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-h
eld 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.
Materials referenced:
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