After failing to "harvest the leeks" from wealthy women, Hermès is getting anxious.

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"Accelerating" Hermès with Issues

The rate at which Hermès sales assistants are making mistakes has increased.

In recent months, Bingbing, a customer who has been shopping at Hermès, found that after waiting for a long time for popular handbags, within just one month, she received offers from the sales assistant to sell her the classic Hermès bags such as the Birkin in a classic color, the purple MiniKelly Generation 1, the Constance, and the golden-brown Kelly. These are some of the most classic and popular handbags of Hermès.

She couldn't help but wonder how her "bag luck" had suddenly improved this year. In many people's opinion, whether one can get the desired bag in previous years depends entirely on luck, thus giving rise to the term "bag luck".

Later, she realized that it wasn't that her "bag luck" had improved, but that Hermès sales assistants have recently been frantically selling bags.

Not only that, but some experienced Hermès customers have also noticed that Hermès sales assistants, who rarely posted on WeChat Moments in the past, have become more active this year, and popular Birkin or Kelly bags have also appeared in their Moments. When facing customers' demands to buy bags, the sales assistants no longer play the game of extreme bargaining in the past, but instead focus on selling the bags quickly.

There is of course a reason for this sudden acceleration. In late October, Hermès released its third-quarter financial report for 2024. Although the sales revenue is still maintaining double-digit growth, both compared to the previous quarter and the same period last year, the growth rate has significantly slowed down. It is worth noting that the Chinese market has declined severely. By region, the Asian market, including China but excluding Japan, performed the worst, with only a 1% growth at a fixed exchange rate to 1.584 billion euros. The income growth rate in the second quarter was 5.5%, and the growth rate in the first quarter was still 13.9%.

Many people are aware of Hermès' purchase allocation system. Although the brand has repeatedly denied the existence of "purchase allocation", customers who want to buy popular Hermès handbags need to purchase a certain proportion of other goods as allocation. Some high-end handbags also require a cumulative consumption to reach a certain amount before they are eligible to purchase.

This has also led to the unique jargon in the Hermès consumption field: If you accept Hermès' purchase allocation system, you are equivalent to entering the "horse farm". The process of gradually increasing cumulative consumption through allocation to obtain the qualification to purchase higher-end handbags is also called "raising horses", and you have successfully become a noble "horse raiser".

In fact, Hermès' business logic is not complicated. Borrowing the viewpoint of foreign luxury goods analysts: Hermès is well-versed in the rules of the luxury goods game. It adopts strict supply control measures, creating scarcity by limiting the supply of products, strictly controlling sales channels and sales quantities. Especially the scarcity of core product handbags, this is the key to the long-term attractiveness of luxury goods to consumers.

Fashion industry analyst Tang Xiaotang told Chaosheng TIDE that luxury goods play with human desires. Hermès deliberately creates a feeling that consumers cannot easily obtain its products, thereby maintaining the brand's attractiveness.

Now, the purchase allocation mechanism has somewhat loosened.

Take Hermès' "queen of bags", the Birkin, as an example. According to Milan @Jiang Baobao, a senior horse raiser with a cumulative consumption of tens of millions, During the epidemic, the domestic allocation ratio for a Togo leather classic color Birkin 30 was as high as 1:4. That is to say, based on the then selling price of this bag at 92,750 yuan, he needed to spend an additional 371,000 yuan to get this bag. At that time, he left the sales assistant with a comment, "Are you crazy for money?" and left.

Now, the allocation ratio for this bag has dropped to around 1:1.5.

Hermès Birkin bag

Even for new accounts, some entry-level bags can almost be purchased with zero or minimal allocation from the store. Meng Han, a post-95s product manager in a large company with an annual income of 600,000 yuan, is also a new horse raiser. In September this year, she bought a Lindy 26 in cumulonimbus gray at a Hermès store in Beijing with almost zero allocation. She only needed to purchase a silk scarf worth nearly 2,000 yuan to get this bag.

Before deciding to buy this bag, she spent a month conducting a research on the allocation ratio of three Hermès stores in Beijing. Finally, she found that within this short month, the allocation ratio for the Lindy 26, which costs more than 70,000 yuan, dropped from 1:0.5 to almost zero. In the end, she only needed to purchase a silk scarf worth nearly 2,000 yuan to get this bag.

