Analysis of the extent to which Hermès’ scarcity-based marketing strategy contributes to its sustainable competitive advantage in the global luxury market

ABSTRACT

Strategy holds a unique place in the luxury sector. Unlike traditional markets where increased demand prompts a rise in supply, luxury brands like Hermès face a different challenge. Greater accessibility can boost sales but may also dilute the exclusivity that justifies premium prices. Hermès exemplifies this tension well. The brand has cultivated strong consumer demand while keeping access restricted to iconic products such as the Birkin and Kelly bags.

This paper explores how Hermès’ scarcity strategy contributes to its sustainable competitive edge. It posits that scarcity enhances perceived value, boosts status signaling, supports pricing power, fosters customer loyalty, and sustains brand prestige. Nonetheless, scarcity alone doesn't account for Hermès’ success. It is complemented by craftsmanship, limited production, brand heritage, distribution control, vertical integration, and consumer trust.

Ultimately, Hermès’ competitive strength comes not from scarcity as a standalone tactic, but from its integration into a broader business model that makes limited availability credible and hard for competitors to replicate.

1. INTRODUCTION

The core economic principle of luxury significantly differs from that of mass consumption. While many companies meet growing demand by ramping up production and increasing availability, luxury brands face a strategic dilemma: making products too accessible can undermine their image of rarity, exclusivity, and social membership. Therefore, luxury firms must carefully balance growth with maintaining exclusivity. This challenge has grown as the luxury market has expanded globally. Bain & Company projected the personal luxury goods market to be around €358 billion in 2025. Despite overall stability at constant exchange rates, less wealthy consumers have cut back on spending, whereas affluent consumers continue to support demand at the high end. Additionally, consumers are increasingly favoring luxury experiences over physical possessions. These changes highlight the importance of maintaining desirability especially for traditional luxury brands. Hermès serves as an exceptional example within this context. Established in 1837, the company has transformed from a maker of equestrian goods into one of the world's most valuable luxury brands. Its approach focuses on craftsmanship, exclusivity, and limited distribution. In 2025, Hermès achieved a revenue of around €16.0 billion and a recurring operating income of about €6.57 billion, resulting in a 41.0% operating margin. Despite a challenging broader luxury market, revenue grew by 8.9% at constant exchange rates, demonstrating Hermès’ strong pricing power and sustained consumer demand. One reason is scarcity: products like the Birkin and Kelly are hard to find directly through boutiques, with limited supply compared to high demand. Customers often face uncertainty about which models, colors, or sizes will be available, creating a purchasing environment unlike traditional retail. However, attributing this solely to artificial scarcity risks oversimplification. Hermès's true limitations stem from artisanal production requirements, needing skilled craftsmen and lengthy manufacturing. At the same time, Hermès controls distribution and access, making scarcity partly natural and partly a strategic tool. This paper suggests that scarcity plays a key role in Hermès' competitive edge, primarily because it operates within a broader system of complementary resources. Scarcity boosts demand and pricing power, but Hermès’ craftsmanship, heritage, controlled channels, vertical integration, and brand credibility make that scarcity believable. The lasting advantage comes less from withholding supply and more from Hermès’ ability to make scarcity seem justified, culturally meaningful, and highly desirable.

2. SCARCITY 

Scarcity has long shaped how consumers perceive value. When an item is harder to find, people often see its limited availability as a sign of uniqueness or desirability. This is especially true for luxury goods, where value extends beyond function to include emotional and symbolic significance.

Research by Wang, Sung, and Phau differentiates between natural rarity, stemming from genuine factors like scarce materials, skilled craftsmanship, or limited production, and virtual rarity, which results from deliberate restrictions by companies. Their 2024 study shows that natural rarity positively impacts perceived functional, emotional, and social value across various products. In contrast, artificial rarity has more limited effects and can even harm emotional and social perceptions.

This distinction is relevant for Hermès. A Birkin bag is scarce partly because Hermès controls distribution, but also because it is inherently difficult to produce at scale. Hermès has over twenty leather goods workshops and invests continuously in training artisans, including dedicated institutions for leatherworking skills. This creates natural limits on production growth without altering the product's essence.

Such an approach gives Hermès an edge over brands that generate scarcity mainly through limited releases. If a mass-produced item is intentionally limited, consumers may see the shortage as manufactured, weakening its authenticity. Hermès, however, ties scarcity to craftsmanship, making limited availability a sign of the meticulous production process rather than just marketing.

