The transaction is the product

Hermès Birkin bags are the quintessential Veblen good: The more they cost, the more people want them.

The most affordable model — the Birkin 25 — now costs $13,500. The Diamond Himalaya (pictured above) will set you back $250,000.

If, that is, you can persuade Hermès to sell you one.

Few do.

Last year, Hermès faced a class action lawsuit alleging that the company unlawfully ties the purchase of its Birkin handbags to the purchase of other Hermès products: If you don’t buy enough shoes, scarves, clothing, and jewelry from Hermès, it won’t let you give it tens of thousands of dollars in exchange for a handbag.

It’s difficult for me to imagine caring enough about something as non-essential as a handbag that I would take the seller to court for not letting me buy from them. Is that a good use of the US legal system?

Judge James Donato seemed to think not. He dismissed the case last September, ruling that consumer frustration over not getting a bag is a personal grievance, not a violation of federal law.

The frustration, however, is real.

Unlike other Hermès products, which you can purchase on its website, Birkin bags are only sold in stores. You will not, however, see one there — unless you’ve been deemed worthy of being escorted into a back room for a private viewing.

To even be considered for such a privilege, you’ll need a salesperson to advocate for you. Hermès does not pay its sales associates their usual 3% commission on Birkin bags, so you’ll have to earn their trust by buying a bunch of other things first.

The effective acquisition cost of a Birkin bag is therefore much higher than the sticker price, as outrageous as that already is. It also includes  the time spent cultivating a relationship with a sales associate, the cost of all the other Hermès products you had to buy, and the effort of making repeated trips to a store that is probably not nearby.

Still, it can be a good investment.

Birkin bags on the secondary market have appreciated by roughly 12.5% per annum over the past 45 years (based on these two sources), outperforming the S&P 500 by about 1% a year.

Even more impressive is the risk/reward. The worst year for Birkin bags on record was 1986, when they were up only 2.1%. The next year, the S&P 500 fell 21% in a single day.

That kind of Sharpe ratio — up 12.5% a year with zero down years — would make any hedge fund manager a legend.

But only if they could have bought the bags — which they almost certainly could not have.

The reason Birkin bags have been such a good investment is that Hermès has spent decades carefully cultivating the exclusivity of the brand by making them difficult to purchase.

They probably didn’t mind being sued for it. A class-action lawsuit by people trying to compel you to sell them your product might be the best possible branding for a luxury-goods maker like Hermès.

Not so good for the brand? People buying your product from an onchain claw machine.

The journey is the reward

When Beezie, an onchain marketplace for tokenized collectibles, raised $4 million from investors in July, CEO Andrea Miele mentioned “luxury” as an upcoming product category.

This week, she hinted that Birkin bags would be one of the luxuries on offer.

I can only hope that means they’ll be available through the onchain gacha and claw machines that have proven so popular with collectors of Pokémon cards.

Spend, say, $5,000 for a Birkin bag. Find out which one you get after you buy it.

It might be a Diamond Himalaya!

Probably not, though. You will probably spend $5,000 to get a Birkin bag worth, say, $4,000 (assuming there is such a thing).

But for a few seconds — before the gacha machine dramatically reveals what you’ve purchased — you will revel in the possibility that you might get one that’s many multiples of what you paid for it. A bag you would never otherwise think of buying.

Beezie refers to itself not as a commerce platform, as you might expect, but as an “anticipation engine” — because that’s what you’re really paying for when you play one of its onchain claw machines: the sweet anticipation of not knowing exactly what you’re purchasing until after you’ve purchased it.

I suspect it will be very popular — with everyone other than Hermès.

If tokenization does for handbags what it did for Pokémon cards, a lot of the world’s Birkin bags will be acquired in onchain gachas and virtual claw machines.

Hermès will not want you to do that.

It has spent decades turning the sale of its handbags into an elaborate ritual of scarcity, status, and privilege.

Seeing the bags sold by the onchain version of a machine you’d expect to find next to the Skee-Ball at Chuck E. Cheese will be understandably jarring for Hermès.

Really, it doesn’t want its bags to be resold at all. If Hermès sees your Birkin on eBay, it’ll be the last one it ever sells you. The private room in the back of the store will be forever off limits.

(Cruel, I know.)

But Hermès will only have itself to blame, in my opinion. It’s already gamified Birkin bags — by turning their purchase into a quest. 

Hermès’ restrictions introduce friction and uncertainty into what would otherwise be just another add-to-basket transaction.

The transaction itself has therefore become a large part of the product. People aren’t just buying a Birkin; they’re buying the thrill of acquiring one.

Tokenized Birkins will allow onchain platforms like Beezie to distill that thrill into a few seconds of anticipation.

— Byron Gilliam

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