Buy and Hold: Price leaps for luxury

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And speaking of luxury

I read this conversation with the imaginary Mr. Warren Buffet at my elbow: The New York Times' Style journalists (Vanessa Friedman, Jessica Testa, Guy Trebay, Elizabeth Paton, Stella Bugby) discuss the luxury clothing market in "How Can Absurd Clothing Prices Be Justified?" Even the pros are appalled at the price leap for that tier. 

Friedman had already flipped the price tags in her review of Phoebe Philo's new line, but there are plenty of other examples.  

That $US 21, 000 Burberry dress

She singles out Burberry for "selling a $21,000 viscose dress with a Burberry knight riding across the front", to which Trebay replies, "Better at that point to pin dollar bills to your chest."

Investment dressing

Mr. Buffet raises an eyebrow when I float the term; he always strips emotion out of buying. For the luxury segment, however, emotion drives revenue, and "value" has been reduced to bragging rights. As Friedman says: "We think that because it's more expensive, it has more value."

 But "value", as Mr. B. reminds us, is either fungible (you can exchange it at a given time for the identical item and it will retain the same value, e.g., a dollar bill) or not; for non-fungibles, value depends on factors that include perceived quality, condition, rarity, and often subjective criteria such as the desirability of the brand.

The $21, 000 dress could seem like an investment to someone like the art-gallery owner who buys it to signal that she belongs among clients who could spend millions, but Mr. B. says, "Even so, I would not buy." I think of the times when I hoped to justify a bank-breaking piece by applying the well-known "cost per wear" (CPW) metric. He peers at the care tag: Spot Clean Only, and says, "And for this, cost per wear would be... ?" 

He says, "They are not making these goods to be assets, they are intended to be consumables." (It is not just Burberry making clothes you can't clean. I've found the confounding and evil No Wash/No Dryclean label in items at Uniqlo, too.)  

Still, CPW is not irrelevant; it's a version of another investment concept, amortization. However, once your heart rate rises, CPW analysis can be irrational. Those pricey turquoise suede boots I thought I'd wear for years? One unexpected rainstorm did them in. 

Buried in the article is a revealing tidbit: Sales in all fashion markets are down, because "the aspirational middle class have stepped away from the credit card machine". "Aspirational" is code for a perceived deficiency that is only remedied by buying something considerably above one's budget, and that leap must be obvious to observers. That's why visible logos exist. 

Gisele's coup de coeur

The day I pondered the market for that dress, Gisele dropped by to say she had found her dream coat, the MaxMara "Icon Coat", when she accompanied a friend to Holt Renfrew. She was pink with excitement.

MaxMara "Icon Coat"

This would be an exceptional purchase for her; the price is just over $CDN 5, 100; sales tax adds another $762. Gisele is a canny shopper, but having recovered from a harrowing illness, she is in a certain mood and camel is her favourite colour. She's is sleeping on it, and going back alone on a quiet morning to make an offer. (She says you can bargain at Holt's, but it has to be discreet.)

I suggested she check the online resale sites. On Vestiaire, a MaxMara Icon coat in very good condition sold recently for $CDN 600. With associated costs (vendor commission, shipping, taxes and duty) the full price would have been around $825. (I paid $1, 200 for an Icon Coat in the mid'-'90s. Adjusting for today's dollar, that would be about $2, 166 now, another example that price increase has far outstripped inflation. Moths destroyed mine; I failed to store it properly.)

I wondered what a woman who could afford the Burberry dress would say, so I sent the photo to Iris, my 1% girlfriend, well-acquainted with luxe retail. She said, "That's just crazy! Does nothing for me."  

"But if you absolutely loved (that dress), would you buy it?", I asked. Iris knows about my imaginary advisor. She reminded me that Warren Buffet tells investors who are caught up by emotion, "Breathe and let it pass."

Her last word is a reflection of other values. Iris said, "I could do some good for a lot of people with that money."

Update: Gisele did not get a price reduction and moved to two parallel strategies: see if it's there in the post-holidays sale, and set up alerts at Vestiaire and TheRealReal.