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Worldcrunch

Why Living Rich Is Costing More And More

Article illustrative image Partner logo That Rolex won't come cheap, ever more so...

PARIS - The price of luxury products is skyrocketing. The quasi-hypnotic appeal of some brands and the increasing number of extremely wealthy clients throughout the world is enabling luxury brands to hike prices to stratospheric levels year after year.

A pair of John Lobb shoes, a Kelly Hermès bag, a kilo of Petrossian Sevruga caviar, a bottle of 2002 Dom Pérignon champagne, a session with a Fifth Avenue therapist, a face-lift by a famous plastic surgeon, two seats at the Metropolitan Opera in New York, the chicest of Sikorsky’s helicopters, or a Rolls-Royce Phantom – these are some of the essential 40 goods and services used to calculate the renown “Cost of Living Extremely Well” index, created in 1976 by Forbes magazine.

In the past 35 years, the index has surged by 800%. During the same period, the American index of consumer prices only increased by 300%.

The transition to the euro confirmed this trend. Since 2001, the price of a dozen of luxury’s most emblematic products has increased much faster than the general index of consumer prices in France, which was calculated by the National Institute for Statistics and Economic Studies (Insee) between 2001 and 2011 (23.5%).

Really, really expensive products

For instance, in the past 11 years, the price of a Burberry gabardine cotton raincoat was multiplied by 5.6, from 122 to 1,190 euros. A pair of leather and textile Louboutin high heels jumped from 249 to 425 euros. Even more spectacular, a steel and platinum Rolex Yachtmaster watch went from 5,488 to 39,000 euros. A pair of Tod’s picot moccasins cost 122 euros in 2001; today it costs 270. A twill silk Hermès scarf now costs 310 euros, instead of 229.

Slightly more reasonable is the legendary pair of Ray-Ban Wayfarers, worn by movie stars and John F. Kennedy. It was sold for 90 Euros in 2000 and costs 145 today (+61%). Taking inflation into account, it is one of the rare products whose price has decreased during the past decade.

The price rise of eternal Chanel NËš5 perfume has been kinder:  7 milliliters (ml) of perfume went from 67.84 euros to 106 eleven years later. The 50 ml Allure men’s cologne from Chanel increased more, going from 32 euros to 58 today.

Waiting list

According to Thomas Mesmin, a luxury sector analyst at Cheuvreux, “for fashion and leather goods, prices have increased between 2001 and 2011 by 62%, and by approximately 78% for watches and jewelry.”

At a time when there is a waiting list and a minimum six-month delay to buy a 4,500-euro Hermès bag, a 3% price hike won’t change much. “These types of products target only a minority of clients, who are so wealthy that this kind of change has almost no impact on their purchasing,” says Mr. Mesmin

He says that “the highest prices are in China and Asia” - over 50% more expensive than in Paris – and that “some important brands” would not hesitate to risk losing their European consumers. “Price, in luxury, can be a positive way to differentiate a product,” he says.

Alexis Karklins-Marchay, an Ernst & Young partner, agrees. “The real players in the luxury sector use price increases to strengthen the fetishist aspect of brands,” he says. The higher the price, the more desirable the product. This is true for wines and spirits, but also for perfume, even though most of the “juices” are not actually very expensive.

Some companies, like Rolex, hiked their prices twice in 2011 alone, says Karlins-Marchay. On the used market, watches lose little value – a maximum of 20% compared to new watches – and buyers know they are not losing a lot of money with these yearly price increases.

Fetishism

Watches are actually one of the rare luxury products seen as financial investments. Some fans – or cautious investors – buy two of the same model twice. They wear one and leave the other one under cellophane in a safe, waiting to be resold.

For Serge Carreira, a teacher at the Sciences Politiques university in Paris, the luxury sector is unusual because “the more expensive a product is, the more it is defined as luxurious.” Many companies abandon entry-range products to focus on exceptional ones.

Mr. Carreira also says that the significant increase of luxury prices comes from shortages in some raw materials, such as crocodile and alligator skins or leather goods. But craftsmanship is also disappearing. In Italy, the number of workshops able to meet high-end clothing orders has decreased so much that those remaining can set their own prices. 

Finally, and most importantly, the biggest companies have been rapidly expanding geographically for the past few years. Increasing prices is a way for them to continue reaping extremely confortable profit margins, all the while financing this costly expansion.

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About this article source Website: http://www.lemonde.fr/

This leading French daily newspaper Le Monde ("The World") was founded in December 1944 in the aftermath of World War II. Today, it is distributed in 120 countries. In late 2010, a trio formed by Pierre Berge, Xavier Niel and Matthieu Pigasse took a controlling 64.5% stake in the newspaper.

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