In-Depth | The Controversy Over Hermès's Product Allocation

Platinum bags have always been Hermès' cash cow   Author | Drizzie

TransGlobla Lifestyle 2025/04/20

New Progess in the Hermès Class Action Lawsuit

According to Reuters, three consumers from California filed a third lawsuit against French luxury brand Hermes last Friday, continuing to target Hermes' controversial allocation system, accusing Hermes of forcing consumers to purchase other high-priced accessories before being eligible to purchase platinum Birkin bags, suspected of violating antitrust laws, and engaging in false advertising and fraudulent behavior.

In March of this year, two plaintiffs first accused Hermès of only providing platinum bags to customers with sufficient purchase history. Thousands of consumers who had purchased Hermès products or were asked to allocate goods to purchase platinum bags joined the class action, which attracted widespread attention in the industry. One of the plaintiffs said that she had purchased tens of thousands of dollars of products from Hermès and owned more than one platinum bag, but when she asked the store sales about another platinum bag in 2022, she was told that the product was only sold to "customers who have always supported our business." Subsequently, Hermès asked the San Francisco Federal Court to dismiss this highly watched case. Hermès denies any wrongdoing, telling U.S. District Judge James Donato that the allegations are far-fetched and that the company faces intense competition.

The group of consumers went on to appeal, adding more allegations and details than before, with the amended lawsuit adding charges of false advertising and fraud. The lawsuit alleges that Hermès and its salespeople knew they were enticing many people to buy the allotment, but that these people would not actually receive the platinum bag.

They tried to convince a skeptical judge, James Donato, a former antitrust lawyer. At a hearing in September, he expressed doubts about the consumers' claims.

He believes that Hermès can run its business on its own terms. If it chooses to produce only five platinum bags a year and price them at $1 million, it is completely free. Many customers cannot buy platinum bags, but this does not constitute an antitrust issue.

The judge also pointed out that Hermès's behavior may even promote competition in the luxury market.

He admitted that if Hermès forces consumers to pay a high premium for their bags, it is creating opportunities for every competitor, and other brands can use this opportunity to attract customers and tell consumers "Come buy our beautiful handbags, and you don't need to spend $3,000 or $30,000 on a belt."

So far, Hermès has not responded to this. The class action reflects the deep resentment of consumers against Hermès's allocation system. In addition to the issue mentioned in the lawsuit that consumers were angry about not getting bags after purchasing matching goods, some other consumers were also dissatisfied with Hermès's practice of matching goods but not admitting the existence of this hidden rule.

For many years, Hermès has basically denied the public accusations of matching hidden rules, and stated that the brand strictly prohibits the sale of certain products as a necessary condition for purchasing other products.

However, matching goods has long become a customary process for purchasing Hermès' popular handbags, and the matching ratio has reached a stable level. This largely means that the brand is aware of this and is deliberately adjusting it.

Taking Hermès’ most classic No. 30 black and gold platinum bag as an example, consumers usually need to match other non-leather products of around RMB 80,000 to 100,000, which is about 1.5 to 2 times the counter price, to have the opportunity to receive a notice from the salesperson to take the bag. The matching ratio of Hermès’ other two popular handbags, Constance 19 and Kelly, is also around 1.5 to 2 times the counter price.

This year, luxury consumption has cooled down overall, and Hermès is not immune to sales pressure. Many consumers have reported that the matching ratio of Hermès’ cash cows and cash cows BKC (i.e. Birkin, Kelly and Constance) has decreased since this year, and the difficulty of purchasing has decreased.

Although some popular color matching styles are still difficult to obtain, compared with the previous situation where you may not get the bag after receiving the goods, some consumers now reveal that Hermès can negotiate the ratio and give the bag on the spot this year. The brand attitude is more relaxed and more transparent to consumers.

Some people believe that the reduction in Hermès's ratio may undermine the trust of the brand's high-net-worth individuals in the brand. Hermès's ratio is almost a barometer of the entire luxury market.

Because unlike price-sensitive consumers, Hermès' high-net-worth customers are not chasing individual items, but are in recognition of its top-of-the-pyramid brand positioning. Therefore, the more expensive the product, the more they buy, and they buy whatever the brand launches. If the brand caters to consumers too much, it may make these consumers lose respect for it.

Sources pointed out that after the ratio was reduced this year, Hermès once tried to increase it, but the market response was not good and the ratio fell again. The supply of Hermès' popular handbags in the second half of the year was more sufficient than in previous years.

Some consumers admitted that it was a good thing for consumers to weaken the brand's strong attitude and increase supply. After the crazy price increase of luxury goods in the past few years and the soaring ratio of Hermès, many consumers have been tired of the psychological game with sales and considered completely jumping out of the luxury comparison game.

It is undeniable that although Hermès has spent a lot of energy to build a brand aesthetic world, compared with Hermès' aesthetics, this brand is still more linked to the status symbol of consumers.

