Thu, Aug 16, 2007 - Page 13 News List

Magic markup

A big price tag gives items a certain cachet and exclusivity that perversely makes them even more appealing to some customers than similar, but cheaper, products


A Prada patent leather bag, a snip at US$1,850


When readers leaf through the September issue of Vogue, which arrives on newsstands next week, they will encounter a Prada mohair twin set tagged at US$2,925; a chunky Giles sweater, at US$3,675; and a supersize Marc Jacobs bracelet, at US$2,180. And as fall looks begin trickling into stores this month, shoppers will find basic designer sheath dresses selling for US$1,200, coats for just under US$4,000 and designer sunglasses for US$500 or more.

This is the fourth consecutive autumn season in which a weak dollar has meant higher prices for designer clothing, much of which is made in Europe or stitched from fabrics imported from European mills. As the value of the dollar shrinks against the euro, prices continue to climb, with retailers citing hikes of as much as 15 percent for shoes and bags this year compared with last.

Yet, merchants and manufacturers have seen surprisingly little resistance in recent seasons to the cost of luxury goods.


So strong is the demand for cashmere car coats and crinkled patent leather bags at Barneys New York that that two firms - one from Dubai, the other from Japan - are in a bidding war this month to acquire the store for close to US$1 billion. The luxury conglomerate LVMH, the owner of Louis Vuitton, had net profits for the first half of 2007 of US$1.11 billion, up 2 percent from a year ago. Profits at the parent of Gucci and at Prada are also up.

Those brands owe part of their success to shoppers with caviar taste who have come to view extravagant prices as an enduring, if unwelcome, fact of life. At the same time, another consumer cohort is driving the trend, shoppers for whom a high ticket can in itself be an inducement to buy. Just as makers of premium ice cream have persuaded consumers to pay US$4 for a cone instead of US$0.90, and California vintners convince them that a US$100 cabernet is better than a US$50 bottle, the makers of designer clothing know that high prices can cast a spell.

"Price certainly plays into a product's allure," said Robert Burke, a retail consultant in New York. "For certain people, the higher the price, the more attractive the item becomes."

An exorbitant price can confer exclusivity. "People are willing to pay a significant amount of money to make sure they don't see their purchase on other people," Burke said.

Or to ensure that their friends will recognize its provenance. "Price is part of the status of certain luxury items," said Marvin Traub, a retail consultant in New York. Traub, who visited Moscow in March, noticed that people there were fascinated not by how little but how much was paid.

To some extent, Traub noted, "that sort of thinking translates here, too."


Among merchants and manufacturers, consumer psychology can be as significant as economics in setting prices. "Luxury makers are not necessarily forced to raise prices above the exchange-rate factor, but sometimes they do," said Milton Pedraza of the Luxury Institute, a research group in New York. "Why? They know that consumers are resilient. For manufacturers, it's really about asking for a price increase because you can."

Those remarks resonate with Jeffrey Kalinsky, a specialty retailer who owns fashion emporiums in New York and Atlanta. Kalinsky, who is also the director for designer merchandizing of Nordstrom, does not pretend to speak for his customers. But he shares their sometimes-irrational passions. He recalled that 20 years ago, when he was in his mid-20s, he would "just walk into a store and see a sweater, and something inside of me would say, 'Oh, I hope I can afford it. I bet it's at least US$800.'"

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