Last year, The Business Of Fashion noticed a tipping point in the price of designer footwear. More than 100 pairs of shoes on fashion retailer Net-a-Porter cost over $1,000. At the same time, The Daily Telegraph noted that over 130 handbags on Net-a-Porter’s UK site retailed for over £1,200 ($2,000.) The trajectory of the prices was as dramatic as the prices themselves: the tag on Hermes’ iconic Kelly bag and the Manolo Blahnik shoes made famous by Carrie Bradshaw in Sex And The City had increased by some 60% in ten years. The consumer price index rose just 27% over the same period. With New York Fashion Week launching today, it’s a good time to ask why is high fashion so expensive?
We can rule out the tired sexist argument that fashion preys on weak women. As watch blog Crown & Caliber explains, the inflation-adjusted price of a mens’ Rolex Daytona has risen from $2,085 in 1973 to over $12,000 today, while a guy on Net-a-Porter’s men’s site Mr Porter has no fewer than 19 opportunities to drop more than $5,000 on a winter coat.
Prices are high and rising due to a mix of rising costs, expensive expansion and a dramatic change in demand. Let’s break it down.
Prices are high because costs are high. The Business Of Fashion states that Chinese labor costs are growing by an annual rate of 14%, cotton prices by 13% and cattle prices (which affect leather) by 7%.
Prices are high because margins are high. Again, The Business of Fashion states that luxury businesses target a 65% margin: a bag that retails for $3,500 should cost about $1,225 to produce.
Selling is becoming more expensive. Luxury brands like to sell from directly-operated stores, where they can best project the brand and defend its margins. Luxury brands are expanding their store base: according to holding company Kering’s annual report Gucci operates 474 stores worldwide (up 10% from 429 in 2012), while sister brand Bottega Veneta increased its number of stores by 13% from 196 to 221 in the same period. According to property firm Cushman & Wakefield, high fashion areas Causeway Bay in Hong Kong, Fifth Avenue in New York and Bond Street in London are amongst the top 10 most expensive rental areas in the world. In Mayfair, which has the highest concentration of haute couture stores in the world, fashion houses are expanding the upper stories of their buildings to build lounges for high-value customers. For fashion brands, selling means more than retail: Vogue publisher Conde Nast has increased it number of advertising pages by 5% in 2013, suggesting that the cost of advertising is up too.
More rich people = higher prices. Perhaps the biggest impact on fashion inflation is not supply costs, but rising demand. We have seen a dramatic rise in the number of high net worth individuals. CapGemini’s World Wealth Report states that there are now 12 million HNWIs around the world, up from 10m in 2007. In other words, there are two million new millionaires, and $5.5 trillion of new wealth for high fashion brands to attract. In China, which is responsible for much of the growth of fashion and luxury spending, consumers have developed high-end tastes incredibly fast. A survey by KPMG shows that the typical Chinese middle-class consumer now recognizes 59 different luxury brands, compared to just 34 in 2006. And the affluent Chinese are much more likely to buy luxury goods than their counterparts in the US. French bank Exane BNP Paribas reports that Chinese household earning 75-150,000 Euros ($100-200,000) will spend 2,902 Euros on luxury goods, while a US household in the same income bracket will typically spend just 569 Euros. Beyond the rise of the millionaires, there’s a new class of Asian high fashion buyer.
It’s over a hundred years since Thorstein Veblen articulated the idea of conspicuous consumption, where wealthy people would happily invest in displays of wealth. Now that eight times as many students are enrolled in the Savannah College of Art and Design’s prestigious accessories design program as in 2008, society is gearing up for more, and more expensive, high fashion.