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Luxury Brands and the Economics of Exclusion

The most profitable brands in the world got that way by making their products harder to buy, not easier.

Updated April 5, 2026

Between 2016 and 2017, Richemont, the parent company of Cartier and Piaget, bought back 481 million euros worth of its own unsold watches and destroyed them. Not donated, not discounted, not sold through an outlet. Crushed and recycled. The CFO explained it plainly: “We don’t believe that having our inventory in the grey market will help long-term brand equity.” The company spent roughly $567 million to make sure nobody could buy a Cartier watch for less than Cartier wanted them to pay.

This is the logic that runs the entire luxury industry. The most profitable brands on earth are the ones that make their products hardest to buy, and when a luxury brand tries to become more accessible, the result is almost always catastrophic.

The Birkin is a $50,000 entrance exam

Hermès doesn’t sell Birkin bags the way other brands sell handbags. There is no “add to cart.” There is no waitlist you can put your name on. The only way to buy one is to be offered one by a sales associate, and the unspoken requirement to receive that offer is spending $30,000 to $50,000 on other Hermès products first: scarves, shoes, jewelry, home goods. Before COVID, the spend-to-bag ratio sat around 1:1 or 1.5:1. By 2025, customers reported ratios of 3:1 to 5:1 for the most desirable styles.

The system is so rigid that customers sued Hermès for it. In March 2024, a federal antitrust lawsuit alleged an illegal “tying arrangement,” forcing customers to buy products they didn’t want in order to access products they did. Court filings revealed a detail that Hermès had never publicly acknowledged: sales associates earn commissions on every product they sell except Birkins, which means the entire compensation structure incentivizes associates to push customers toward more and more ancillary purchases before offering the bag. The case was dismissed in September 2025 but is currently on appeal.

The result is a company that spends 4.5% of revenue on marketing (compared to LVMH’s 12%), runs a 44% operating margin (compared to the luxury average of ~20%), and generated 15.17 billion euros in 2024 revenue. Making the product harder to buy didn’t suppress demand. It became the demand.

Chanel raised prices 297% and people bought faster

The Chanel Medium Classic Flap cost $2,850 in 2010. By 2019 it was $5,800. By August 2025, it hit $11,300, a 297% increase in 15 years, roughly seven times the rate of US consumer inflation over the same period. Chanel raises prices multiple times per year, sometimes without announcement, and the effect on demand is the opposite of what basic economics would predict.

Buyers started purchasing sooner to avoid the next increase. Sales associates report 2-3 year waitlists for the Black Caviar Classic Flap. Luxury analysts describe the rapid price hikes as deliberately designed to push out casual buyers and signal to the remaining customers that the product is becoming more exclusive with every increase. A woman who bought the bag in 2019 didn’t just get a handbag. She got an asset that appreciated ~95% in six years.

Economists have a name for this: the Veblen effect, after Thorstein Veblen’s 1899 theory that certain goods become more desirable as their price increases because the price itself is part of the value. A $2,850 Chanel bag is a nice handbag. An $11,300 Chanel bag is a statement about who can afford to carry one.

What happens when luxury brands go the other way

The counter-examples are brutal.

By 2014, 70% of Coach’s North American sales came from outlet stores, and less than 5% of their products sold at full price. The brand that once signaled attainable luxury became something people were embarrassed to carry. Stuart Vevers was hired to a brand “widely viewed as failing,” and the turnaround required closing stores, slashing outlet distribution, and spending an extra $50 million on marketing to reposition upmarket.

Michael Kors hit the same wall even harder. The diffusion line (MICHAEL) made the brand so accessible that it diluted the mainline collection entirely. In May 2015, same-store sales dropped 5.8% when analysts expected 3% growth, and the stock lost ~$3 billion in market value in a single day, a 24% collapse. Inventory had ballooned 65% while Google searches for the brand declined 22%.

Burberry’s version was cultural. In the early 2000s, the brand’s signature check became so ubiquitous and widely counterfeited in the UK that it became associated with tabloid culture. Harvey Nichols and Selfridges stopped stocking Burberry entirely. Recovery required removing the check from all but 10% of products and discontinuing the checkered caps that had become the symbol of the problem.

