I’m a firm believer that you can’t put your best foot forward without a great pair of shoes. As a mandatory staple, your footwear is an investment that serves you daily. With the holidays approaching and consumer activity at an all-time high, I can’t help but wonder about what operating expenses make— say Christian Louboutin shoes—so expensive. Since my mind tends to gravitate towards procurement, production, and material costs in shaping a product’s MSRP, I’m often curious what on Earth could lead a shoe retailer to price boots as high as $2,645. The answer is a combination of several core factors: materials, extensive craftsmanship, supply and demand, and brand image. Although these factors are specifically evidenced in the brand’s history, there are a few other elements and potential circumstances that stand out for the luxury footwear market as a whole.
There is a clear geographic production disadvantage. The Euro's power against the dollar and increasing competition for raw materials from Asian factories make it substantially more expensive to produce shoes in Europe. With most of the footwear manufactured and produced at a facility in Milan, global distribution also contributes a huge expense.
Raw materials such as genuine leather used in production are high quality and priced accordingly. Some luxury product providers are even buying their own tanneries to cut out additional parties being needed in the process. A main cost center in production of Christian Louboutin goods revolves around the labor of experienced artisans. Louboutin says his own production costs have actually doubled over the past five years due to the extensive stitching and cobbling requirements his shoes require.
With these luxury obligations, there is a great deal of opportunity to source raw materials or even shift manufacturing processes to low cost countries to increase bottom line savings and even realize some additional value. So why do many luxury brands refrain from spend management to ease outlandish prices or secure more profit? The reality is that Christian Louboutin demand is present in the luxury market as a status symbol for celebrities and high-prestige individuals. These shoes are produced widely, however there are limited quantities—an amount far less than the quantities of women who desire the goods. The exclusive brand image presents no need for price reduction or shifting manufacturing efficiency because of the widely-held coveted sentiment. This seems somewhat strange (to me at least) in a world of evolving procurement and production efficiencies used in remaining competitive; however the “extreme” luxury goods are an exception to the standard because they can get away with selling a pair of shoes with an intrinsic value of $500 for quadruple the price. “According to Tina Herrera, a fashion consultant in NYC, buyer psychology and marketing may affect the price of designer women's shoes even more than the costs of production. Consumers have the perception that expensive items are inherently better than similar items with a lower price. Thus, designers convince shoppers that their products are superior simply by raising the price.”
Although there is opportunity for the Christian Louboutin brand to capitalize on considerable cost savings through strategic sourcing, the organization is operating at such a high profit that even the most inefficient manufacturing and raw material procurement can be sustained long term due to an image that allows buyers to look past a price tag.
Image courtesy of: http://us.christianlouboutin.com/us_en/