L'Artisanat Français Draws Stray Fire on TradeWarTok

TikTok says your Birkin was made in China. It wasn’t. But the rumour resonates—because it points to a deeper question: how does luxury actually build value when it’s done right?

In the latest salvo of the Washington vs Beijing Trade War,[1] TikTok[2] and various downstream social media platforms have been roiled by all sorts of viral content exposing European luxury manufacturers for relying on offshore production for their high end products. First let’s address one thing: last time I checked the EU isn’t picking any fight with the People’s Republic—so not sure what the goal is here.[3] That aside, I think it is fair to acknowledge that there is truth to this. Many European luxury brands do make things in China, or they do a lot of component work there leaving enough assembly work to get a “Made in Italy” tag. It is also fair to acknowledge that Chinese manufacturing does not necessarily imply “low quality.”[4] However, one of the most viral TikToks about this shows a very earnest man breaking down the cost to make an Hermès Birkin which retails for $38,000. He goes through all the materials and even adds in a labour estimate to arrive at $1395. I’ve watched this video a few times and while he never says it—the message is that Birkins are or can be made in China. The implication is clear: the storied brand is ripping you off to the tune of about $37 grand. Let me be clear—they aren’t. So, what do the folks at 24, rue du Faubourg Saint-Honoré actually do? It’s quite brilliant and 100% transparent if you are willing to look.[5]

Let’s start with a look into their actual labour and production practices. In their annual report Hermès says that 74% of everything they make is made in France—and nearly all of their leather and saddlery goods are made in l’Hexagone across 23 leather ateliers. And, what’s more, they are on a pace that adds one or two more every year. In fact, Hermès employs nearly 16,000 people across France![6] Furthermore they invest heavily in the skilled trades required to maintain their quality. To keep these traditional métiers alive in the 21st century, they established the École Hermès des Savoir‑Faire in 2001—and new employees must do at least 18 months in apprenticeship before they stitch a single bag. They also control a truly shocking amount of their supply chain—from tanneries and metal foundries in France to a crocodile farm in Australia.[7] You don’t have to believe me when I say they don’t outsource—they say it in public filings.[8]

So what? Surely, they could still be ripping you off without offshoring! I guess, but the numbers on the TikTok do not stand up to scrutiny. First, that price the TikTok man quoted of $38k? I call bull. A Togo leather bag retails for about €9,800 in France and $12,000 in the US. Ok granted, but at $1400 cost of goods sold that is a gross margin of nearly 90%! Hold your horses[9]—that number doesn’ t hold up either. Hermès’s reported gross margin in 2024 was 71% across all goods—at a baseline this means the COGS of one entry Birkin is closer to €2,800. However it is almost certainly the case that the blended margin is pushed higher by goods like fragrance and sunglasses[10] and that marquee bags command[11] a much lower gross margin. I think it is probably safe to estimate that Birkin and Kelly margin is closer to 60-65%[12]—but let’s check the numbers! First our friend from TikTok estimates $600 in labour cost—about €550. A Birkin bag takes between 20 and 25 hours to make—suggesting Hermès leather workers are earning €22-€27.50 per hour. This is a €1.50-€7.00 premium over the average French manufacturing hourly wage of €20.50 as reported by INSEE. Given the extremes Hermès goes to train and retain workers—this beggars belief. I could go through line item by line item here and build this from the bottom up[13]—but I think the point is clear. $1400 almost certainly undershoots by a factor of two if not more.

Now to the price: €9,800 ≠ $38,000. While the MSRP is off by a 4x multiple--$38,000 is close to market price. Sotheby’s says “A pristine Togo leather Birkin 30 sells for between $25,000 to $30,000.” Now we are seeing the Hermès magic come into view. You can argue with whether a bag ought to be worth as much as a Honda Civic or a Peugeot 308—you cannot however argue with the value the market ascribes.[14] So, Hermès is leaving a lot of money on the table—or are they?

The strategic under-pricing and concomitant undersupply of marquee bags like the Birkin and Kelly work with the Hermès obsession with quality to reinforce the most important moat asset a luxury company can posses—its brand. They don’t ramp capacity to chase demand. This keeps the quality consistently high, revenues stable, and most importantly creates a scarcity that drives luxury perception much better than price alone can. This is the heart of Hermès long term value creation, but it also has short term profit generation powers. First, this brand power requires relatively little sales & marketing spend to support. It also drives sales of other more accessible products with higher gross margin.[15] This is reflected in the house’s operating margin of 40.5%--compare with less than 25% for Kering and Prada. Hermès is a money making machine built on exploiting and defending one of the strongest brand moats in the game. The markets know this—it’s why Hermès routinely trades above a 40x P/E compared to less than 20x for the bums at Kering—even the Arnaud brand powerhouse, LVMH trades at less than 30x.  

Well, I have lured you in with topical and timely social media foolishness—and ended up talking about one of the most powerful value builders in public markets. I am not sure why European brands are under attack in this moment—and some of them may well deserve scorn for their practices. But, I assure you, Hermès does not. Next time you walk under that distinct orange awning, take a moment to reflect on how this bag and scarf store is one of the best exemplars of luxury craft but also of how to run a damn business.

And yes… you can get a Birkin dupe that is made in Guangdong. But you will know. Et surtout c’est pas le savoir faire.  

[1] We will not delve too deep into this other than to ask one question: WHY?

[2] Transparently not a propaganda tool of the Chinese Communist Party?

[3] Unless it is opportunistic manufacturers in Shenzhen trying to disintermediate luxury brands and ride their IP coattails with tacit or explicit support from Beijing… couldn’t be that though!

[4] In fact this is a borderline and sometimes outright racist canard that mercantilists and other less sophisticated thinkers use to drum up fear about global supply chains.

[5] It is after all a public company—and I doubt they are lying on their URD. L'Autorité des marchés financiers is picky about that.

[6] Including honest-to-god Canuts Lyonnais in a silk workshop in… Lyon, of all places.

[7] Really!

[8] Once again, they are not lying on URDs.

[9] Requisite equestrian joke

[10] To say nothing of the Hermès Veblen Good Edition Apple Watch

[11] Command? More on that in a bit.

[12] I didn’t make this number up—I backed out an estimate using reported revenue weights by vertical and industry comp GMs. I got 63.1%.

[13] As in fact I have! My  bottom-up estimate of COGS for a Togo leather Birkin 30 suggests a cost in the range of €3,000–3,600 on a €9,800 retail price, implying a gross margin somewhere in the mid-60s. This includes approximately 20 hours of skilled labour at fully loaded rates (~€1,200), high-grade leather with significant waste (~€800), in-house metal hardware (~€150–200), finishing and quality control (~€250–300), packaging (~€50), and atelier-level overhead allocation (~€500–600). These figures are directionally consistent with Hermès’ reported group gross margin (~71%) and the implied blended margin for leather goods (~63%).

[14] As FA Hayek argued—a market price communicates the knowledge and preferences of thousands if not millions of people. You can disagree with those people—but you aren’t getting the bag.  

[15] Sometimes explicitly—it is widely suspected that Birkins and Kellys are held by boutiques for high spending clients. To what extent this is actually true is debated. Needless to say if you walk in to buy a Kelly and are invited to passez votre chemin you may very well end up buying some other stuff. A lot of people do. Also think of how important these pieces are to the image of Hermes to the buyers who would never spend that much on a bag but would still buy a bottle of Un Jardin sur Nil… or even that ridiculous Apple Watch.