The luxury pricing problem

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I’ve been thinking of a conversation I had with Rodrigo Bazan, president of Alexander Wang, about the problem of pricing in a global luxury world – and his rather clever way of addressing the issue.

The trigger was the news that European brands (well, mostly LVMH brands) were raising the prices of their products in Europe. The move, to compensate for the slight slowdown of business in Asia, caused it seems by the Chinese buying luxury brands abroad, where they are notably cheaper than they are locally. All of which reminded me of something Mr Bazan had said of the luxury consumer in Asia: “when they see something they like, the first thing they do is Google it on the US web site of the brand, to see what the prices are in dollars.”

If the gap (for whatever reason: import duties, taxes, real estate costs etc) is too big, well – you can guess what happens, and where they make their purchases.

How to control pricing in an increasingly globalised world where tariffs and currencies ricochet around and the luxury consumer is smart enough to investigate what costs what where (say that ten times fast), is giving luxury brands a migraine. It is one of the causes I think, for what seems to be a growing trend towards the end of wholesale — at least on the high-end. After all, only if you control product distribution, can you control pricing (a point that obsesses J. Crew’s Mickey Drexler, who says he learned it when he worked at Bloomingdale’s way back when, and applied it when he got to The Gap).

This was brought home to luxury brands in 2008, when American department stores – on their own and against many brands’ will – cut prices by almost 80%.

Anyway, recently I heard whispers (from a wholesale partner) that Prada is intending to phase out all wholesale operations, and Diego Della Valle has made noises about doing the same with Schiaparelli when he relaunches that brand.

Mr Bazan had another idea though. As many of his wholesale partners in Asia tend to want to raise prices on the Alexander Wang products to keep them in line with luxury peers, and because the brand feels strongly that prices should be as close as possible globally (they simply accept the fact they have very small margins in Asia), he is launching an Asian website that will price products as per brand policy, no matter what his wholesale partners are doing. That way, if a local consumer goes to a department store and sees one price on a T-shirt or a trench, and then Googles his local retailer and sees another, well: where do you think he will make a purchase? And what sort of influence might that have on the pricing policies of the local partner?

Peer pressure! It’s not just for high school anymore.

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