Each of these brands spent years and hundreds of millions of dollars trying to crawl back to a position they could have held by staying exclusive in the first place.

The modern playbook

The brands that understand this best in 2025 aren’t all traditional luxury houses.

The Row, built by Mary-Kate and Ashley Olsen, sells cotton t-shirts for $500 and fragrance oils for $490-550 per 7ml bottle. The brand has no social media presence, no visible logos on any product, and bans phones at its fashion shows. In a business where visibility is everything, The Row became a $1 billion company by being deliberately invisible, and the families behind Chanel and L’Oréal invested in it.

Jacquemus turned a non-functional bag into the most recognizable accessory in fashion. The Le Petit Chiquito measures 8.5cm by 5cm, roughly the size of an AirPods case, and costs $510-590. It holds nothing. It does nothing. It generated so much demand that leather goods now account for more than half of Jacquemus’s ~280 million euros in annual revenue.

Lululemon rebranded the concept of a sale entirely. Their only discount section is called “We Made Too Much,” reframing a clearance rack as an accident. They produce smaller runs intentionally, release new products every Thursday at 11am ET to train customers to check like clockwork, and their limited-quantity drops see a 30% higher sell-through rate than regularly stocked items.

Ferrari takes it to its logical extreme. CEO Benedetto Vigna stated publicly in 2022 that “Ferrari will always deliver one car less than the market demand,” quoting founder Enzo Ferrari. Real demand is estimated at 10-20 times production capacity. Annual output is capped at ~13,750 units, and some models appreciate 10-20% annually on the resale market because the supply is kept permanently below demand.

What You Can Learn

Scarcity is a pricing strategy, not an inventory accident. Every brand on this list restricts supply deliberately, and the restriction is what creates the perception of value. For any founder building a product business, the instinct is to make as much as possible and sell it as widely as possible. The luxury model says the opposite: the less available something is, the more people are willing to pay for it. This works at every price point, not just $11,000 handbags. Limited drops, seasonal products, and controlled distribution all use the same mechanic.

Accessibility is a one-way door. Coach, Michael Kors, and Burberry all learned that once a brand becomes associated with discounting or mass availability, the damage takes years and hundreds of millions of dollars to reverse. Moving upmarket is dramatically harder than staying there. Any founder considering outlet channels, flash sales, or wide retail distribution should understand that the short-term revenue comes with long-term brand risk that compounds over time.

The price is the product. A $500 t-shirt from The Row and a $30 t-shirt from Everlane may use comparable fabric. The difference is what the price signals about the person wearing it. For brands with aspirational positioning, the price itself is part of what customers are buying, and lowering it doesn’t make the product more attractive. It makes it less.

Frequently Asked Questions

Why do luxury brands destroy unsold products?

To prevent them from entering secondary markets at discounted prices, which would undermine the brand’s perceived value. Richemont destroyed 481 million euros worth of Cartier and Piaget watches between 2016 and 2017 rather than allow them to be sold below retail. Burberry burned 28.6 million pounds of unsold stock in 2018 before public backlash forced them to stop.

What is the Veblen effect?

An economic phenomenon where demand for a product increases as its price increases, because the high price itself signals status and exclusivity. Named after economist Thorstein Veblen, who described the concept in 1899. Chanel’s Classic Flap, which has increased 297% in price since 2010 while maintaining multi-year waitlists, is a textbook example.

How much do you have to spend at Hermès before you can buy a Birkin?

There is no official policy, but customers and resellers report a pre-spend ratio of 3:1 to 5:1 as of 2025, meaning $30,000-$50,000 in purchases of other Hermès products before being offered a Birkin. Pre-COVID, the ratio was closer to 1:1.

Can smaller brands use scarcity marketing?

Yes, and Lululemon is proof it works outside traditional luxury. Limited drops, controlled production runs, and deliberate under-supply can create urgency at any price point. The key is consistency: the scarcity has to be real or perceived as real. Brands that manufacture fake urgency (“only 3 left!”) and then endlessly restock lose credibility fast.

Sources

See Also

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