Last week I posted a series of price comparison of Louis Vuitton bags price hike, and I received questions on why. Why do they do that? If you are a frequent luxury shopper, you know that this is an annual event. Sometimes, the luxury brands increase their prices as much as twice a year.
There are various factors why they do that.
A. One reason, which is easier to comprehend would be lack of raw materials. A lot of luxury brands in holding on to their traditional craftsmanship, still using the conventional ingredients to produce their goods - such as cowhide leather, gold, silk, etc. The supply of these ingredients are deteriorating.
B. Also, we are hit with the global supply chain crisis (thanks to Miss Rona), that makes every process more time-consuming, directly increasing the cost especially on transportation.
The two reasons are the more tangible problems that we, as a consumer, would understand. Granted if problem A and B cease to happen, the luxury brands will still continue to increase the price. Here is what they don't tell you.
C. The classic economy demand-supply curve does not apply to luxury brands. In fact, it is the opposite. Every time luxury brands increase their price, the demand hikes up higher. A good example would be the Rolex watch. I dare to say, the brands are increasing their price to increase the demand for their goods.
D. They want to give a sense of value to the previous buyers. Imagine if you purchase a bag at $1000 two years ago, and it still cost the same today - this will stop convincing buyers to continue purchase their goods. Luxury goods are made to last a lifetime. It gives the perception of "good investment" to consumer. If I purchase a bag at $1000 two years ago, the same bag might cost $1500 today. I could sell the bag at $1000, making no loss while enjoying the product for 2 years and the buyer can also save $500 from the current price. With the $1000 and a little top up, I could score a newer bag. This is perhaps the actual reason for the brands to keep increasing the price. They want to keep the flow of the buying-selling in secondary market and indirectly pushing for sales of their new products.
I hope this gives you insights of why luxury brands keep increasing their price. On the next post, I will talk about handbag investments. Come back next week if you are interested to learn more.
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