What Price Luxury? Brands Go High, Low To Spur Tough Market

Many of today’s biggest fashion houses have been fiddling with price tags, but it’s stirring a sharp debate in the luxury market.

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Even in Japan, battered by a decade-long recession, companies including Hermès, Bulgari and Louis Vuitton continue to raise prices. Yves Carcelle, chief executive of Louis Vuitton, noted that in Japan, Louis Vuitton items priced over $500 sell better than those priced less. "We believe the strategy of lowering prices in a crisis is the wrong solution," he said.

But Chiara Tirloni, an analyst with UBS Warburg, cited Tiffany as one example of a brand that has managed to offer a vast price range of items without losing its luster. "Tiffany demonstrates that a low price point doesn’t necessarily mean losing luxury status," Tirloni said. "It’s all in the execution. These brands have many stores all over the world. They have to adopt product strategies that keep attracting customers, increasing store traffic and generating sales."

And Majed Al-Sabah, owner of the luxury emporium Villa Moda in Kuwait, said he spies great potential for selling low-ticket items — key chains, cell-phone straps and the like — even if many brands resist for fear of diminishing their snob appeal. His enthusiasm hasn’t been diminished by the war in Iraq; Al-Sabah all along has insisted that the war, in the end, will only be good for business because it will ease the region’s political uncertainty. He already has plans to open another Villa Moda in Kuwait and even talks of opening one in Baghdad one day.

"I think they [brands] are underestimating the category. My customers, they buy items like that in bulk," he said. "One of the exceptions is Dior. To me, they are absolutely clever because they diversified [their price range]."

Andrea Ciccoli, vice president of Milan-based consultancy Bain & Co., warned that fashion houses that produce cheaper versions of hit items may devalue their integrity. However, he allowed that accessible items like T-shirts can work if they are fun, fashionable and grab the customer’s attention.

"It’s the impulse buy that is responding best in this market," he said. "What the customer needs is fresh, exciting things, but not necessarily at high prices." He believes the key is being innovative and fashionable with cheaper products, but staying "consistent with the brand image."
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