Not only is the allocation ratio decreasing, but the cumulative consumption threshold of Hermès is also continuously lowering.

Sasha @Sasha Sasa is a Hermès buyer in China. According to her, The purchase threshold for the MiniKelly Generation 2 in first-tier cities is a cumulative account consumption of 1.5 million yuan, and it has now dropped to around 1 million yuan. In second-tier cities, it has dropped from 1 million yuan to around 700,000 yuan.

Many customers have publicly stated that for new accounts, if they want to buy a Birkin or Kelly bag, as long as they purchase a certain proportion of allocation goods on the spot, they can buy it directly without waiting or gradually purchasing step by step.

After the allocation ratio of a senior horse raiser's MiniKelly dropped from 1:2.5 last year to 1:1.3 this year, she said that she is not in a hurry to get the bag anymore. If she waits slowly, the allocation ratio is likely to be even lower. "This year, I clearly feel the relaxation of the 'horse farm'. As long as you are in a hurry, the sales assistant is likely to make you over-allocate. After all, the economic situation this year is indeed not very good."

Many people sigh that the wind of consumption downgrading has been blowing for so long, and finally it has reached Hermès. 

Purchase Allocation, The Rich's Money Game

"Horse raisers" rarely have some initiative. After all, before this year, the rhythm and initiative of transactions in the "horse farm" have always been in the hands of the sales assistants.

In order to screen high-quality customers and maintain customer relationships, many new customers who enter the store will be guided by the sales assistants to make a wish list, on which these high-net-worth guests write down the Hermès handbags they want to buy.

Some people say that from this wish list, the sales assistant has already grasped your desires.

The biggest experience for many people who buy Hermès in the store is that they don't get what they want. Sasha said, "Some sales assistants may worry that you will stop buying other things after buying the bag you want. In order to keep customers consuming continuously, they will not easily give you the bag you want."

For Hermès sales, the income from selling handbags is extremely limited, and most of their commissions come from selling allocation goods with greater sales pressure, such as ready-to-wear, jewelry and watches, furniture and home furnishings, etc. And the popular Hermès bags are the bait of the sales assistants.

"They need to use these bags to attract customers to continuously purchase allocation goods to consume the store's inventory. This is the source of income for the sales assistants and the profit source for a store.", Sasha said.

The Hermès official WeChat mini-program showcases various expensive ready-to-wear, furniture, bags and accessories, etc. A ceramic vase costs 20,050 yuan, an oak table costs 195,000 yuan, and a game table costs 867,000 yuan... In comparison, a ceramic mug costing 1,600 yuan seems insignificant. Under this blue and white striped mug, the brand introduction reads, "This is a story about white and blue."

Atout d'Hermès game table, priced at 867,000 yuan, Source: Hermès official website

But who cares what story white and blue can have. In the eyes of the vast majority of people, these expensive goods have only one function - as allocation goods. They only care about how much more allocation they need to buy after purchasing these expensive allocation goods to get the Birkin or Kelly they desire, or even a higher-end Himalayan bag worth millions.

Milan frankly said, "Buying Hermès requires being vigilant. Everyone has stepped in this game with caution."

In his opinion, what allocation goods to buy in a Hermès store depends on what inventory the store needs you to consume. "If the men's clothing in the store is not selling well recently, then they will promote men's clothing. At this time, when you go to the store to buy allocation goods, you may be inclined to buy more men's clothing.", Milan said.

On Xiaohongshu, there are more than 140,000 posts about "What is worth buying for Hermès allocation". Allocation has gradually become a knowledge.

Many horse raisers also feel anxious and exhausted. In order to reduce the allocation ratio or get a Hermès bag as soon as possible, sometimes, even some acting is required.

Milan once pretended to be a tourist in order to get the bag as soon as possible. He went directly into the store and asked the clerk if there was a Birkin 30. Now that he looks back on that time when he didn't understand the depth of the game in the "horse farm", he feels a bit ridiculous. "At that time, the clerk might have thought that I didn't respect him by asking for a Birkin 30 directly."

Later, he gradually saw and accepted this game rule, "If you want to buy Hermès, you need to buy it gradually. Everyone has to follow this rule."

