Luxury Fashion Inflation. How High Is High?


In recent years, prices of luxury fashion products have grown at more than twice the rate of general inflation. In year 2000, the famous Hermès Kelly started at $4,800, now starts at $7,600. In 2003, Carrie Bradshaw’s Manolo Blahniks cost $485. Exactly ten years later, the same style is $755, a 56 percent increase.

So the question is why there has been such huge inflation in the luxury Fashion industry?

First, let’s consider the rough costs of producing a luxury product such as the costs of raw materials, design, manufacturing and fulfillment. Then, at retail, there’s the cost of prime real estate and sales staff. And finally, there’s marketing: those glossy fashion adverts and fashion show costs. Raw materials such as cattle prices and cotton prices are more expensive and some expensive skins are scarce than ever before. Lets not forget the rising labour costs as another cause to this inflation. Another factor that brands have been taking advantage of is the game of perception and desirability for expensive/exclusive products. The more expensive something is, the more exclusive and, therefore, desirable it becomes.

All the costs included still, the price tag have increased dramatically and perhaps the most powerful driver of fast-rising luxury fashion prices is the fact that there are simply more people who are able to pay up. The number of high-net-worth individuals (HNWIs) in the world increased by 9.2 percent in 2012 to 12 million people, with combined total assets of $46.2 trillion, according to a report by Capgemini, a management consultancy.

As the rich is becoming richer; the demand for luxury will rise higher and the brands will continue to move up their price tag. But up to what limit the rich would pay for a handbag or a pair of shoes? and how high is high for them?