Sunday, October 30, 2011

The Hermès Craze

The high fashion house Hermès has been making high end clothing and accessories since the early 1900s.  Their original success coming from the Kelly bag, named after Grace Kelly the Princess of Monaco, and later from their birkin bag. Hermès bags have stood the test of time and continue to be one of the highest demanded luxury goods.  They carry a price tag anywhere from $10,000- $100,000, which seems unheard of, but their prices continue to rise.  They can be seen more as an investment given that the exact same Birkin bag bought today in the future could be resold for thousands more.  The increasing price comes from the increasing demand caused by the scarcity of bags.  Each bag is hand made in Paris by a craftsman which takes no less than 24 hours.  Also production is limited because Hermès is constantly looking for the perfect quality and color of leather and crocodile.  There is said to be a waiting list of upwards of two years.  These shortages of labor and supply create demand from the wealthiest people that are willing to shell out whatever it costs to get what they want.  Economists argue that creating equilibrium where the the supply and demand equal would make for a more profitable business, but recently, Hermès has been valued at more than France’s second largest bank, Société Générale.  Hermès has found great successful with their luxury goods, but would they make more profit if they lowered the price or increased the supply?..... No one will ever know.
-Katherine T.

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