WSJ Article: Handbag Prices Begin to Hit Their Limit

[TejasMama]

I haven't been on in awhile but saw this article and found it quite telling. It seems that many of the upper end of handbag purchasers are finally pushing back against ever-increasing prices of designer handbags. Some interesting insights here--my apologies if this has been posted before and I missed it.

http://www.wsj.com/articles/the-sky-is-no-longer-the-limit-on-handbag-prices-1425503512

 

[platinum_babie]

" Designers in the $280 billion personal-luxury business have reacted by offering a wider selection of lower priced satchels that are smaller and often made of less expensive material."

Willingness to buy lesser quality goods because it's cheaper just means you don't care for quality but buying for the brand name (and maybe MAYBE the aesthetics). When i read the headline i was hoping for price drop in regular product line.

I would like to see the aggressive price increase for the normal full size lines to drop back to what it used to be and increase with appropriate inflation...

But all this is just wishful thinking lol

 

[misskris03]

" Designers in the $280 billion personal-luxury business have reacted by offering a wider selection of lower priced satchels that are smaller and often made of less expensive material."

Willingness to buy lesser quality goods because it's cheaper just means you don't care for quality but buying for the brand name (and maybe MAYBE the aesthetics). When i read the headline i was hoping for price drop in regular product line.

I would like to see the aggressive price increase for the normal full size lines to drop back to what it used to be and increase with appropriate inflation...

But all this is just wishful thinking lol

Good point. The markup on these bags is absurd. Like 12X production cost according to Dana Thomas (and that was 5-6 years ago!). Even with large marketing budgets, that is incredible. I suspect even wealthy people who can afford 4K bags don't wish to be hoodwinked (not that I would know first-hand--as I am not in the 1.5K market, much less the 4K market).

Interesting article, TejasMama. Thanks for posting.

 

[catsinthebag]

" Designers in the $280 billion personal-luxury business have reacted by offering a wider selection of lower priced satchels that are smaller and often made of less expensive material."

Willingness to buy lesser quality goods because it's cheaper just means you don't care for quality but buying for the brand name (and maybe MAYBE the aesthetics). When i read the headline i was hoping for price drop in regular product line.

I would like to see the aggressive price increase for the normal full size lines to drop back to what it used to be and increase with appropriate inflation...

But all this is just wishful thinking lol

Yeah, the headline was a little misleading. Offering a bag that is less expensive but too small to be really functional doesn't really feel like a savings to me.

 

[SweetDaisy05]

Thanks for sharing this article. I love the designs of a lot of premier bags, and I always wonder when price increases will go out of favor. I thought there was a motive for the mini bag craze and of course I thought price. Buying many tiny $1000+ bags doesn't suit me. I know I will be infuriated if I can't carry my daily essentials, which is small, but won't fit in a tiny purse. I am happy that the prices might be reaching the ceiling because the prices are getting very expensive. For the people that like tiny bag, this new strategy seems to be working in your favor.

 

[Amazona]

I think the top end designer bags have been selling so well for the past 5 yrs mostly because people are afraid of the next price increase...and the next...and the next...and the only ones who are really winning are the ones making and selling the bags. With quality being the same (or even worse, in some cases) and many of the designs being classics that aren't really being remade or -designed, the basis for the increases can't be much more than "We can do this so let's go for it".
Mulberry was a prime example of this. And look at the state of them now.

One way to stop or slow down the increases is to stop buying. There's a point where the industry has to admit their excuses for not lowering the prices ("To not upset those who have bought their bags at a more expensive price" or "We are harmonising the prices globally") are just that - excuses. "We are greedy" is closer to the truth.

Making smaller versions of bags is actually not catering to the masses of people with lesser means than some - it's catering to people with more money to spend on a small bag. If someone is in need of a larger bag, they will go and find it somewhere else. If someone is ready to buy a bag they don't need instead of something useful - like the on-trend minis - just for the sake of owning a Prada/Gucci/Fendi/whatever brand, then it's their own business. I just think that's not really smart. A bit sad, actually; it's just a bag. An item. It's not going to make one into a better person.

 

[ap.]

It's not that handbag prices have hit their limit, it's that some consumers of some handbags have hit their price limit. But then doesn't this happen all the time? Old customers get replaced by new as long as the designers maintain their cache. Is there really a fundamental change in the market, a permanent reduction of consumers/buying?

Maybe I'm wrong, but I think this article may just be driven by the dramatic drop-off of the Russian market coupled with the slowing of demand in Asia/China. If/when the instability passes, I feel like it will be as before. But I'm cynical when it comes to fashion (even though I enjoy it); I just don't believe these kinds of articles.

 

[Mariapia]

I think the top end designer bags have been selling so well for the past 5 yrs mostly because people are afraid of the next price increase...and the next...and the next...and the only ones who are really winning are the ones making and selling the bags. With quality being the same (or even worse, in some cases) and many of the designs being classics that aren't really being remade or -designed, the basis for the increases can't be much more than "We can do this so let's go for it".
Mulberry was a prime example of this. And look at the state of them now.

