top of page
Search

Challenges with Pricing for the High-End Fashion Industry in the US


Written By: Gargi Sarma  Introduction:

The US high-end fashion market captivates customers with its sophisticated and prestigious appeal, symbolising exclusivity and luxury. However, businesses must negotiate a complicated web of obstacles when deciding on pricing methods beneath its glitzy exterior. This essay delves into the unique challenges encountered by luxury fashion firms in the US market, examining the fine line that must be drawn between upholding exclusivity, satisfying consumer demands, and continuing to be profitable in a constantly changing environment. We explore the complexities involved in determining pricing for premium fashion items, from comprehending customer behavior to addressing concerns of brand dilution and ethical implications.


Figure 1: Ranking of Personal Luxury Brands (2022 & 2023)


From Figure 1, we can observe that the year 2023 saw the second consecutive year with a fall in the aggregate RepTrak reputation score. It fell for the first time since 2018, falling from 74.9 in 2021 to 74.2 in 2022. Additionally, the average dropped to 73.2 in 2023.


Recognizing the Dynamics of the Market:


Competitive environments and intricate customer behavior shape the US high-end fashion sector. For example, because of their heritage and strong brand equity, premium firms like Gucci and Louis Vuitton can command high prices for their products. On the other hand, up-and-coming designers like Off-White and Vetements also face competition by providing distinctive looks and experiences at high price points.


Figure 2: BAC US Card Spending Data Growth For Luxury Fashion, YoY


Factors Affecting Pricing Decisions


Figure 3: Luxury Fashion Brands - The Fashion Pyramid (Source: TRF / Strategy Consulting, 2020)


  1. Production Costs: Superior materials, expert craftsmanship, and cutting-edge design methods are frequently substantially invested in by luxury firms. Chanel's renowned tweed jackets, for instance, are expensive because they require fine fabrics and meticulous handwork.

  2. Positioning and Brand Image: To support their high prices, luxury brands need to carefully manage their image. To ensure that its items keep their prized status, Hermes, for example, limits manufacturing and distribution to maintain its exclusivity.

  3. Trends and Seasons: The difficulty for high-end fashion manufacturers is striking a balance between trendy looks and classic appeal. Balenciaga's Triple S sneakers, for instance, sold out quickly at first because of their strong demand, but sustaining their premium cost needed rigorous control of supply and demand dynamics.


Figure 4: Expected Changes to US Luxury Shoppers' Spending Habits Over the Next 12 Months, 2022

Challenges Faced by High-End Fashion Brands:

High-end fashion pricing in the US faces several challenges due to various factors, including consumer perception, market competition, production costs, and economic conditions. Here are some challenges, along with examples:


  1. Perceived Value vs. Production Cost: High-end fashion brands often struggle to justify their high prices to consumers who may not fully understand the production process and quality of materials. Balancing the perceived value with the actual production cost is crucial. Example: A luxury brand may use high-quality materials and skilled craftsmanship to produce a handbag, driving up the production cost. However, consumers may question the high price if they perceive similar-looking handbags from other brands as being of comparable quality.

  2. Market Saturation and Competition: The high-end fashion market in the US is saturated with numerous brands vying for consumer attention. Intense competition can lead to pricing pressures as brands attempt to differentiate themselves while maintaining profitability. Example: A new high-end sneaker brand enters the market with innovative designs and premium materials. However, established luxury sneaker brands already dominate the market, making it challenging for the new entrant to command premium prices without a strong brand reputation.

  3. Brand Image and Prestige: High-end fashion brands rely heavily on their brand image and prestige to justify premium pricing. Maintaining exclusivity while reaching a broader consumer base presents a delicate balancing act for these brands. Example: Chanel, known for its iconic handbags and timeless designs, carefully controls its distribution channels to maintain exclusivity. However, the brand also faces pressure to appeal to younger consumers without diluting its luxury image.



Figure 5: Factors Influencing US Luxury Shoppers' Luxury Purchases, 2022


  1. Economic Factors and Consumer Behavior: Economic downturns and fluctuations in consumer spending can significantly impact high-end fashion pricing. Brands must navigate shifting consumer preferences and adapt their pricing strategies accordingly. Example: During a recession, consumers may prioritize essential purchases over luxury items, leading to decreased demand for high-end fashion products. In response, luxury brands may offer discounts or adjust their pricing to appeal to budget-conscious consumers.

  2. Counterfeiting and Brand Dilution: Counterfeit products pose a significant threat to high-end fashion brands, undermining their exclusivity and brand integrity. Lower-priced knockoffs can dilute the perceived value of authentic products and impact pricing strategies. Example: Louis Vuitton faces ongoing challenges with counterfeit handbags flooding the market. Despite efforts to combat counterfeiting, the availability of cheap knockoffs can make consumers hesitant to pay premium prices for genuine Louis Vuitton products.


Figure 6: How are the Roles of Physical Stores and Digital Channels Evolving Along the Fashion Consumer's Journey?


Figure 7: Luxury Brands' Online Popularity Change from 2022 to 2023


Trends in Fashion System Highlights:


The following developing issues are highlighted in McKinsey's 2024 report and will be high on the agendas of the fashion system's leaders.


  • Generative AI: More application cases are appearing in the sector following 2023, the year that generative AI (gen AI) made its breakthrough. Fashion players will need to look past automation to realize profit, and investigate how Gen AI may improve the job of human creatives.

  • Fast fashion's manipulation: The rivalry in the fast-fashion industry is expected to intensify. Rivals, spearheaded by Shein and Temu, are introducing novel strategies concerning cost, client satisfaction, and velocity. Navigating the regulatory agenda while adjusting to changing customer demands may be the difference between disruptors and incumbents in terms of success.

  • Every eye is on the brand: It is anticipated that brand marketing will regain prominence when the fashion sector successfully moves away from performance marketing. As marketers rewrite playbooks to emphasize long-term brand creation, brands may profit from developing emotional ties with consumers.

  • Sustainability is paramount: The days of self-regulation in the fashion business are coming to an end. New regulations will have a big impact on consumers and fashion industry operators everywhere. Manufacturers and brands might think about updating their business models to reflect the upcoming changes.

  • Bullwhip retaliates: The "bullwhip effect," which causes order volatility to echo unpredictably through supply chains, has been brought about by changes in customer demand. As brands and retailers prioritize openness and strategic collaborations, suppliers are expected to experience more pressure.


Conclusion:


The shifting production costs, fiercer competition, and changing consumer tastes provide serious pricing issues for the US high-end fashion market. Industry participants need to use adaptable pricing strategies that strike a balance between exclusivity and accessibility while staying aware of changing market conditions to successfully negotiate these complications.


About RapidPricer


RapidPricer helps automate pricing and promotions for retailers. The company has capabilities in retail pricing, artificial intelligence and deep learning to compute merchandising actions for real-time execution in a retail environment.


Contact info:



14 views0 comments

Comentários


bottom of page