers extended to the theme of transportation & travel. It applies its creativity and tradition of fine craftsmanship to a wide range of sectors: leather goods and saddlery, men’s and women’s ready-to-wear, footwear, belts, gloves, hats, silks and textiles, jewelry, furniture, furnishing fabrics, wallpaper, tableware, fragrances, watches and Petit H. Hermès experts in noble material and know-how is Hermès brand value, and the possibility to create and enlarge the product portfolio means less dependent on one category of product demand. These timeless creations and long life product cycle show the identity of Hermès. 8
3.4 SWOT Analysis
Strengths: • Strong name image • Strong brand heritage • High-quality materials • Wide range of product sectors
Opportunity： • Expanding its presence in emerging countries • Cooperation with lifestyle /rich content events to promote the visibility of brand
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Weakness:
•Products are under-supplied • Digital presence limited in e-commerce • Target market becomes limited as it has less global presence
Threats: • Intense competition • Competitors with similar products at lower prices • Imitation products
3.5 Products Hermès Product offerings: Men’s & Women’s leather goods, ready-to-wear, shoes, watches, textiles, jewelry, accessories, perfumes, table wear, and home furnishings.
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4.0 Matket overview
4.1 Sleepwear Market overview Sleep awareness is a bigger trend in America. The Centers for Disease Control (CDC) suggests that more than one-third of the US population suffers from sleep deprivation(problem). and they pay more attention to healthier living. More people are thinking about sleep and taking it important thing, so sleepwear becomes a bigger, more important market. High quality material will help people to get a good sleep. The quality of sleepwear is also an important element to influence our sleep quality. Choosing a high quality material sleepwear is help our sleep. Silk is fairly luxurious sleepwear alternatives. Silk is a natural, durable fiber. these fabrics tend to be more expensive and require more specialized care than other materials, but they have proven to be a popular sleepwear choice nonetheless.
• Global & U.S. Luxury Goods Industry Overview
The size of the US market grew by around USD12 billion from 2011-2016. (See Appendix). Luxury goods globally showed a stable growth in 2016, growing by 3% in real terms to exceed USD388 billion worldwide. The U.S. continues to provide strong growth, remaining the world leader in the global luxury industry.
• Global Sleepwear Overview and Forecasting
“In 2014, the global nightwear market (defined as all clothes designed to be worn indoors/in bed including pajama separates, pajama sets and robes) reached $29.2 billion, expanding at a compound annual growth rate of 11 percent from 2009 to 2014,” according to Euromonitor, which expects the category to grow an additional 16 percent between 2014 and 2019. Forecasting sales from 2016-2021 of designer apparel (ready-to-wear) show a slow growth trend in the sleepwear industry: men’s designer nightwear valued from 13.9-14.6, women’s designer nightwear from 124.8-134.7 (USD million)(See Appendix). In 2015, Hermès reported growth of 8% in its ready-to-wear & accessories segment, with sales reaching €1,101 million.
• Hermès Apparel Categories Overview
United States is Hermès’s key market. Apparel categories are expected to see solid growth through 2020, and will remain the company’s primary focus.
• United States Sleepwear Industry Overview
There is growth trend forecasted in revenue from 2010 to 2020. Revenue in the “Women and Girls’ Night and Underwear” segment amounts to US$24,199m in 2017.Revenue in the “Men and Boys’ Night and Underwear” segment amounts to US$7,716m in 2017.There is a growing number of very wealthy U.S. consumers who successfully weathered the U.S. recession from 2007-2009, and the wealth gap is growing; these consumers will be a more important target for Hermès through 2020.
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4.2 Competitor Analysis The sleepwear industry has many competitors in the market. To know competitors better would not only help better understand the market, but also better position the brand in the market. The competitor analysis is divided into two parts: the global luxury market and the professional luxury lingerie & sleepwear market. The results and positioning map will help to consider the price and category strategy. Luxury fashion brands are main competitors, they already have sleepwear products, and also some of the biggest luxury underwear players have strong competitive.Nightwear is also one of the most important categories for lingerie brand La Perla,that the brand is currently doing double-digit growth and that “sleepwear has definitely played its role.
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5.0 Target Market Identification 5.1 Demographics Segmentation Age:30 – 60 Hermès’s culture of luxury, traditional craftsmanship and exceptional expertise attract the customers who pursue aesthetic and elegance, generally customers aged between 30 – 60 (older Millennials, Gen x and baby boomers). Gender: Both Male and Female Occupation: Lawyer, Chief Executive,Vice President,CEO Hermes reflects a brand image about upper class and high quality and a self-image of exclusiveness and social representation. It appeals to clients that are professional and high managerial. Education: Hermes’s culture of luxury and traditional craftsmanship, fine materials and exceptional expertise generally appeals to highly educated clients. Income: At least 250,000 USD Hermes’s high quality and classic brand reflection and self-image of social representation and exclusiveness, attracts high net worth individuals and clients of high income.
