The message for luxury from the merger between the owners of Coach and Michael Kors that did not finally get the “green light” from the Federal Trade Commission (FTC) is discouraging. And this does not concern the economic dimension of the case, but that the FTC ultimately does not understand what affordable luxury is.
A lot depends on the bags. The potential market for high-end handbags reaches far beyond the traditional wealthy designer clientele and across almost every tax bracket.
Luxury and symbolism
Some things about the widespread appeal of designer handbags are pretty easy to understand, even for people who aren’t interested in them.
They are powerful status symbols in certain social circles and, unlike high-end clothing, one does not have to worry about their sizes or fit. What is most confusing to most people though is why bags are expensive in the first place and why some cost so much and even more than others.
The strange logic of luxury pricing is not well understood outside the industries that live and die by it, which is probably why last week’s decision by a US federal judge to block the merger of Capri Holdings Ltd. and Tapestry Inc. seems to have caught fashion people by surprise.
The two companies together own a number of luxury brands, most notably Coach, Kate Spade and Michael Kors. All of these brands range in the low to mid-three digits, which places them at the bottom of the luxury price hierarchy.
The court decision
In the ruling, the judge sided with America’s antitrust watchdog, the FTC, which argued that the combination would reduce competition in the mid-priced handbag market by allowing brands to raise prices, among other potential harms to consumers and the workers.
For most products, this would be a very good argument: Mergers often lead to higher prices and fewer choices.
But luxury goods, whether they’re handbags or supercars or fine wine, don’t directly follow the pricing rules that govern most consumer products. When the excitement of buying something expensive is fundamental to the customer offering, the price itself becomes part of the product.
But not all Veblen goods—and not all handbags—are intended to appeal to the same group of consumers or signal exactly the same economic status, and none of them can increase both its price and its potential clientele indefinitely. base.
Veblen goods
As the Wall Street Journal points out in economic terms, these are Veblen goods, named after Thorstein Veblen, the Gilded Age economist who first described the consumer phenomenon of products for which demand rises with price.
This went against the conventional wisdom of the time, which said that high prices suppress demand and low prices stimulate it.
Veblen goods are a kind of status expression of their owner, specifically intended to signal one’s economic status – their high prices are essential to the consumer appeal of the products.
Handbags, which offer many opportunities for distinctive design or logo decoration—and therefore brand awareness—are among the most effective Veblen goods in consumer history.
Where is this luxury directed?
But not all Veblen goods—and not all handbags—are intended to appeal to the same group of consumers or signal exactly the same economic status, and none of them can increase both its price and its potential clientele indefinitely. base.
Women’s leather goods are a highly fragmented market, with major brands covering almost every price point that could possibly be described as luxury, from “affordable” brands that can be sold at any suburban mall for a few hundred dollars to five-figure trophy purchases of height from Hermès and Chanel.
These bags have the power of a status symbol in different contexts: and they serve as a crucial (for the industry, at least) introductory vehicle to fashion for young people who wish to impress their peers.
At the highest level, bags are useful to signal that the money behind the buyer was enough and that he has access to the best of everything.
The larger bag brands of Tapestry and Capri are in the price range aimed squarely at ordinary Americans hoping to treat themselves to something nice.
Almost every Kate Spade bag costs less than $400, and Coach costs only a little more, though occasionally it reaches out to a true luxury buyer with a much more expensive exotic leather bag, like the $10,000 crocodile Rogue currently in on the brand’s website.
Moves like this, which the brand has been toying with at least since I covered the leather goods market in the early 2010s, are mostly a branding exercise to enhance a company’s luxury credibility, rather than a true upward move.
Neither of these brands seem particularly willing to raise their prices across the board—Coach and Kate Spade, both Tapestry brands with somewhat overlapping customer bases, haven’t even raised their prices enough to keep up with inflation since Coach Inc. acquired Kate Spade & Co. in 2017. The company changed its name to Tapestry a few months after the transaction closed.
“No” to a price increase
And of course they haven’t – to do so would be a fundamental misunderstanding of what they’re selling and to whom. In the luxury handbag hierarchy, the sky isn’t the limit – the limit is set by whatever brands are immediately above each bag in both pricing and consumer perception.
Moving a fashion business significantly upward is an extremely difficult proposition, especially when it involves giving up a huge portion of its price-sensitive customer base and convincing a more affluent group of buyers that the product is as good as anything else. expensive things that they have long regarded as superior.
And this is true even among brands with customers far less price-sensitive than those at the base of the luxury market. Louis Vuitton cannot raise its prices high enough to beat Chanel’s prices, and Chanel cannot raise its prices high enough to beat Hermès’ prices.
At the top end of luxury, these price bands are much wider—thousands of dollars, not hundreds—and the brands in there have had much more room in recent years to raise prices than their counterparts in at the base.
Because of their positioning, Coach and Kate Spade and Michael Kors don’t have a thousand dollar margin. The FTC doesn’t seem to understand that what they’re selling—what they’ve been selling for decades—isn’t just handbags. They are bags that cost around $200 to $600. This price range, and its importance to the people who buy within it, is as much their main product as anything made of leather.
Source OT
#wrong #iconic #bags
