The Pricey Purse That Created a Problem

Hermés has a problem that only a luxury brand could create.

There is too much demand for their $200,000 handbags. And it’s entirely their fault.

The Birkin Bag

A Hermès Birkin bag used to be so rare that local stores had a wait list and reputedly there was a wait list for the wait list. The reason was limited supply. Although the cheapest version was a whopping $10,000 or so, women wanted more than the stores could sell…even the $200,000 version.

At that point the market took a bit of a pivot. Used purses (a.k.a. “pre-owned”) were offered at auction and through online resellers. Now, though, that resale market has Hermès concerned. The prices of secondhand bags are higher than retail. If you paid $12,000 for a basic Birkin bag, you could flip it the next day to a dealer for $14,000. That person, in turn, can sell it on Instagram for $18,000 to $22,0000. Auctions are also a possibility.

At a Christie’s auction, a Himalayan crocodile Birkin Bag sold for $300,168 during May 2016:

The Wall Street Journal suggests that Hermès might soon want more control over the market for its pricey purses–the Birkin and the Kelly bags– that generate an estimated 25 to 30 percent of its revenue.

One way is to diminish the secondhand market by producing more of them. And that is the problem. If there were more, would anyone want them?

Our Bottom Line: Conspicuous Consumption

A Birkin chronicler once told us, “That Birkin on your arm tells other women your place in society.” More than 120 years ago, Thorstein Veblen explained why.

In his Theory of the Leisure Class (1899), Thorstein Veblen (1857-1929) told us that the affluent pursue useless activities like excessive shopping to convey their power and wealth. Servants and employees help the affluent do less while their money lets them signal their status by buying more. The Birkin bag is precisely what Veblen was talking about.

In a 2010 paper, scholars at USC’s Marshall School of Business used the following diagram to convey some of what Veblen taught us. They could easily have inserted the Hermès Birkin Bag in the Parvenu slot below:

Thorstein Veblen was rather eccentric. I once read that his let his dirty dishes accumulate until none remained. Then he sprayed them with a hose and started all over again. This is Veblen:

My sources and more: With all that is unfolding in the world, articles about Hermès and conspicuous consumption were a pleasant diversion. So, if you want to read more, Hermès history of the Birkin bag is a possibility. Also, WSJ and the NY Times were both a good read as was this 2008 article. In addition, I recommend an academic lens from business school scholars who were at USC and UCLA when they wrote this paper ten years ago. And finally, I would be remiss if I did not mention inconspicuous consumption.

Several sentences from today’s post were in a past econlife.