Hermès Scheme to Sell Birkins is Anticompetitive, per New Lawsuit

Hermès is being accused of antitrust and unfair business practices in a new lawsuit that centers on the sale of Birkin bags. According to the complaint that Tina Cavalleri and Mark Glinoga filed against the brand in a federal court in Northern California on Tuesday, Hermès has taken advantage of the “market power” that results from the “unique desirability, incredible demand and low supply” of its Birkin handbags in order to increase the prices of – and profits it earns from – its Birkin bags, while also boosting its sales of other, Hermès products at the same time. In fact, Cavalleri and Glinoga claim that Hermès implemented “a scheme to exploit the market power” of its Birkin bags by “requiring consumers to purchase other, ancillary products from [it] before they will be given an opportunity to purchase” its most coveted creation.

At the heart of the alleged scheme, Cavalleri and Glinoga (the “plaintiffs”) allege that Hermès has built up a mystique of unattainability around its most famous bags, which routinely come with price tags that range from thousands of dollars to over one hundred thousand dollars depending on the materials used. “Unlike most consumer products – and most other products sold by [Hermès],” Birkin bags are not available for purchase online and are rarely ever displayed in Hermès stores, Cavalleri and Glinoga maintain, asserting that consumers “cannot simply walk into a Hermès retail store, pick out the Birkin handbag they want and purchase it.” In fact, they (correctly) claim that “most consumers will never be shown a Birkin handbag at an Hermès retail store, [as] typically, only those consumers who are deemed worthy of purchasing a Birkin handbag will be shown a Birkin handbag (in a private room).” 

The crux of Hermès’s allegedly anticompetitive scheme lies in how it determines which consumers are deemed worthy of getting the opportunity to purchase Birkin bags. Cavalleri and Glinoga claim that Hermès sales associates are “directed to only offer Birkin handbags” to individuals “who have established a sufficient ‘purchase history’ or ‘purchase profile’ with [Hermès] of [its] ancillary products, such as shoes, scarves, belts, jewelry, and home goods.” Only after a consumer has built up a sufficient purchase history or purchase profile with Hermès (i.e., they have acquired enough ancillary, non-handbags products from Hermès, usually within a certain period of time, such as a calendar year, according to TFL’s sources), will the consumer be offered the opportunity to purchase a Birkin handbag, the plaintiffs argue. 

In light of their own efforts to purchase Birkin bags in Hermès stores and allegedly being told by Hermès sales associates on more than one occasion that they should “purchase ancillary products” in order to get the chance to “potentially obtain a Birkin bag,” the plaintiffs contend that Hermès is predicating access to its Birkin bags on a requirement that they spend more on other items, thereby, giving rise to an unlawful tying arrangement. 

> A note on the role of Hermès sales associates: Cavalleri and Glinoga maintain that Hermès has furthered its scheme by way of its design of the compensation structure of sales associates. A 3 percent commission is paid to Hermès Sales associates “for ancillary products, such as shoes, scarves, belts, jewelry and home goods,” and a 1.5 percent commission is paid on non-Birkin handbags. Meanwhile, sales associated are not paid any commission whatsoever on the sale of Birkin handbags. “Although Hermès sales associates receive no commission on the most valuable and sought-after products sold by their employer,” Cavalleri and Glinoga state that they “are instructed by Hermès to use Birkin handbags as a way to coerce consumers to purchase ancillary products … in order to build-up the purchase history required to be offered a Birkin handbag.”

TLDR: “The availability of the Birkin handbags is conditioned on customers purchasing ancillary products from Hermès. In other words, consumers are coerced into purchasing ancillary products from Hermès by virtue of wanting to purchase the Birkin Handbags. This is anticompetitive, tying conduct.”

With the foregoing in mind, the plaintiffs set out claims under the Sherman Act, the Cartwright, and California’s Business and Professional Code …

> Sherman Act claim: Specifically, the plaintiffs contend that Hermès is running afoul of Section 2 of the Sherman Act, which prohibits “monopoliz[ation] of] any part of the trade or commerce among the several states, or with foreign nations.” (Tying occurs when a seller conditions the sale of one product (the “tying” product) on the buyer’s agreement to purchase a separate product or products (the “tied” product) from the seller, and requires that the seller have sufficient market power with respect to the tying product to restrain free trade in the market for that good.) 

Delving into the dynamics of Hermès’s alleged tying scheme, which allegedly violates the Sherman Act’s bar against monopolization, Cavalleri and Glinoga state that “the tying product, the Birkin handbag, is separate and distinct from the tied products, the ancillary products required to be purchased by consumers, because consumers … have alternative options for the ancillary products and would prefer to choose among them independently from their decision to purchase Birkin handbags.” Hermès’s “unlawful tying arrangements” thereby tie two separate products that are in separate markets together, they argue.

Also, Cavalleri and Glinoga assert that Hermès has sufficient economic power in the tying market, the market for Birkin bags, to “affect competition in [the] market [for] ancillary products.” Taken together, this results in Hermès “willfully and intentionally engag[ing] in predatory, exclusionary, and anticompetitive conduct with the design, purpose, and effect of unlawfully maintaining its market and/or monopoly power.”

> California state law claims: At the same time and for much the same reason, Cavalleri and Glinoga accuse Hermès of acting in breach of various California state statutes, including the Cartwright Act (Cal. Bus. & Prof. Code § 16700), which prohibits the “combination” of resources by two or more persons to restrain trade or commerce, or to prevent market competition. Such a combination occurs when the anticompetitive conduct of a single firm coerces other market participants to involuntarily adhere to the anticompetitive scheme. 

In addition to looking to get the court to certify their class action complaint to enable other consumers that have been “exposed to uniform practices and sustained injuries arising out of and caused by [Hermès]” to join in the lawsuit against it, the plaintiffs are seeking injunctive relief and monetary damages. 

A representative for Hermès was not immediately available for comment on the lawsuit.

The case is Cavalleri, et al. v. Hermès International, et al., 3:24-cv-01707 (N.D. Cal.)