In general, the allocation of goods has become a unique sales method of Hermès.

Although there are also many brands that have the phenomenon of matching goods, for example, when consumers buy Chanel classic handbags or new products in recent years, they are often asked to purchase other products with the same or even higher prices than the original price, but this situation does not exist stably for a long time, individual differences are strong, and no stable matching ratio reference has been formed.

The reason behind this is that the demand for Chanel classic products has not been far higher than the supply for a long time. Chanel's radical price increases in recent years and the implementation of matching goods are seen as imitating Hermès, which is exactly what Hermès said when refuting the lawsuit that the market competition is fierce.

However, Hermès's success model is almost impossible to copy. The long-term objective existence of Hermès's allocation system is based on the premise that the core position of handbags is stable, and secondly, the strong position of the brand is recognized by consumers. For Chanel, the strong position formed by price increases in the short term needs time to settle into the cognition of consumers, and it cannot be achieved overnight.

Rolex, which is regarded as hard currency, also has the phenomenon of bundling, but Rolex's bundling is also linked to the special sales form of the watch industry. Unlike luxury goods that are sold through directly-operated stores, Rolex relies on a large dealer network to sell products worldwide. Therefore, the bundling model of Rolex's popular watches does not depend entirely on the brand, but also on the dealers.

At present, the products bundled with Rolex watches are generally Tudor, another watch brand under its group. However, it was previously revealed that Rolex had suggested that dealers adopt a point-based consumption method similar to Hermès for customers, which means that the range of bundled products will be limited to the Rolex brand.

After Rolex completed the acquisition of BUCHERER, a leading global watch dealer, in August 2023, the transformation of the brand's sales model has begun, and the bundled sales model surrounding the brand will most likely be adjusted. Recently, Rolex opened its first direct store in China. Consumers are concerned about whether they can buy Rolex at a fair price and which brands are allowed to be bundled. This has also become a question that the market has paid close attention to recently.

Objectively speaking, the distribution system provides a sales buffer for Hermès during the cooling period of luxury goods, allowing it to adjust in different market environments.

Driven by this mechanism, Hermès has a strong moat, that is, through the distribution rules, the sales of various categories of the brand are relatively balanced, alleviating the chronic disease of high inventory in the fashion industry, and achieving a relatively high sell-out rate overall. It is reported that for every platinum bag sold worldwide, three to five Hermès backlog items are sold out at the same time.

In the first half of the year when sales of luxury giants such as LVMH and Kering Group were under pressure, Hermès still delivered an excellent performance of a 15% increase in revenue to 7.5 billion euros.

The group's operating profit increased by 8% to 3.1 billion euros, and its net profit increased by 6% to 2.4 billion euros during the period. Among them, the leather goods and saddlery department, where the platinum bag is located, had a revenue increase of 15.7% to 3.22 billion euros, the highest increase.

The group said that Hermès' market share in China has declined very little, and it is mainly due to inventory shortages and the impact of currency exchange rates. The group still maintains a steady expansion, including the opening of a new store in Wuxi at the beginning of this year and the opening of a renovated Beijing SKP store in the middle of the year.

The remarks of the judge James Donato in this class action lawsuit undoubtedly opened up a new level of understanding for the controversial Hermès distribution system. If luxury brands want to gain a foothold in the market for a long time, in addition to the uniqueness of products and brands, innovation in sales models also determines the development of the brand.

For Hermès, it is extremely unlikely that it will no longer allocate goods like the class action plaintiffs, but the system does have ample room for optimization.

Allowing other categories other than handbags to be regarded as allocations is actually the brand's initiative to reduce the importance of these categories. For example, the jewelry and watch series that the brand has vigorously developed have the potential to become Hermès' second growth curve, but many Xiaohongshu netizens believe that it is not worth investing in, partly because these categories are regarded as quotas for purchasing handbags.

Even Hermès has not solved the basic problem of how to optimize the appeal of ready-to-wear, jewelry and watches to consumers, rather than forcing them to buy products they do not appreciate.

For example, its ready-to-wear category does not make appropriate sizing adjustments for local consumers, especially in the important Asian market. Even at a time when the trend of quiet luxury has become the east wind of Hermès' ready-to-wear line, the brand has been at a disadvantage in the past round of competition in the high-end fashion market, compared with brands such as The Row, Brunello Cucinelli and Loro Piana, even though it has a creative director and conducts seasonal fashion shows.

Buffers are not a panacea. Under the external interference of class action lawsuits, it may only be a matter of time for Hermès to adjust its distribution mechanism. In other words, Hermès cannot ignore competition just because its clothes are not sold out. Since Hermès now actively mentions that the market competition is fierce, it also means that the brand has not isolated itself from the current luxury market.

Source: Fashion Headlines

Editor: Crystal

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