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The Birkin bag maker thrives amid economic uncertainty by doubling down on scarcity and craftsmanship
The Birkin bag. A square silk scarf adorned with equestrian motifs. A cashmere blanket emblazoned with the letter H. For decades, these unmistakable Hermès creations have been prized possessions among the world’s most discerning buyers.
Now, it’s not just the products turning heads Hermès shares have become some of the hottest investments in luxury, outperforming larger rivals like Louis Vuitton owner LVMH and Gucci parent Kering.
Over the past year, Hermès’ stock has risen more than 30%, even as global luxury sales slowed due to economic uncertainty and fading post-pandemic spending. While LVMH managed only modest gains and Kering’s shares dipped, Hermès stood apart. Analysts credit this to the company’s steadfast refusal to chase mass appeal, instead preserving exclusivity and quality.
“For other luxury companies, it was not such a good year,” Axel Dumas, Hermès’ sixth-generation CEO, said during the brand’s annual earnings presentation earlier this month. “There seems to be a polarization in our industry: those who are very successful and those less so.”
Still, as the nearly 200-year-old, family-run house opens more boutiques, hires thousands of new artisans, and ventures into more accessible categories like beauty, the question looms: Can Hermès maintain its rarefied aura?
“The curse of retail is everyone chases more,” Simeon Siegel, senior retail analyst at BMO Capital Markets, told local press. “Eventually, that appetite for growth damages the brand.”
Scarcity is Hermès’ defining strength
While many luxury brands have embraced viral social media campaigns and celebrity endorsements, Hermès born as a saddlery and still hand-stitching most of its leather bags and silk scarves has done the opposite. Its signature pieces have changed little over the decades, the company maintains no TikTok presence, and it refuses to gift handbags to celebrities.
This disciplined approach to scarcity helped Hermès generate $14.5 billion in annual revenue last year and reach a market valuation of over $250 billion. With demand far outstripping supply, it embodies the essence of luxury. The company is equally guarded with the press and declined local press’s requests for comment.
“It’s one of the rare parts of retail that’s not trying to sell an infinite amount of units,” Siegel noted. “Making another handbag would be easy, and selling it would be even easier, but recognizing that doing so would harm the brand that’s discipline.”
The Birkin bag is the ultimate expression of this philosophy
Since its debut in 1984, the Birkin has become one of the world’s most coveted accessories, with prices starting around $10,000 and reaching well into six figures. But exclusivity is built into the buying process: you can’t simply walk into a store or click to purchase one online.
Prospective buyers must cultivate a long-standing relationship with the brand often spending years and hundreds of thousands of dollars on other Hermès items before being offered the chance to buy a Birkin.
Hermès applies the same principle to its legendary scarves, each crafted by hand and released in limited, numbered editions.
“It’s economics 101,” retail consultant Hitha Herzog told BI. “Short supply, high demand, and iconic branding that’s the formula.”
Nicole Pollard Bayme, founder of luxury styling firm Lalaluxe, added: “People want what they can’t easily obtain. Hermès has perfected that playbook.”
Consistency enhances the allure
Hermès is unwavering in its commitment to core products. While it isn’t afraid to play with colors and whimsical prints, the Birkin, Kelly, and classic scarves remain true to designs rooted in its saddle-making heritage. Leather goods and silk items account for 41% and 7% of revenue, respectively.
By contrast, brands like Versace and Balenciaga have broadened their offerings, collaborating with other labels and selling a wide range of items from jeans to socks. This mass-market approach leaves them more exposed to fast-changing fashion cycles, something Hermès avoids.
“Brand equity at Hermès is far less diluted,” Herzog explained. “It’s nothing like Gucci, which has diversified into shoes, sweaters, perfume, makeup, and even outdoor wear.”
The brand is remarkably resilient to downturns
Hermès’ focused strategy has kept it insulated as other luxury labels cool off after a multiyear boom. Brands like Gucci and Saint Laurent enjoyed a surge from “aspirational” shoppers younger, less affluent customers seeking a taste of luxury but are now seeing that segment fade. Hermès never targeted that market, so it has little to lose when budgets tighten.
“Being at the top of consumer desirability means Hermès will be the last brand consumers give up,” said Bernstein analyst Luca Solca.
The brand has also avoided alienating loyal buyers with aggressive price hikes. Between 2020 and 2022, it raised prices more cautiously than competitors like Chanel or Louis Vuitton, pairing modest increases with its uncompromising craftsmanship.
“It’s fairly recession-proof because its core clientele doesn’t ride the economic waves,” said Winston Chesterfield, founder of luxury consultancy Barton.
Expansion without compromise yet
Hermès is still growing. Last year, it opened two new French factories one in Louviers dedicated to the Kelly bag, and another in the Ardennes region while expanding its Saint Junien site for Birkin and Kelly production.
It has also opened boutiques in Aspen, Naples, and Nanjing, with a Princeton location set for later this year. But such rapid expansion has raised eyebrows.
“They’re taking a big step, and some see risk in moving too fast,” Herzog noted, citing the brand’s surprising 2022 opening in Brooklyn’s Williamsburg neighborhood.
Hermès has broadened its product catalog, too adding eye palettes, mascara, and lip colors in its beauty line, and planning a skincare launch. It also introduced new handbag styles like the Maximors and Arçon. While these moves helped boost revenue by 21% last year, they test the balance between growth and exclusivity.
Family stewardship keeps standards intact
What may keep Hermès on course is its leadership. Sixth-generation cousins Axel and Pierre-Alexis Dumas have been unwavering about quality and brand integrity. They famously fended off a takeover attempt by Bernard Arnault’s LVMH, prioritizing independence over a windfall.
Like previous generations, both apprenticed in Hermès’ workshops, mastering the brand’s signature saddle stitch and traditional methods. They have consistently refused to outsource or use cheaper materials, instead investing in artisan training and expanding the craftsman workforce by hundreds each year.
Even the language used internally reflects this commitment Hermès opens “workshops,” not “factories.” With over 7,000 artisans, production capacity remains inherently limited, preserving scarcity.
“We’re never going to see Birkins produced at the rate of Coach,” Herzog said. “That scarcity will always exist.”
While more accessible categories like beauty now account for 3.6% of sales, they remain peripheral. A lip gloss or keychain may be within reach for many, but a Birkin or Kelly remains reserved for an elite few.
As Herzog put it: “Walk into Hermès today and ask to see a Birkin. Unless you’re in a very select circle, prepare to be politely but firmly turned away.”
Source: businessinsider