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5.2 Lifestyle and Attitude • Consumers seek a lot of information about the brand, its durability, functionality and value. • Consumers want to get the products and service that offer higher levels of taste, quality and aspiration than other products within the luxury goods category. • Customers spend money not only to satisfy their needs but also to enjoy the best quality of products and services. • Customers want to achieve self-actualization, self-satisfaction, respect and status through purchase. • Consumers are increasingly aware about healthy lifestyles, have begun “spending for health” and are now regarding healthy living as a fashionable lifestyle. • Luxury consumers are concerned about the environment and sustainability. • Affluents prefer personalized service and enjoy co-creation opportunities, but at the same time they are conscious of online privacy. • They are more likely to own tablets and smart devices than the general population. • Affluents are also conscious of their appearance and like to keep up with trends.
5.3 Behavior Segmentation • Online shopping Eighty-five percent are online shoppers and half are buying via tablets. • Social networkig using The most affluent users are happy to express their disappointment with a brand via social media. Half the affluent follow their favourite brands and a further 40% are connecting with brands they are considering purchasing from through Facebook, Twitter, Google+ and YouTube. 14
6.0 Methodology 6.1 Primary Research The aim of this project is to explore customers’ attitudes to their sleepwear as well as their ideas of Hermès and its sleepwear. This project also hopes to determine how to successfully launch Hermès’s new Lingerie & sleepwear products with high quality and art craft spirit in each of their activities. Hermès will use multiple channels to promote new items. Additionally, it will set up a strategy to combine the Hermès initial core value and Lingerie & sleepwear trend. The primary research for this project will include an online survey, interviews, and a questionnaire. • Online survey and qustionnare: In order to understand the demands of the target customer, I will create 15-20 survey questions through Survey Monkey t The survey will involve large groups of people in order to collect more quantitive data. • Interview: The interview is the most detailed way to understand the thoughts of individuals or groups. The interview will include face-to-face, telephone and email interviews. I plan to interview some people who care about high quality and fashionable style sleepwear in daily life. I will have face-to-face talks with people who concentrate on a healthy lifestyle.
6.1 Second Research The secondary research will be the first step in this project, and will bring me overall impression of the brand.
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• Official Hermès website and other competitors’ website • Euromonitor • Business Source Premier • Business of Fashion • WGSN • ReferenceUSA • WARC
Questionnaire This questionnaire focuses on people who think they need indoor clothing. • How many pieces if nightwear do you currently have? • Do You Sleep in the nude, in pajamas, in underwear or something else? • Do you wear underwear to bed? • Where do you buy most of your underwear? Favorite brand? • How often do you buy new undies? • What's the most you’re willing to spend on a pair of underwear? • Have you ever left your house without wearing underwear? • How do you like Hermès’ nightwear products? • What kind of products do you want Hermès to provide?
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7.0 Research Design Primary Research Survery&questionaries Email/Phone Interviews Secondary Research Conpany Overview Market Overview Target Market Research Analysis Competitive Analysis Positioning Maps Key Success Factors Strategies Product Pricing Promotion Promotion Design Part Financial Budget References & Appendix Final Delivery Final Book Layout & Print Presentation Design Presentation Practice Presentation 17
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8.0 Annotated Bibliograph Bhagat, Alisha. “A Little Is a Lot: Health and Wellness Trends 2016.” 7 Mar. 2017, http://www.huffingtonpost.com/ alisha-bhagat/a-little-is-a-lot-health-and-wellness-trends-2016_b_9393638.html. This article explores the change in consumer behavior into a healthy lifestyle, and also gives an analysis of the reasons that drive the changes. Groom, Avril. “Sleepwear as Daywear.” How to Spend It, 28 Mar. 2016, https://howtospendit.ft.com/womensstyle/103451-sleepwear-as-daywear. This article indicates that the sleepwear-as-streetwear style is a fashion trend today, and that it is more important to use luxury materials to achieve sleepwear that is comfortable for sleeping in and flattering if worn in public. Hermès. “2015 Annual Report Overview of the Group Review of Operations.” 