French luxury group Hermès has long prided itself on its resistance to change: even as many other famed luxury brands have occasionally succumbed to the easy money of turning out logo-heavy, mass-produced items, the company insists that each of its products are handcrafted. For instance, all of its bags are handsewn for more than 20 hours in the company’s atelier in Pantin, a suburb just outside of Paris.
The company believes that its production processes deliver unrivalled quality in the final goods delivered and that it caters to an elite customer base with money and taste aplenty.
That strategy has worked so well that even the pandemic hasn’t dampened the appetite for Hermès products. In the first half of this year the maker of Birkin and Kelly handbags reported an operating profit margin of 41% – the highest of the last decade. But could some of that margin be the result of an unspoken sales tactic known in China as peihuo? While it is an open secret that Hermès restricts the supply of its most sought-after handbags – namely the Birkin and Kelly – it doesn’t talk much about the controversial practice of peihuo.
How does it work? One Hermès shopper told online magazine Sixth Tone that in order to get her hands on the handbag she wanted she first had to splurge on a few less-desirable items at the store – the practice known in China as peihuo. On one visit, she had to spend almost Rmb20,000 on sandals, a T-shirt and silk scarf rings before she could ask about the availability of a Picotin bag which, at Rmb20,900, is considered a bargain in the Parisian brand’s line-up. (The answer was no, she would have to wait longer for a chance to buy one).
The luxury group has denied that it plays the peihuo game but Chinese social media is busy with shoppers sharing their experiences of the practice.
One customer showed off her most recent purchase of a black Kelly bag on social media app Xiaohongshu. “Don’t ask me whether or not peihuo was necessary, it was a must,” she explained. “But thankfully, the amount wasn’t too high. It’s still cheaper than using a daigou [buying a brand from an overseas store through a ‘purchasing representative’; see WiC433].”
To be eligible to buy new Birkin, Kelly or Constance bags, most shoppers will have to spend up to two times the purchase price of the handbag on products like jewellery, netizens discussed on social media. One sales manager told WiC that he’d seen some clients resorting to purchases of higher-ticket items like horse saddles, which sell for about $8,200, in a bid to meet their quota.
Industry commentators say that while other luxury goods makers have pursued a similar strategy in reserving the best bags for the biggest spenders, Hermès is by far the most stringent in enforcing the practice. “Hermès was the first to implement the peihuo strategy; its terms are also the harshest. But then there’s no shortage of rich people in China, which is why the prices have only gone up over time,” one handbag fan wrote on an e-commerce blog.
“Some people pay more to have a daigou buy the bags on their behalf [in overseas shops where there might be more stock] instead of spending a bunch of money on other useless things,” she added. “However, with the counterfeiting techniques so sophisticated, it has become hard to trust anyone.”
In July, one customer was reported to be so disgruntled when he still wasn’t allowed to buy a handbag after Rmb100,000 of peihuo spending that he protested in front of a store in Beijing, with a sign saying “Rubbish Hermès — peihuo but no bag”.
Other shoppers voiced their support online. “Finally, someone dares to do this!” read the most-liked comment beneath a post about the customer’s protest on Xiaohongshu,an e-commerce and social media platform.
Jing Daily reckons that the bad press could be damaging to the brand. “If they fail to adapt, social media will be awash with negative content,” the consumer news site warns.
Perhaps Hermès needs to talk to Dolce & Gabbana about the dangers of angering China’s netizens. It has spent years trying to get back into the good graces of Chinese consumers. An infamous ad campaign in 2018 featuring a Chinese model struggling to eat pizza and a cannoli with chopsticks was seen as condescending. It led to an enormous backlash, followed by a boycott of the luxury brand. Sales in China, which had accounted for a third of revenue, were so poor that the Italian fashion house had to lay off staff and close two of its stores.
Last weekend the brand’s co-founder Domenico Dolce admitted to the Financial Times that the whole experience had been “painful” but said that Dolce & Gabbana was still hoping to win back Chinese favour. A new flagship store will open in Shanghai later this year.
But will consumers forgive and forget? The company hasn’t hosted an event in China since 2018 and no Chinese celebrities turned up at its high-profile Alta Moda show in Venice recently. The lack of star power is partly explained by Covid-19 travel restrictions but other headlines for the brand are still concerning for Dolce and his business partner Stefano Gabbana. In January, the singer Karen Mok was widely chastised online after appearing in a Dolce & Gabbana dress, forcing her to apologise for a “lapse of judgement”. And when the company ran an advert in August on Xiaohongshu, netizens were so quick to express their outrage that the platform took it down almost immediately.
“Xiaohongshu is joining hands with Dolce & Gabbana, a brand with a history of insulting the Chinese people. It has stooped so low that it would dare to touch such dirty money?” one fashionista thundered.
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