The WSJ reports that Hermes generates 25% to 30% of total sales off of two, now iconic, handbags: the Birkin and Kelly. The challenge facing the company is that a resale market for high-end fashion has been growing and the purchase of a used luxury item is in vogue.
To date the company has done an excellent job creating scarcity. Per the article, production and distribution is limited to 120,000 units per year. The demand for both handbags is so high that they can generally be resold immediately after purchase for a gain (for rare colors this can be as much as a 50% to 100% gain – see the article for more details). In contrast, most luxury label handbags sell at a 35% discount to store prices.
The question is whether or not the growing second-hand market for luxury retail will become a risk factor for Hermes. The tight-supply strategy already pushes customers to make purchases in this market, which could accelerate this growth.