Why are Gucci and Hermes jumping into the beauty industry?

We expect to see luxury brands such as Gucci and Hermes making an active move into the beauty market in 2020. What are the benefits to these luxury houses expanding into beauty? And what would Gucci beauty and Hermes beauty do as rookies in China?

  • Gucci and Hermes are steaming up the beauty market pre-spring season. These brands disclosed their newly designed cosmetics products and captured the hearts of many consumers globally.
  • Gucci beauty was first launched in 2014 but did not make any prominent existence at the beginning. After Alessandro Michele became the new creative director of Gucci, from 2018 the brand started to give it another shot and marketed its beauty products.
  • Hermes released its first lipsticks in 2020, implying its entrance into the beauty market.
  • A number of luxury houses whose main business is couture and leather goods have successfully entered the beauty business, such as Chanel, Dior, and YSL. Givenchy and Burberry also hold beauty brands.
  • Now with Gucci and Hermes joining, luxury houses expect to gain these three benefits by expanding into the beauty market. 1) Providing new brand experience, 2) strengthening brand loyalty, and 3) creating extra profit.

Providing new brand experience

  • Main products of luxury houses(couture and bags) are usually sold at a high price, which creates a high entry barrier.
  • If these brands release a beauty line, consumers who have wanted to purchase the brands’ product can buy the beauty products, at a relatively lower price compared to their main product categories. The idea of ‘trying the brand’ is more easily linked to an actual purchase.
  • The panoplie effect(the idea of purchasing an expensive product and identifying oneself as one of those groups of people that purchase the product) increases the satisfaction of consumers who buy the products.
  • Some people even perceive it as economical to purchase beauty products from luxury houses, since they do not have a huge price gap from average luxury beauty brands and still hold a prestigious name.

Strengthening brand loyalty

  • Beauty products from luxury houses solidify existing customers to the brand. Customers who already owned and loved a handbag from Gucci can cater his/her needs for beauty by purchasing cosmetics from Gucci. The luxury brand can gain additional love from their customers.
  • Cosmetics from luxury houses induce stronger desire from potential consumers because they have more fancy packaging and are designed to another level. Even the consumers who got in contact with the brand for the first time through the cosmetics products will stay loyal to the brands because of these factors.
  • Once the brand has captured the attention of loyal customers to their beauty brand, it is easier to divert them to other product categories.

Creating extra profit

  • Introducing a beauty line is a good way of making extra cash for luxury houses. Cosmetics have high margins, and the sales volume is usually much higher than clothings or leather goods.
  • It is also a big advantage for the brand because even if a product fails, it does not cause a huge loss for the company. Bags, for example, requires considerable amount of money because it takes time and effort to devise designs and make products. But cosmetics are much smaller in terms of cost. As a result, even if a new product does not get as much response as expected, there is relatively little financial damage to the company.
  • Thus, for luxury houses cosmetics is an attractive business category to experiment with customer taste.

Gucci’s baby steps in China

  • Revenue of Gucci Beauty that occured on Alibaba e-Commerce in 2019 were mostly on Taobao(about 95% of revenue since March 2019 were from Taobao).
  • This implies that main distribution channel of Gucci Beauty is through individual sellers at the moment.
Figure1. Revenue trend of Gucci Beauty on Tmall/Taobao | Source: MeasureCommerce
  • Gucci Beauty has successfully held an event on November 29th last year, celebrating the launch of their lipsticks, and marked its entrance into Chinese market. The brand continues to post stories on Weibo regarding Gucci products, drawing attention to the brand.
  • Consumers can purchase lipsticks through Official Gucci website and the brand has opened a concept store in Beijing last November. Chinese consumers will be able to get Gucci products through more various channels going forward.
  • Hermes is planning to disclose its first-ever lipsticks with 24 different colors to the global market on this coming March. Release date in China is to be determined, but the news itself was enough to create a huge sensation among Chinese consumers.
  • YSL and Givenchy have already opened their Tmall flagship stores to tackle the Chinese market. The reaction of Chinese consumers whenever a luxury brand releases a new product is huge. The idea of a luxury house expanding into beauty industry is not only good for consumers but is also a great opportunity for the company itself. Due to these factors, such movements are expected to continue, and we should keep a keen eye on luxury brands that are present in China.
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