The luxury sector just got stranger. Despite flat sales and worries that Chinese consumers are spending less, Christie’s auction house sold a Hermes handbag for a world record $300,000 on May 30 in Hong Kong. The lesson for rivals is that shoppers will still stump up for rarity. That’s cold comfort for those companies that have grown too big and too available.
Granted, this was no bog-standard bag. Hermes makes just two of these diamond-encrusted versions a year. But neither is it a one-off. Prices for rare Birkins — the company’s most popular product — are creeping up, with three new records set and smashed in 12 months.
Demand is stoked by a stage-managed shortage. Hermes in fact sells 110,000 of its two hottest bags — the Kelly and Birkin — each year, according to Bernstein estimates. Production is expected to increase by seven per cent this year alone. But they can’t be bought off the shelf and the company is choosy about who can buy them. That’s a contrarian approach in comparison with the likes of Prada and Burberry, which ramped up production to fill their rapidly expanding store footprints. Prada more than doubled its number of shops since 2009, reaching 618 last year.
There is a booming trade in second-hand Hermes bags. At first glance, they do look like a good investment. A Birkin sold by Heritage Auctions for $298,000 this year was bought for $160,000 in 2008, an 11 per cent annual return, beating the return on the S&P 500 over the same period. But prices, while high for now, are entirely dependent on fragile brand perception.
The trend shows up in Hermes’ own results too. Sales of products readily available in its stores fell in the company’s first quarter. The sole division posting positive growth is the one that makes its euro 12,000 handbags. It’s a lesson luxury companies seem to have forgotten. In a world of instant gratification, scarcity is what really sells.
Granted, this was no bog-standard bag. Hermes makes just two of these diamond-encrusted versions a year. But neither is it a one-off. Prices for rare Birkins — the company’s most popular product — are creeping up, with three new records set and smashed in 12 months.
Demand is stoked by a stage-managed shortage. Hermes in fact sells 110,000 of its two hottest bags — the Kelly and Birkin — each year, according to Bernstein estimates. Production is expected to increase by seven per cent this year alone. But they can’t be bought off the shelf and the company is choosy about who can buy them. That’s a contrarian approach in comparison with the likes of Prada and Burberry, which ramped up production to fill their rapidly expanding store footprints. Prada more than doubled its number of shops since 2009, reaching 618 last year.
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The trend shows up in Hermes’ own results too. Sales of products readily available in its stores fell in the company’s first quarter. The sole division posting positive growth is the one that makes its euro 12,000 handbags. It’s a lesson luxury companies seem to have forgotten. In a world of instant gratification, scarcity is what really sells.