From an economic point of view the luxury goods market has always fascinated me. I could never, and still don't understand the prices they have commanded for their goods for years, and the willingness of intelligent consumers to go along with their game.
I have argued for some time that the luxury goods market is completely unsustainable. At last I found an article that mirrors my own thoughts.
From The Wall Street Journal
When Saks Fifth Avenue slashed prices by 70% on designer clothes before the holiday season even began, shoppers stampeded. "It was like the running of the bulls," says Kathryn Finney, who says she was knocked to the floor in New York's flagship store by someone lunging for a pair of $535 Manolo Blahnik shoes going for $160.
Saks's deep, mid-November markdowns were the first tug on a thread that's now unraveling long-established rules of the luxury-goods industry. The changes are bankrupting some firms, toppling longstanding agreements on pricing and distribution, and destroying the very air of exclusivity that designers are trying to sell.
The problem Saks faced last November is one that haunts the U.S. economy as a whole: From car makers to home builders, companies are stuck with inventories that are far too fat. (See related article.)
Saks's risky price-cut strategy was to be one of the first to discount deeply, rather than one of the last. Managing high-fashion inventory is tricky. Clothing can go out of style in just months, so stores don't want to keep it around. But cut prices too soon or too deeply, and shoppers start to expect it.
Stephen I. Sadove, Saks's chief executive, says his action helped his company avoid massive losses, or worse. "These herculean things," including slashing inventories, were done to "make sure that the company survives," Mr. Sadove said in an interview.
Article
Of course, the worrying thing is that if you slash the price of a handbag by 70%, it might encourage my wife to buy three instead of one!
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