Annual Report 2023

A $15,000 handbag that outperformed the S&P 500 for 35 years—this is costly signaling perfected. Hermès' €15.2 billion revenue and 40.5% operating margin (highest in luxury) prove that artificial scarcity isn't just marketing; it's a business model. Like peacock tails that handicap survival to signal genetic quality, Birkin bags require $10,000-$20,000 in prerequisite purchases before a customer is even considered—the cost itself is the signal. The 'waiting list' is largely fiction; bags are selectively offered through an opaque system that reinforces exclusivity. Each Birkin requires 18-20 hours of craftsmanship by a single artisan, making production constraints partially genuine but strategically maintained below demand. The result: bags appreciating 120% over retail, prices from $12,000 to $450,000, and a brand that survived LVMH's 2010 hostile takeover attempt by rallying 100 family heirs to consolidate 67% ownership. Hermès demonstrates that costly-signaling mechanisms work identically in human luxury markets as they do in sexual selection: the waste is the point.