Even, he would use real money to test the boundaries of this game. He spent 9 months in China starting from a zero-account. During this period, he purchased Hermès shoes, clothing, accessories, silk scarves and other goods except Hermès handbags, and spent nearly 200,000 yuan. Finally, he got his dream bag - a golden-brown Birkin 30.

In order to maintain their relationship with the sales assistants, horse raisers sometimes buy things they don't like. Once a sales assistant wanted Milan to buy a saddle. He was very surprised, "I don't even have a horse. How did you see that I need to buy a saddle?"

And a customer who once bought a green Birkin handbag complained that every time she carried this green handbag, it reminded her of her weakness at that time. "Because of the low allocation and because I didn't dare to refuse the sales assistant, I got this colorful bag."

To a certain extent, refusing the sales assistant may affect the speed at which horse raisers get their bags. "Customers need the sales assistant to submit an application to the store manager. If the application is not submitted, you may not be able to get the bag." In Sasha's opinion, the sales assistant does not have the authority to give you something, but may have the authority not to give you something.

Changing sales assistants is also a headache for many horse raisers. During the gap when a lot of allocation goods have been purchased but the bag has not been received, if the sales assistant changes, it means that when the new sales assistant serves you, you need to pay a higher cost. "Because the commission for the allocation goods previously purchased has already been counted as that of the previous sales assistant, when the new sales assistant applies for a bag for you, you definitely need to buy something else." Sasha said.

A senior horse raiser shared her horse-raising experience on Xiaohongshu. She said, The only rule for successful horse raising is to "spend money". She wanted a white crocodile MiniKelly Generation 1, so she bought an 800,000-yuan diamond watch, a men's cashmere coat, and a blanket that had been in the store for a long time and needed to be sold urgently. "Do you think I need these three or four things? No, I may not need them, but my 'crocodile baby' needs them."

She also gave a tip, which is to "over-allocate". In order to get the desired bag faster, she selected three Hermès stores in Beijing, Shanghai, and Tianjin. She spent over one million yuan in each store every month. Finally, she bought 3 million yuan worth of allocation goods and got two high-end popular bags from Hermès.

The allocation mechanism has given Hermès a huge reservoir, maintaining the liquidity of all Hermès product categories. It drives the sales of other categories by controlling the supply of handbags. The stable supply of handbags also keeps the inventory of all Hermès product categories minimized, and the sales volume can be balanced and improved.

The stable and balanced sales format also keeps Hermès' profit margin at a high level for a long time. According to the 2023 Hermès financial report released at the beginning of this year, in 2023, Hermès' sales increased by nearly 21% to 13.43 billion euros. The operating profit margin reached a historical high of 42.1%, and the group's net profit share reached 4.311 billion euros, with a net profit margin of 32.1%.

The Hermès pyramid supported by high-net-worth individuals has allowed Hermès to transform from a handmade workshop that produced horse gear to a globally renowned top luxury brand in a nearly 200-year journey.

Wallet Shrinking, Ladies Waking Up

How much do you need to spend at Hermès to be eligible to sit down and have a cup of coffee in the store?

This question has always troubled some sensitive customers. A customer who has shopped at Hermès asked on Xiaohongshu: Why after I have made several purchases, I am only given mineral water? Why does my sales assistant never ask me if I want coffee?

Later, another netizen replied that after spending 170,000 yuan to buy a bag, she also got a cup of Hermès coffee with a small horse pattern on it. "I don't know if it's a psychological effect, but I feel that the coffee at Hermès tastes better."

This is not the taste of coffee, but the taste of money.

In fact, after stepping into the "horse farm" area, everything here has already been priced secretly, including the sales assistants' smiling faces.

"The sales assistant will see if you are her core customer, and second, she will try to explore your value." Milan said, "If you are humble in front of the sales assistant at Hermès, it means that you are not that rich in front of Hermès."

Fashion industry analyst Tang Xiaotang said that Hermès' purchase allocation is a very unfriendly thing for consumers. In his opinion, the luxury goods industry, including Hermès, is the industry with the worst user experience. "It has never put consumers first. More accurately, it only puts those top guests first."

"For example, for an exhibition held by a brand, if you are its VIC customer, it will invite you to