This perspective turns operational constraints into marketing advantages. While slow production might seem inefficient because it can't meet demand, for Hermès, it boosts desirability. Restricted supply helps preserve rarity, which in turn justifies premium pricing.

Ultimately, scarcity serves a dual purpose: it limits supply relative to demand and signals difficulty in acquiring the product. This combination is especially effective in markets where ownership carries symbolic meaning.

3. CONSUMER BEHAVIOR

Luxury purchases often involve a social aspect, where consumers value items not just for their materials or utility but also for what ownership conveys about status. Research shows that expensive branded products signal wealth and social standing. Nelissen and Meijers' experiments indicated that visible luxury consumption influences how others perceive and treat individuals in social contexts.

Scarcity amplifies this signaling effect because a rare product communicates more than just purchasing power; it signals access. A product that anyone with money can buy shows financial capacity, while an expensive, hard-to-acquire item may also indicate patience, knowledge, brand relationships, or privileged access, adding to its symbolic value.

The Birkin bag exemplifies this. Buying one directly from Hermès differs from ordering a luxury bag online; availability varies by store, and customers cannot always choose any configuration at any time, creating an element of uncertainty. This scarcity can boost desire, as limited availability raises the opportunity cost of refusal. Believing another chance may not come soon encourages immediate action. The difficulty of obtaining a Birkin can also increase emotional attachment, viewing the purchase as an achievement.

Evidence from the secondary market supports this: Sotheby’s reports that pristine Birkin models often sell above boutique prices, with some popular models fetching multiple times retail, and sales increased by over 70% in 2025 compared to 2024. The average price for a Birkin 30 in Togo leather was about $22,300.

This secondary market premium is strategically important. Unlike typical products, Hermès bags can hold or even increase value in resale. Buyers pay more for specific models without waiting for boutique availability, which enhances Hermès’ competitive edge. High resale prices reduce the perceived economic cost of purchase, framing the bag as a valuable asset rather than just an expense. Though Hermès does not benefit directly from resale premiums, these reinforce desirability and scarcity in the primary market.

4. PRICING POWER

Scarcity enhances Hermès’ ability to increase prices without losing demand. Pricing power is crucial for luxury brands because high prices reinforce their positioning. A luxury house that frequently discounts risks diminishing its perceived exclusivity.

Hermès has consistently raised handbag prices, with Sotheby’s noting that popular leather Birkin and Kelly models in the U.S. increased by about 6 to 7 percent in 2025, with further price adjustments later that year. Despite these hikes, these models still fetch significant premiums on the secondary market.

This indicates retail prices remain below the market-clearing level for certain items. If consumers are willing to pay much more for resale, Hermès could set higher boutique prices or increase supply. Its choice not to close this gap is a strategic move.

By not maximizing immediate revenue from its most sought-after products, Hermès aims to preserve long-term brand value. Higher production could increase short-term sales, but it would also reduce scarcity. The company chooses to forgo some transactions to maintain desirability.

This contradicts the typical view that firms should meet as much profitable demand as possible. In luxury, unfulfilled demand can become an asset.

Hermès’ financial results show it can handle this restraint, with revenue reaching about €16.0 billion in 2025 and a steady 41% recurring operating margin. This profitability enables the brand to focus on reputation over volume growth.

Scarcity offers a sustainable edge partly because it shields Hermès from direct price competition. Customers looking for a Birkin are not just comparing it to other leather handbags but see it as a symbol. This reduces substitution and allows Hermès to compete through desirability rather than price.

5. CONTROLLED DISTRIBUTIONS

Hermès' strategy of creating scarcity relies heavily on strict control over distribution channels. While the company may limit production, its exclusivity could be compromised if its products are widely available through department stores, third-party retailers, discount outlets, or unregulated online platforms.

Hermès maintains exceptional oversight over where and how its products are sold. Over 92% of its revenues come from company-operated stores, which number 294 globally. These stores offer personalized selections instead of standardized inventories.

This setup enables Hermès to determine the sales channels, protect pricing, manage stock levels, oversee customer service, and minimize reliance on wholesale channels.

The store acts as more than just a point of sale; it serves as a control tool for regulating accessibility.

Such control is crucial because the value of scarcity diminishes when customers can easily access products from independent sellers at retail prices. Immediate availability of highly sought-after items through various outlets would undermine the exclusive shopping experience linked to boutiques.

