Pricing Luxury Handbags in Recession

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Julie Gundrum, Jared Sennet, Marlee Watson, and Kim White
Group 14
RCSC 304, Eastlick
Written Retail Applications Exercise
Pricing Merchandise
The article, “Accessories After the Fact,” found online in The Wall Street Journal showcased the pricing strategies that luxury goods like handbags, shoes and leather-goods have used throughout 2009 thus far. Their retail prices and therefore their markups have dropped dramatically due to economic conditions outside of the company’s control but conditions that they must react to in order to stay successful in the marketplace. For example, Neiman Marcus is selling a Balenciaga handbag for $695,which usually retails for double the price in their iconic Motorcycle bag. Not only is Balenciaga cutting their initial markup prices but also companies like Louis Vuitton, Gucci and Prada have had sizeable cuts in their operating profits in order to stay afloat in this tough economy. The article also states that women are using shoes instead of handbags as a cheaper alternative to an expensive purchase. Claudia D’Arpizio, a Bain & Co. partner in Milan, says “shoes are a category where women do not compromise”. Although prices may be dropping in shoes, they are not dropping as dramatically as other categories like handbags, and women are still buying at the same rate or a little less as they were before the recession. In 1988, Coach conducted a study that indicated that the average American woman bought 1.9 bags per year. This is an astonishing statistic in comparison to 2006 where the average number of premium-priced bags purchased by women is four per year. Pricing is being effected dramatically as consumers are turning away from expensive purchases and are looking to reusing their old purchases. “Pricing is a key issue we are working on,” says Ralph Toledano, chairman and chief executive of Chloé in Paris (1). The concepts we have learned thus far represented in this article are initial markup, retail pricing,...
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