Can We Stop With The Brand Worship?
Learn to distinguish between intrinsic value and perceived value
Every industry is reeling from the effects of the current macroeconomic conditions, except one — luxury fashion. As the world prepares for a recession, the luxury market continues to boom. In 2022, the personal luxury goods market grew by 22% and hit a record high. Chanel and Hermes have recently raised prices, again. The richest man in the world — Bernard Arnault, has amassed a fortune of $200 Billion dollars, not by making computers, cars, or rockets — but by making handbags. He is the head of LVMH, which owns Louis Vuitton, Dior, Tiffany, and other luxury brands.
You might think that the people buying these products are millionaires and billionaires, so who cares? False. The growth is almost completely driven by millennials and Gen Z. There is a small portion of the buyers who are obscenely rich. But the majority, over 60% are people making less than $100k annually. These are the same people stressed about their finances, worried about parking tickets and unforeseen medical bills, yet they feel obligated to own a Hermes.
So why this obsession with big brands? And why does it disproportionately affect younger generations? If you try asking people why they buy from big brands, you will get multiple spurious reasons. Let’s get these out of the way.
- Quality — Sure luxury goods are generally good quality. But not thousands of dollars worth of quality. There is a YouTube channel by a leather expert who dissects and examines some of these bags. He estimates that a $2200 Prada Saffiano Leather bag actually costs only $120 to make. That’s a 1700% markup. You don’t need to splurge thousands for quality.
- Fashion — No denying that luxury fashion brands look good (generally). But you can still get good-looking, often nearly identical designs from Zara and Banana Republic. Fashion alone doesn’t justify the cost.
- Investment?- This is a relatively new one. There have been reports of how the Birkins handbag or Rolex watches have outperformed the US stock market over the last few years. But fashion is fickle. Who knows if the same brand and style will be in fashion a few years from now? There are better alternatives if an investment is your goal.
So let’s get to the real reason these brands have such high demand — Status and Scarcity.
Status drives demand while scarcity controls the supply. Both together drive prices to obscene levels.
The scarcity is artificial. Gold, Oil, and Beachfront properties are valuable because they are scarce. There is nothing scarce about the materials used in making a handbag. Apparently, you need to be invited to buy a Hermes Birkins. Hermes could just produce more Birkins if they want. They choose not to. They know how many bags is there a demand for, and by intentionally producing less, they are able to maintain an air of exclusivity.
The status is artificial too. There is an innate desire for people to seek social status. This is evolutionary and biological. The brands have just managed to tap into this desire. They have convinced us that having a certain letter printed on the bag you carry will give you social status. This is what I mean by Brand worship. And the reason it affects younger generations more is that social media has given corporations unfettered access to rewire our brains.
Remember that brand value is not biological or innate. It is a product of marketing and social conditioning. There is a multi-billion dollar industry that feeds on making us feel inadequate. As if a pair of shoes could fix that. Brand value is subjective, based purely on what you perceive their worth to be. Imagine if we collectively decided tomorrow that it is no longer cool to wear a Rolex or carry a Prada. Their brand value will drop overnight. This is not as far-fetched as it may seem.
In the 90s, there was a British jewelry brand called Ratners. They had over 2500 stores and controlled 50% of the UK jewelry market. Until the day their CEO jokingly called his own products ‘crap’ in a speech. Within a few days, Ratners Group shares dropped by £500 million (US$1.8B today); by the end of 1991, its stock was down 80%. The company almost went bankrupt. There was no change to Ratner products. What changed overnight was their perceived value.
The change has to begin with you. When a middle-income household splurges thousands of dollars on a scarf, who wins? Not the person who just spent their monthly income on a scarf. And not the person who looks at that scarf and feels inadequate. The brand is the only winner.
So next time you find yourself gawking at someone’s Chanel handbag , ask yourself if the bag is intrinsically that good. Or have you just been conditioned to believe it is?