One way to stop or slow down the increases is to stop buying. There's a point where the industry has to admit their excuses for not lowering the prices ("To not upset those who have bought their bags at a more expensive price" or "We are harmonising the prices globally") are just that - excuses. "We are greedy" is closer to the truth.

Making smaller versions of bags is actually not catering to the masses of people with lesser means than some - it's catering to people with more money to spend on a small bag. If someone is in need of a larger bag, they will go and find it somewhere else. If someone is ready to buy a bag they don't need instead of something useful - like the on-trend minis - just for the sake of owning a Prada/Gucci/Fendi/whatever brand, then it's their own business. I just think that's not really smart. A bit sad, actually; it's just a bag. An item. It's not going to make one into a better person.

I agree 100%![emoji106][emoji106][emoji106]

 

[platinum_babie]

I guess the other issue luxury brands run into is how they can define "luxury" and "coveted" and ensure they stay in that quadrant of the marketplace. In a scenario where Mulberry or LV didn't increase their price while Gucci and Balenciaga does, a lot more people would be willing to buy Mulberry or LV but their luxury status would plummet (LV is always going through this problem - too many fakes, everyone has one, it's not a status symbol enough), which in the long-run would hurt their brand as well.

Theoretically speaking, if you maintain the price, but make less bags and only people who have the means and power can get one (like what hermes does with a birkin), status can still be can achieved, but that can only be done for so many bags or LV might not profit (LVMH, on the other hand, will never not profit..haha).

The issue is always: how can a brand maintain market growth AND its luxury status at the same time? For market growth, the strategy is simple, you either sell more or you increase your prices. Once Brand ubiquity and status symbol is almost paradoxical. There's really no way to solve the problem of growth in luxury market without increasing prices. So on one hand, it's about corporate greed, on the other, it's about the consumer envy and pride. Luxury markets embodies probably 4 or 5 of the seven sins...haha

I like the fact that there are all these high end relatively unknown brands popping up that people are starting to be really passionate about that shows that the goal is not about brand names and prices, but about true quality and aesthetics.

 

[Amazona]

The only problem with Mulberry is that it wasn't a luxury brand. It didn't see itself as such until the clown from Hermés came and tried to make it look like it was. They lost many of their original customers just by trying to brand themselves as luxury instead of the relaxed style great quality bags every woman wanted to carry.

 

[Amazona]

It's not that handbag prices have hit their limit, it's that some consumers of some handbags have hit their price limit. But then doesn't this happen all the time? Old customers get replaced by new as long as the designers maintain their cache. Is there really a fundamental change in the market, a permanent reduction of consumers/buying?

Maybe I'm wrong, but I think this article may just be driven by the dramatic drop-off of the Russian market coupled with the slowing of demand in Asia/China. If/when the instability passes, I feel like it will be as before. But I'm cynical when it comes to fashion (even though I enjoy it); I just don't believe these kinds of articles.

I think the point is exactly that the prices have hit peak. The point beyond which there is no real reason to pay such money for a product that is not worth it. No matter how rich you are, even the Sultan of Brunei wouldn't buy a $3,000 bag for $5,500 if he's not a total moron. Which I think he's not.
There is a certain price that is reasonable for a product and going waaaaay beyond that is just playing off people's lack of of realism and high ideas. When most of the customer base is driven off to other brands, sure, you get exclusivity but you also get a market that's way more uncertain.

 

[TejasMama]

Some excellent points being made here...

I think the one takeaway that really got my attention were those customers who weren't supposed to be price-averse (can absorb the price increases without it being an issue) are deciding they aren't willing to pay it anymore, either, and that is where the tipping point for these price increases comes into play. The idea was to raise a brand's status simply with a price increase (which I think is a slap in the face to consumers and just lazy brand marketing in general) is something those with substantial wealth aren't buying into anymore. And without the aggressive price increases, several of these brands would have experienced revenue drops overall. This model just isn't sustainable--the handles of these bags aren't laced with gold.

It's one thing for the masses to decide the price is too high for what is offered since most of us have budgets and other long-term financial goals, but for those who have the substantial wealth to buy these bags after the price hikes? They aren't willing to do it anymore, either.

The mini bag trend is interesting because I think it is their way of 'trying to give relief' with a smaller price point but the bigger issue is that these brands really pushed the limit on what customers are willing to pay. Now even the top earning customers are pushing back.

Finally.

 

[remainsilly]

Some excellent points being made here...

I think the one takeaway that really got my attention were those customers who weren't supposed to be price-averse (can absorb the price increases without it being an issue) are deciding they aren't willing to pay it anymore, either, and that is where the tipping point for these price increases comes into play. The idea was to raise a brand's status simply with a price increase (which I think is a slap in the face to consumers and just lazy brand marketing in general) is something those with substantial wealth aren't buying into anymore. And without the aggressive price increases, several of these brands would have experienced revenue drops overall. This model just isn't sustainable--the handles of these bags aren't laced with gold.

It's one thing for the masses to decide the price is too high for what is offered since most of us have budgets and other long-term financial goals, but for those who have the substantial wealth to buy these bags after the price hikes? They aren't willing to do it anymore, either.

