The Hermes Group plans to launch a new luxury handbag brand, Shang Xia (meaning "up/down” or “high/low " in Mandarin), in China this coming spring. The collection will be designed, manufactured and sold in China and shipped to some stores in Paris. The line incorporates Chinese raw materials and traditional craftsmanship. Shang Xia is considered to be an “affordable luxury” collection.

Hermes entered China in 1997 and has not performed well in the market so far. According to Bain & Company's luxury market research report, Hermes ranks the ninth in the luxury brands that consumers are most likely to buy in China, far behind the top three Louis Vuitton, Gucci and Chanel. Hermes regards the experiment with “affordable luxury” as a competitive brand strategy in 2010 to recuperate its slower development in the world’s second-largest luxury market.

It seems Hermes is trying to differentiate their brand on the basis of being more affordable. But is this a good strategy for the Chinese market? Surveys have shown that when Chinese consumers are going to purchase luxury goods, they want them to be expensive because high prices are associated with high social status, a big motivator for the purchase of luxury goods in China. Some sources have commented that wealthy Chinese consumers want the real, genuine French product, the same one sold in other markets, not a lower-grade sub-brand made for Chinese consumers.

Although it is interesting that Hermes has decided to create a China-focused brand, they will need to be careful with their brand positioning to ensure they stay high-end enough for the Chinese luxury goods consumers.