Additionally, distribution control yields valuable customer data. Direct relationships with clients help sales teams understand purchasing behaviors and foster long-term loyalty. This knowledge allows Hermès to allocate high-demand items strategically while offering a broad range of products across sixteen categories.

This approach can also generate positive cross-selling effects. Customers attracted initially by Birkin or Kelly bags might later purchase scarves, jewelry, shoes, ready-to-wear apparel, or home goods, thereby expanding the brand’s reach.

However, this strategy has faced criticism. In the US, a lawsuit alleged that customers needed substantial purchase histories across Hermès categories before gaining access to Birkin bags. In September 2025, a federal judge dismissed the class action, ruling that prioritizing high-spending buyers did not constitute an antitrust violation.

This case highlights the potential risks of highly restricted access. While scarcity can boost desirability, consumers might respond negatively if they see the allocation process as manipulative or unfair.

6. REPLICABILITY 

A strategy offers a sustainable competitive advantage only if rivals cannot easily replicate its economic benefits. Simply limiting supply is straightforward to imitate; luxury brands can cut production, release limited editions, and create waiting lists, or restrict distribution. If these tactics alone generated the Hermès effect, the advantage wouldn't last. The real challenge is creating scarcity that customers perceive as justified. Hermès benefits from resources built over generations, including its heritage, reputation for craftsmanship, artisan skills, supplier ties, iconic designs, controlled retail, and cultural status. While competitors may copy individual practices, replicating the whole system is difficult. Hermès’ production mainly occurs in exclusive workshops, with 55% made internally and 75% produced in France, supported by vertical integration, partnerships, and acquisitions to control materials and knowledge. These assets reinforce each other: craftsmanship supports limited output, which fosters scarcity and desirability. Scarcity enhances premium pricing, generating resources for ongoing investment in quality, training, stores, and materials. This creates a self-reinforcing strategic system. A competitor could try to create handbag scarcity, but without Hermès’ heritage, recognition, craftsmanship, and demand, limiting supply alone might reduce sales instead of boosting value. Thus, Hermès’ sustainable advantage isn’t just scarcity; it’s how scarcity amplifies the value of its existing resources.

7. LIMITATIONS AND RISKS OF SCARCITY STRATEGY

Despite its advantages, scarcity involves notable strategic risks. The first is excessive restriction: scarcity boosts value only if consumers are still willing to seek the product. If acquiring an item becomes too difficult, consumers may turn to competitors or secondary markets, resulting in Hermès generating demand that resellers, not Hermès, profit from. Large resale premiums show both the strategy's effectiveness and its limitation—demand is high, but Hermès leaves consumer surplus to middlemen. Slightly increasing production could help Hermès capture more value without losing exclusivity. Hermès seems aware of this balance. Instead of permanently fixed production, it has expanded leather goods capacity via new workshops and artisan training. Each new workshop creates around 300 jobs, and investment continues in additional capacity. This indicates Hermès’ approach is more about controlled growth than strict scarcity. The goal isn't minimal production but rather slow, careful supply growth that balances demand and maintains quality. The second risk relates to authenticity. Research by Wang, Sung, and Phau shows that natural rarity reliably enhances perceived luxury, whereas virtual rarity does so less consistently. If consumers see scarcity as manipulative rather than a reflection of craftsmanship or material limits, they may respond negatively. Therefore, Hermès’ narrative around craftsmanship is crucial; if production constraints no longer appear genuine, scarcity might be viewed as merely withholding supply to inflate prices. The third risk involves shifts in luxury consumption. Bain reports that consumers increasingly spend on experiences and emotional luxury, while aspirational buyers participate less in personal luxury goods. Hermès needs to stay culturally relevant while upholding tradition. Scarcity can intensify existing desire but can't generate interest in products that no longer hold cultural significance. Lastly, the growth of the resale market diminishes Hermès’ control over product access. Customers unable to get a Birkin through boutiques can buy one immediately via auctions or resale platforms, weakening physical scarcity while reinforcing perceived scarcity by highlighting the high prices buyers are willing to pay for instant access. Thus, the secondary market poses both a challenge and an opportunity—it undermines Hermès’ distribution control but publicly displays the financial strength of its products.

