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What’s in the Price of a Luxury Handbag?

The rising price of luxury goods seems to be the latest controversial topic, as evidenced by the latest news articles, comments on social media, and op-ed articles on Business of Fashion and Vogue Business.

Recently, when a journalist interviewed me for a similar article, she asked about the ‘tactics’ behind such price increases, and what the luxury brands were aiming to do. The question requires a thoughtful and thorough analysis. In almost every article I’ve read on the subject so far, there’s an underlying tone; one that implies that somehow luxury brands are doing this as part of their strategy, or because they just want to sell expensive items with the highest markup possible. In fact, the truth is something quite different.

luxury bags

The luxury brands are not employing some special tactic, strategy, or deliberate upward spike in pricing. In deciding to write this article, I’m bringing my own behind-the-scenes experience as someone who has worked in the industry from the age of 16, first as a translator in the leather industry, and then from the age of 22, as the founder of a luxury leather goods label. It has been 20 years of entrepreneurial experience, and I’m hoping this article paints not only an objective picture, but also offers a glimpse into what goes into making a handbag. Hence, what’s in the price of a handbag?

Aside from a response to inflation, let’s look at what’s behind the quarterly (or even more frequent) price increases from luxury brands like Chanel, Louis Vuitton, and others:

  • The first reason behind the price increases is not exactly a motive (which would imply an agenda), but simply a financial one. As an entrepreneur and the owner of my own luxury leather goods label, I know first-hand what goes into creating products and making leather goods. It is a highly detailed and painstaking process that involves many different stakeholders from suppliers to packaging, to marketing, accounting, distribution, merchandising and so on. When the cost of raw materials or any component that goes into making, producing and distributing the goods increases, the price of the luxury goods needs to increase as well. Otherwise, it won’t make financial sense. It’s just pure business. 

For example, we use palladium in our metal accessories. Only a year ago, 1 gram of palladium cost 32 euros; the same amount this year costs nearly twice as much at 63 euros. There is also an increase in the price of gold. We used to have our metal chains, each one about 50 cm long, gold coated for 3 euros; this year the price is 7 euros. And consider leather: this year, the price has increased by 30 percent. 

  • The second reason for the increasing prices is a growing awareness on the part of both luxury brands and their consumers with respect to sourcing and transparency. Luxury brands are required to perform due diligence concerning their purchase of raw materials. A few years ago, simple quality would have been sufficient. But today, they need to know if the raw materials have been produced following health guidelines (for example, no longer can luxury leather manufacturers use carcinogenic dyes). Today, Lorenzo Prada—son of Miuccia Prada and Patrizio Bertelli and head of Prada’s marketing division—has said that the aim is to be profitable and sustainable, because in reality sustainability, ethics, and due diligence can increase the cost of producing luxury products, especially if it’s done properly and not as mere window dressing. 

  • A third reason prices are increasing is because luxury brands used to produce goods in China, and production has now shifted to Europe. This has obviously increased the costs of producing goods. For those making the shift and starting all over again in Europe, the challenge has been finding the geographically closer talent, factories, and materials that they had before moving to China. Starting afresh in Europe hasn’t been a simple matter of picking up where they left off years ago. 

How might a consumer navigate luxury brand price increases? 

Price increases in luxury brands are nothing new, and they are luxury brands because customers see something of unique value in them and are willing to pay a premium price. Luxury brands, however, have also recognized there is another market to capitalize on: consumers who still want their products, but cannot afford the price tags of the brand-new goods, so go to second-hand, consignment boutiques (and sites) to shop. This is the reason we see luxury conglomerate Kering group investing in Vestiaire Collective, a purveyor of pre-owned fashion at reduced prices.

My advice for the consumer is to check out sites where they can find perfectly beautiful products, for a relatively reasonable price. My other advice is to buy less, and only buy items they really love and will use.

I believe shopping with a lot more awareness is key, and I do see this consumer shift continuing especially after the pandemic. What we value, and what brings us happiness, are not the material things, but experiences – travelling with loved ones, sharing a meal with a friend, playing in the park, hugging someone. We have understood all too well these past many months, and I hope we continue to understand, what luxury truly means. 

Author avatar
Neri Karra
https://www.modametiers.com

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