Oct 24th, 2015, 09:11 AM

The Eye-Popping Price of Designer Handbags

By Becca Miquel
(Photo: Gucci.com)
Designer handbags have become a modern fashion phenomenon as status symbol.

Handbags have become a major investment in the modern wardrobe. From Céline to Chanel to Hermes, as designers compete to be the epitome of high-fashion, many use recognizable labels or trademark details on their accessories to make their products as recognizable mobile advertisements for the brand.

Luxury designer handbags in particular have become a modern fashion phenomenon as status symbol. Demand has exploded for these brand accessories -- and, of course, the trend has a hefty price tag. On luxury fashion sites such as Net-a-Porter or Bergdorf Goodman, designer handbags typically start at around €500 ($560) and easily shoot up to around €5,000 and beyond.

What is behind this trend? And are we at the top a market bubble?

Designer handbag prices have increased around 60 percent over the past ten years, as inflation of high-end designer fashions more than doubled other rates of inflation. However, the price dynamics of luxury goods are more complex than one might be presumed. Contrary to popular belief, soaring prices don't necessarily mean inflated bottom lines. In order for big brand powerhouses to achieve luxury status, they must achieve recognition of being worthy of the price. This includes more refined raw materials (generally a 35 percent cost for luxury products), marketing, packaging, personnel and prime retail spaces. In addition, fashion brands must build into their retail models a hierarchy of products, making some luxury products more or less attainable than others.

However, as prices for these high-end labels get higher and higher, the fashion market is polarizing. It seems there are now only two retail classes lining the streets: on one side, so-called “fast fashion” brands such as Zara, H&M, and Forever 21; and luxury brand stores on the other side.

So where are the mid-priced labels? And how are fashion houses working to fill this hole in the market?

More and more, fashion and accessory brands are wising up and diversifying their lines to capitalize on the price stratification so evident in today’s market. Today’s retail model is becoming more comprehensive in order to maximize these possible gains. This is reflected in the distribution of a bellwether brand as well as second-tier offshoots that can still capitalize on brand recognition while expanding market potential. This is evident in handbag lines such as Michael for Michael Kors, See by Chloe, or Marc by Marc Jacobs. In other words, fashion houses are making “lesser” versions of there brands in order to compete with high-middle end lines such as Coach or Tory Burch.

The same name brands are now being repeated over and over within several facets of the retail market. This is a reflection not only of how powerful the brand name has become, but also how much the market is splitting. In any case, this market monopolization is definitely something to watch as the market continues to divide.

(Photo: Michaelkors.com)