Hermes appears to be moving away from the core strategy that made it special and wildly successful.
LONDON, United Kingdom — There is no doubt that Hermes sells exquisitely made products, but so do many other luxury brands. What is most unique about Hermes is the company’s decision to frustrate consumer demand, making it difficult for people to buy its most coveted products, namely its Birkin and Kelly handbags. It’s a strategy that works incredibly well.
The fact that people consider the Birkin handbag to be genuinely exclusive is itself an astonishing feat considering that there must be more than a million Birkin bags in circulation. For this, Hermes deserves infinite respect.
Better still is Hermes’ skill at conjuring a halo of exclusivity over its wide range of other products, no matter how trivial they are. Fragrances that sell for $100 a bottle, silk scarves that go for $400; consumers can buy any of these products and leave an Hermes outlet store feeling like a star.
Put simply, Hermes has pursued one of the most effective stratagems for marrying high sales volume with the perception of exclusivity — category segregation by confining iconic, core-category products (like bags) to high-end price ranges while offering other categories (like scarves) at lower price points to aspirational consumers.
But now, Hermes appears to be moving away from this tried-and-tested formula of frustrating demand for its core products. In 2017, I was able to find standard Birkin handbags available in stores in Europe for the first time in years. The brand also seems to have moved away from the principle of category segregation, as consumers can now buy Hermes replica handbags at significantly lower prices, only slightly above the €1,000 threshold. Of course, at this price point, we’re talking about the Evelyne, Garden Party and Picotin ranges not the Birkin or Kelly bags. But, even so, they are Hermes replica handbags just the same.
Demand frustration and category segregation were the two traits that set Hermes outlet apart from its luxury megabrand peers. Without these elements, the genetic difference between Hermes and, say, Louis Vuitton is more difficult to discern. Hermes is still more desirable in the eyes of some consumer groups, especially the Chinese. But this seems more a difference of degree than essence. In fact, French consumers seem to have the opposite feeling.
Today, Hermes is valued significantly above the industry average based on the uniqueness of its strategy. But as the company’s business model becomes less special, should its multiple not reflect this?
Luca Solca is the head of luxury goods at BNP Exane Paribas.