Economics of the world’s most expensive handbag – Hermès Birkin

Superb piece by Brooke Unger on the topic (HT: who else but MR Blog).

One has always wondered how marketers create these different products/brands for men and women and how they manage to keep prices of latter category goods so much higher.

I had no idea about the Birkin handbag (which I learnt is based on surname of an actress) and its unheard of price:

On a flight from Paris to London in 1983 Jane Birkin, an Anglo-French chanteuse and actress, spilled the contents of her overstuffed straw bag, including her Hermès diary. Jean-Louis Dumas, Hermès’s chief executive at the time, gallantly picked it up. They chatted about overflowing containers in general and her inadequate weekend bag in particular. Dumas, who had not only exquisite manners but also a fine nose for opportunity, designed a receptacle to her specifications that has become the world’s most expensive handbag. Prices start at $7,000; in June Christie’s Hong Kong sold a matte Himalayan crocodile-skin Birkin with a ten-carat diamond-studded white-gold clasp and lock for $300,168.

Part of the explanation for the bag’s exorbitant price – and the one that Hermès likes to emphasise – is the exquisite workmanship. Each Birkin is the handiwork of a single craftsman, who takes up to 18 hours to complete the job, more if the hide is a delicate crocodile skin. Hermès says its prices are based on its costs, which are necessarily high. Yet the many man-hours and fine materials that go into the making of the bag may not account for much of its price: Luca Solca, an equity analyst at Exane BNP Paribas, estimates that the production cost of a basic Birkin is around $800.

That was some mental alertness shown by Mr. Jean-Louis Dumas!

The author gets into whether Veblen goods concept applies here (it does not strictly) and other ideas which justify the price. In the end I guess it is all about this:

But the trouble with serendipity is that it cannot be manufactured. Hermès was “not able to launch another iconic bag in 32 years”, points out Mario Ortelli of Bernstein, an equity-research company. At best, the company can tend to the flickering aura that surrounds the two it has. That may be getting harder. Sophisticated buyers do not identify with starlets like Kim Kardashian and Tamara Ecclestone, who flaunt their large Birkin collections. “When you see some celebrity stepping out of an suv with a bag, it takes away from the mystique,” says Le Blanc. She fears the Birkin is becoming “too exposed”. All big luxury brands fret about that risk, but even here the Birkin stands apart.

The danger of over-exposure comes not from the zeal of its marketing but from the ardour of its fans.

Interesting stuff..

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