Are Hermès’ Sales Tactics a Problem in China?

SHANGHAI — The Chinese word peihuo translates loosely as “accompanying products” or “matching purchase” — but to English-speakers it sounds a lot like “paywall,” and the practice to which it refers is thought to work like one, too. Luxury consumers in China say they increasingly feel pressure to load up on shoes, sweaters and bracelets before being offered the chance to buy a sought-after handbag or watch.

For some products, the practice is nothing new: social media, style blogs and handbag chatrooms have long swirled with accounts from buyers of Hermès’ “B,K,C” trinity (the Birkin, Kelly and Constance bags, for which demand has long exceeded supply), saying they managed to nab one of the highly desirable styles only after spending many thousands of yuan on other items.

What is new, according to many consumers in China, is the increased spending now required, as well as signs that more brands seem to be getting into the peihuo game. Companies including Rolex, Chanel and Celine are among those said to have instituted a similar system for their most in-demand products.

A well-publicised incident outside an Hermès store in Beijing last July underscored the extent to which the rumoured practice had become luxury retail’s worst-kept secret: a lone protestor was photographed with a pile of orange Hermès shopping bags at his feet, holding a sign that read, “Rubbish Hermès. Peihuo but no bag.”

Hermès, which did not respond to requests for comment, has never acknowledged any such strategy, and has simply maintained that sales associates (known colloquially as SAs in China) and store managers have broad discretion to manage demand (and disappointment) surrounding sought-after bags. But consumers, analysts and fashion writers defend the existence of a peihuo system.

Brands including Rolex, Chanel and Celine are among those said to have instituted a <i>peihuo</i> system for some products.

“In foreign countries, Hermès’ distribution is basically a one-to-one ratio” — meaning to nab a $10,000 dollar Birkin bag, a shopper would have to buy $10,000 of other items, claimed Ashley Lin, a Shanghai-based writer who has written about peihuo extensively for readers of fashion titles like Xiaozi Chic and Hers. “In our country, this ratio is more exaggerated. Sometimes it’s required to reach a consumption quota of one-to-one and a half or even one-to-two.”

At Swiss watchmaker Rolex, scores of Chinese clients have claimed they were asked to show receipts for items from sister brand Tudor in order to make a purchase. “The distribution of Rolex is so straightforward and rude,” Weibo user Yangyangema posted. “The SA directly told me three Tudors.”

At LVMH-owned Celine, Weibo user @kuailebanushi said she was “disgusted” by the “package” of other purchases a store assistant suggested she purchase in order to secure a popular style. “I really have to say no to this ethos,” she wrote.

Customers also say they have experienced peihuo demands at French luxury giant Chanel.

Rolex and Celine declined to comment. Chanel issued a statement refuting the claims: “Chanel denies having implemented this practice, which goes against the client experience that the brand strives to offer,” it said.

Still, shoppers insist the peihuo paywall is real.

Navigating a shifting system

While Hermès’ outraged protestor garnered some sympathy online, many consumers see peihuo practices as simply part of the luxury shopping game.

Angela Ji, an Hermès customer who has purchased products from the brand both in Shanghai and internationally, told BoF that she’s never heard her SA use the term peihuo, but believes the practice is implied in their interactions.

“I didn’t ask about the bag I wanted right away, but after a while, when I did mention it, the SA began to send messages [on WeChat] about other things I might want to buy. None of them are leather goods, sometimes it’s jewellery or clothes,” she said. Ji believes buying them could give her the chance to one day buy a Birkin bag in one of the most desirable colours.

“I don’t think there is a fixed ratio for peihuo, and a lot can come down to the discretion of the SA, so I will buy what she suggests to keep on her good side,” Ji said.

Local social media platforms, from Xiaohongshu to Douyin and Bilibili, are rife with videos and articles with suggestions on how to navigate the system, with many echoing Ji’s understanding.

“The idea of peihuo is to ensure first that a customer is the right fit for a brand,” one video on Xiaohongshu says, adding that sales associates and store managers can be fired for not controlling the distribution of their most coveted products.

The prevailing wisdom is that the best items to buy for peihuo purposes include furniture and homewares or ready-to-wear — ”insider” categories that prove a customer is willing to immerse themselves in the world of the brand, and not the products favoured by more budget-conscious consumers, who buy logo-driven merch or items with high resale values, such as leather goods.

Jonathan Yan, a principal at consultancy Roland Berger in Shanghai, says most consumers are pragmatic about peihuo.

“Instead of thinking they have paid 200,000 [yuan] for a 100,000 [yuan] bag, some people think of it in another way,” he said. “I paid 200,000 for the bag I want, and the other stuff is just like a bonus.”

To this point, the alleged peihuo practices certainly haven‘t hurt Hermès sales, which rose 27 percent at constant exchange rates to €2.77 billion ($3.02 billion) in the first three months of the year, the brand said in an earnings release last Thursday. In Asia excluding Japan, a region dominated by the company’s Chinese business, sales jumped 20 percent excluding currency shifts.

While the resurgence of lockdowns and other coronavirus restrictions in China is sure to dent the luxury industry as a whole, Hermès is among the few brands to have consistently seen strong growth over the pandemic period.

Supply chain shortages, logistical hurdles and surging global demand since the pandemic have led to lower stocks of best-selling products in China, which could be fuelling the more frequent allegations of peihuo practices. That trend would be unlikely to reverse as long as China’s government continues its pursuit of a zero-Covid strategy that has eliminated the opportunities for Chinese consumers to travel and shop abroad.

Carefully managing the brand risk

While peihuo can boost a brand’s sales figures, juice underperforming categories, and reinforce an aura of exclusivity, the practice is far from being without risk.

Part of the problem with admitting to peihuo is that it’s a legal grey area in China, which has some of the strictest consumer protection laws in the world, according to Zhu Yiyi, a lawyer at Shanghai’s Guohuo law firm. Shanghai’s Consumer Protection Agency has told local media outlets it is actively tracking consumer complaints about the practice.

Peihuo exists in a legal grey area, and Shanghai’s Consumer Protection Agency has said it is actively tracking consumer complaints about the practice.

Peihuo concentrates power in the hands of sales associates, who need to be carefully trained to ensure both discretion and a kind of fairness. Managing customer expectations is difficult, as the practice isn’t explicitly discussed.

“Though it creates this virtuous cycle of exclusivity, it could backfire with consumers if it goes too far,” Yan says — for example, if a brand without the appropriate status were to try it, or if Chinese consumers feel like they are being taken advantage of by having to reach higher peihuo quotas than consumers from other countries. It could also push some consumers to buy on the second-hand luxury market which has been booming in China.

Still, the practice could continue to grow, particularly as pandemic restrictions drag on, keeping sales associates under pressure and leaving Chinese luxury customers with fewer alternatives.

“I don’t think Hermès or Rolex, or any of these companies are going to change this practice any time soon,” said Ben Cavender, managing director at China Market Research Group. “On some level, it allows them to support their position at the pinnacle or apex of the luxury brand spectrum.”

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