Luxury Brand Disruption

After the April tariffs were announced by the USA imposed on China, many large corporations took note. (here is a good summary on the back and forth)

Major brands have some dependence on China 's powerhouse manufacturing sector, whether it's public or not. The cost savings of the mass-produced goods are an integral aspect for most companies. From fabrics to zippers, shoes to bags, skin care to electronics, there are very few US companies that will not be affected in at least some part by the tariffs.

Chinese manufacturers responded in a way no one expected... taking it to TikTok. In what felt like an overnight and well-coordinated event, reporting all of the companies and the respected manufacturers, prices and factory locations of your favorite luxury good.

Many people learned that the 'made in Italy' may only be because a label was attached to the bag, that their favourite workout wear cost less than a tenth of the price in stores and that their favourite brands were made next to less favourable brands, sometimes even using the same resources.

Why do we buy brands?

Let's be fair. We don't always buy a brand item because we believe it's better. In fact, we know that some luxury brands have inherent flaws that are accepted as part of their charm. (Range Rovers tend to be rated poorly for quality, electrical issues). But when we buy a luxury brand we do it because of the way it makes us feel, the sense of accomplishment, we feel special, and the dopamine rush is real.

Brands are signals, silent messages and symbols; products alone are not.

The Mark-up of Luxury Brands

Of course, there is a markup on a good. There's a markup for a reason, and when it comes to luxury goods, there is a difference in the markup from common goods, which can be attributed to some, not all, of the markup.

Luxury brands have earned some markup because they took chances and have built a reputation and relationships with their clients over many years, a long history that has earned them some markup. When too many brands last only a decade or less, those that have withstood the test of time earn some credit.

Luxury brands also niche to an audience; they are not intended for the masses and therefore need to structure pricing to focus on that. There is bravery in this, which takes work, skill and sacrifice, attributes beyond those of most general mass brands.

So while there is a large disparity between the cost of the handbag and the price paid, there is a lot tied up in that difference and for the millions of luxury products, only a hundred or so ever become icons of society so there is a lot of luxury goods that get discarded, destroyed or disappears at a cost as well because these brands dont often discount to get rid of products

Cost of doing business for luxury brands

Having now worked with a luxury brand, I can tell you firsthand the treatment is not the same.

Not only do luxury brands have to be seen on their luxury customers, but luxury brands need to be present at the cultural events of society, attend and sponsor the most elite occasions and pay for promotion in areas that would be some other brands' complete marketing budget for a year.

They are often international, and this on its own comes with a massive boost of costs, from translation to distribution, which not only exceeds the capabilities of many companies but also requires looking at manufacturing differently.

There's a funny thing that happens when you are a luxury brand, people see you and you pay double.

Different standards, when it comes to real estate a luxury brand can only be in the best location in a prime luxury shopping area, which comes with its own cost. You cannot use paper cards, your business cards are coveted like informative works of art, packaging is a masterpieces on their own and made to be insta-worthy.

Finally, many luxury pieces don't depreciate as much as more common goods, truly making them an investment, but they are not the same investment, even if the product is identical, as those without the label.

There are many reasons to buy luxury brands and layers that most consumers don't even consider.

Julie Boake, awedity