8. EVALUATION

The evidence indicates that scarcity plays a significant role in Hermès' competitive edge, but labeling it as the main independent factor would be oversimplified. Scarcity brings vital economic advantages, such as safeguarding exclusivity, boosting perceived desirability, reinforcing status signals, enabling strong pricing power, fostering customer engagement, and generating substantial resale premiums. These benefits set Hermès apart from other luxury brands whose products are costly but widely available. Nonetheless, the strongest proof points to a synergy between scarcity and other capabilities. While artificial shortages are easy to mimic and could eventually erode consumer trust, Hermès benefits from a blend of natural and strategically managed scarcity. Artisan craftsmanship limits output, distribution is controlled to prevent overexposure, brand heritage adds legitimacy, product quality justifies high prices, and consumer demand makes restricted availability economically viable. The key to sustainability lies in the interplay of these elements. Hermès’ scarcity has become a core element of its business model rather than a temporary promotional tool. The company invests in workshops and artisans, refusing to ramp up production purely based on demand. It manages most of its retail outlets and retains control over the customer experience. Hermès preserves the symbolic power of a few iconic products while generating revenue across a broader product range. This model continues to be effective, as reflected in Hermès’ financial results: €16.0 billion in revenue and a 41.0% recurring operating margin in 2025, even as the wider personal luxury market saw weak growth. While scarcity alone didn’t drive this success, it shows that Hermès has sustained growth and high profitability while maintaining limited accessibility, an essential factor in its competitive strength.

9. CONCLUSION

Hermès demonstrates that scarcity becomes significantly more effective when embedded within a broader strategic system of competitive advantages. Limited product availability boosts consumer demand and enhances the symbolic value of ownership. Scarcity acts as a status indicator, as acquiring Hermès items signals not just purchasing power but also access to exclusive items that many potential buyers cannot immediately obtain. Strong secondary market premiums visibly reflect this supply-demand imbalance, while rising prices underscore Hermès' pricing power.

However, Hermès’ edge isn’t solely due to supply restrictions. Any competitor might try to create rarity, but few can replicate the conditions that give Hermès’ scarcity credibility. The company's craftsmanship offers an economic rationale for limited output, while its heritage grants cultural legitimacy. Vertical integration ensures control over materials and expertise, and selective distribution maintains pricing and exclusivity. Deep customer relationships help scarcity influence buying behavior across Hermès’ product range. These combined factors turn restricted supply from a limitation into an asset.

Therefore, scarcity significantly contributes to Hermès’ sustainable competitive advantage, mainly as a reinforcing factor rather than a standalone strength. It amplifies the value of resources Hermès has built over nearly two centuries. Its sustainability relies on balancing access and exclusivity; overproduction could weaken desirability, while too little could alienate consumers and boost secondary markets. Hermès’ strategic edge lies in deliberate, slow expansion to preserve allure while investing sufficiently for growth.

Ultimately, Hermès doesn’t gain competitive advantage merely by making products hard to buy. It does so because consumers see the difficulty as justified by craftsmanship, heritage, quality, and cultural significance. As a result, scarcity becomes intrinsically linked to the product’s meaning.

10. REFERENCES 

“Strategy.” Hermès.Com, 22 Sept. 2026, https://finance.Hermès.com/en/strategy.

“2025 Universal Registration Document.” Hermès.Com, 2025, https://assets-finance.Hermès.com/s3fs-public/node/pdf_file/2026-04/1777391712/260320_Hermès_urd2025_en.pdf

“Materials and Supply Chains.” Hermès.Com, 22 Sept. 2026, https://finance.Hermès.com/en/materials-and-supply-chains.

‌Wang, Xujia, et al. “Examining the Influences of Perceived Exclusivity and Perceived Rarity on Consumers’ Perception of Luxury.” Journal of Fashion Marketing and Management: An International Journal, vol. 26, no. 2, Emerald, June 2021, pp. 365–82, https://doi.org/10.1108/jfmm-12-2020-0254.

Wat, Vanessa. “What Influences an Hermès Birkin Bag Price.” Sothebys.Com, 28 Jan. 2026, https://www.sothebys.com/en/articles/what-influences-an-Hermès-birkin-bag-price.

Aurélie Vassy. “Higher Hermès Bag Prices in 2025: What You Need to Know.” Sothebys.Com, 27 May 2025, https://www.sothebys.com/en/articles/higher-Hermès-bag-prices-in-2025-what-you-need-to-know.