13 Apr. 2017, file:///Users/apple/ Downloads/HERMES_RA2015_GB.pdf. This report introduces the current Hermès group overview, include a summary of consolidated financial statements and its corporate social responsibility (CSR) policy. Laws, Nancy. “ Sleepwear Startup Has Grand Ambitions to Revolutionize the Lackluster Industry.” The Huffington Post, 27 May 2016, http://www.huffingtonpost.com/nancy-laws/sleepwear-startup-has-gra_b_10164842.html. This article outlines the reason why sleepwear is an ambition industry; with a shift in values, taste, and lifestyle, customers want to get a higher quality lifestyle. Mitchell, Julian. “This Startup Is turning Luxury Sleepwear into the Next Trend in Performance Apparel.” Forbes. com, 20 Jul. 2016, https://www.forbes.com/sites/ julianmitchell/2016/07/20/this-startup-is-turning-luxury-sleepwearinto-the-next-big-trend-in-womens-performance-apparel/#85207ca11e51. This article mainly talks about sleepwear as a transition into more all-purpose apparel, which fits perfectly into the lifestyle of the modern woman who is constantly balancing the challenging demands of managing a career, family, personal and a social life. 19
Mellery-Pratt, Robin. “While You Were Sleeping: Nightwear Blooms.” Business of Fashion, 7 Jan. 2016, https:// www.businessoffashion.com/articles/intelligence/while-you-were-sleeping-nightwear-blooms. Author Mellery-Pratt discusses recent fashion trends in runway shows and the huge growth at the moment with nightwear. The silhouettes in the sleepwear world are not just limited to nighttime use. Raphael, Rina. “These Companies Dream of Becoming the Lululemon of the Pajama Industry.” Fast Company, 11 Nov. 2016, https://www.fastcompany.com/3060799/these-companies-dream-of-becoming-the-lululemon-of-the-pajama-industry. This article mainly talks about the reasons why sleepwear is a growth trend today, with the attention on consumers’ focus on health, making sleepwear a bigger, more important market. Sleep Resources, “Tuck’s Guide to Sleeping Better”. 20 Feb. 2017, https://www.tuck.com/ sleep-better/. This article explores the several elements that will influence people’s sleeping quality, and sleepwear is one of the factors. Segran, Elizabeth. “Forget Ambien. Maybe Performance Sleepwear Will Get You A Good Night’s Sleep.” Fast company. 14 Oct. 2016, https://www.fastcompany.com/3063839/ forget-ambien-maybe-performance-sleepwear-will-get-you-a-good-nights-sleep. Elizabeth Segran argues that because most people spend a third of their lives asleep, they should think more about sleepwear. The National Sleep Foundation makes the case that what you wear to bed can impact the quality of your slumber, so creating sleepwear designed for people’s actual sleeping and relaxing needs is more important. here are also some websites that may helpful for collecting information for secondary research https://0-www.warc.com.library.scad.edu/SubscriberContent/Article/Herm%c3%a8s_International_(Wearing_apparel)/93645 https://0-www.warc.com.library.scad.edu/SubscriberContent/Article/Global_luxury_goods_overview/110869 20
9.0 References Bhagat, Alisha. “A Little Is a Lot: Health and Wellness Trends 2016.” 7 Mar. 2017, http://www.huffingtonpost.com/alisha-bhagat/a-little-is-a-lot-health-and-wellness-trends-2016_b_9393638.html. Euromonitor Strategy Briefing, “Global Luxury goods overview” March, 2017 Euromonitor Company Profiles, “Hermès International (Wearing apparel)” March, 2016 Groom, Avril. “Sleepwear as Daywear.” How to Spend It, 28 Mar. 2016, https://howtospendit.ft.com/womens-style/103451-sleepwear-as-daywear. Laws, Nancy. “ Sleepwear Startup Has Grand Ambitions to Revolutionize the Lackluster Industry.” The Huffington Post, 27 May 2016, http://www.huffingtonpost.com/nancy-laws/sleepwear-startup-has-gra_b_10164842.html. Mitchell, Julian. “This Startup Is turning Luxury Sleepwear into the Next Trend in Performance Apparel.” Forbes.com, 20 Jul. 2016, https://www.forbes.com/sites/ julianmitchell/2016/07/20/this-startup-is-turning-luxury-sleepwear-into-the-next-big-trend-in-womens-performanceapparel/#85207ca11e51. Mellery-Pratt, Robin. “While You Were Sleeping: Nightwear Blooms.” Business of Fashion, 7 Jan. 2016, https://www.businessoffashion.com/articles/intelligence/while-you-were-sleeping-nightwear-blooms. McGrath, Felim, “Know the audience: The affluent”. Admap Magazine, July, 2015 Raphael, Rina. “These Companies Dream of Becoming the Lululemon of the Pajama Industry.” Fast Company, 11 Nov. 2016, https://www.fastcompany.com/3060799/these-companies-dream-of-becoming-the-lululemon-of-the-pajama-industry. Segran, Elizabeth. “Forget Ambien. Maybe Performance Sleepwear Will Get You A Good Night’s Sleep.” Fast company. 14 Oct. 2016, https://www.fastcompany.com/3063839/ forget-ambien-maybe-performance-sleepwear-will-get-you-a-good-nightssleep. Schillewaert, Niels, “Social class and life style differences between modes of data collection” ESOMAR, Panel Research. November, 2016 21
10.0 Appendix
Fig.3 Hermès “2015 annual report overview of the group review of operations,” 13 Apr. 2017.file:///Users/ apple/Downloads/HERMES_RA2015_GB.pdf.
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Source: Euromonitor International from official statistics, trade associations, trade press, company research, store checks, trade interviews, trade sources
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