The mini bag trend is interesting because I think it is their way of 'trying to give relief' with a smaller price point but the bigger issue is that these brands really pushed the limit on what customers are willing to pay. Now even the top earning customers are pushing back.

Finally.

I got this idea, too--people are beginning to want things to last & function again, not just be expensive fluff.
Hence, many seeking out independent craftspeople & product value for money. Whilst rejecting $5k bags with forks glued onto them, despite label name & hype.

Booming economic times are gone now--those ripples of easy credit & "buy whatever" attitudes are settling out. It had to happen.
Sure, fashion's 75% dream & whimsy. But that 25% they ask us to buy better have substance.
Or we'll buy something else--or, gasp, go without buying anything for awhile.

Agree that mini bags & less-quality bags seem a test of "Will people buy ANYTHING, just because it's cheaper?"
Companies must feel the ripples dying, too. And want to see market response.

Thanks for sharing article.

 

[catsinthebag]

Theoretically speaking, if you maintain the price, but make less bags and only people who have the means and power can get one (like what hermes does with a birkin), status can still be can achieved, but that can only be done for so many bags or LV might not profit (LVMH, on the other hand, will never not profit..haha).

The issue is always: how can a brand maintain market growth AND its luxury status at the same time? For market growth, the strategy is simple, you either sell more or you increase your prices. Once Brand ubiquity and status symbol is almost paradoxical. There's really no way to solve the problem of growth in luxury market without increasing prices. So on one hand, it's about corporate greed, on the other, it's about the consumer envy and pride. Luxury markets embodies probably 4 or 5 of the seven sins...haha

I like the fact that there are all these high end relatively unknown brands popping up that people are starting to be really passionate about that shows that the goal is not about brand names and prices, but about true quality and aesthetics.

This is why I will find it fascinating to see how Mansur Gavriel progresses. The product hit a nerve, and then part of their appeal is they simply couldn't make enough bags to keep up with demand. So to grow, do they increase production? If they do, does quality decline? And if the bags are easy to get, do they raise prices to make them more exclusive? And do they then end up a has-been, having alienated their original customer base and lost their brand identity? Or do they appeal to the über-rich by producing a crocodile, diamond embossed bucket bag? I don't know, but I am curious to see how things play out for this brand.

I think the point is exactly that the prices have hit peak. The point beyond which there is no real reason to pay such money for a product that is not worth it. No matter how rich you are, even the Sultan of Brunei wouldn't buy a $3,000 bag for $5,500 if he's not a total moron. Which I think he's not.
There is a certain price that is reasonable for a product and going waaaaay beyond that is just playing off people's lack of of realism and high ideas. When most of the customer base is driven off to other brands, sure, you get exclusivity but you also get a market that's way more uncertain.

Amazona, I have no idea who the Sultan of Brunei is, or whether or not he's a moron, but for the truly wealthy, he may just pay that $5,500 because to him, the amount is pocket change. At a certain level of wealth, the difference between $3K and 5.5K gets lost in the rounding. Or so I've heard! How on earth would I know?

Some excellent points being made here...

I think the one takeaway that really got my attention were those customers who weren't supposed to be price-averse (can absorb the price increases without it being an issue) are deciding they aren't willing to pay it anymore, either, and that is where the tipping point for these price increases comes into play. The idea was to raise a brand's status simply with a price increase (which I think is a slap in the face to consumers and just lazy brand marketing in general) is something those with substantial wealth aren't buying into anymore. And without the aggressive price increases, several of these brands would have experienced revenue drops overall. This model just isn't sustainable--the handles of these bags aren't laced with gold.

It's one thing for the masses to decide the price is too high for what is offered since most of us have budgets and other long-term financial goals, but for those who have the substantial wealth to buy these bags after the price hikes? They aren't willing to do it anymore, either.

The mini bag trend is interesting because I think it is their way of 'trying to give relief' with a smaller price point but the bigger issue is that these brands really pushed the limit on what customers are willing to pay. Now even the top earning customers are pushing back.

Finally.

Gosh, I hope this is true! Because really, the middle class is disappearing. I don't think the luxury brands have ever had to worry about losing the truly wealthy customer. But they are starting to lose the customer who wants a luxury item, but it's a little bit of a stretch. Billionaires will continue to buy Birkins, but the people who have to make choices, and save up to just get one may start to decide it's just not worth it. The problem for the luxury companies will only come, really, when the high-income customer decides to step away, JMHO.

 

[remainsilly]

I don't think the luxury brands have ever had to worry about losing the truly wealthy customer. But they are starting to lose the customer who wants a luxury item, but it's a little bit of a stretch. Billionaires will continue to buy Birkins, but the people who have to make choices, and save up to just get one may start to decide it's just not worth it. The problem for the luxury companies will only come, really, when the high-income customer decides to step away, JMHO.

I think the reality creeps in, when people realize movie stars etc. don't BUY those bags--they get them free from companies, so consumers see them being carried by popular icons. It's advertising.
Also, would a truly high-income, or wealth established, client REALLY consider the chanel girl bag or the ones with flatware glued on? Wouldn't impress anyone @ corporate events or dinner parties.