Why Designer Brand’s Keep the Middle Class in Poverty: The Marketing and Economics Behind it

Written by Noah Kanter

From a young age, many of us have memories of walking in the mall or down Fifth Avenue, staring at the glamorous designer stores. There were so many options from which to look: Gucci, Louis Vuitton, Dior, Versace, Prada. Each of these companies has its own “niche” emblem which embodies the power and prestige of the company. To any ordinary viewer, the only similarity between these brands is the higher price– charging $3,000 for a Rick Owens jacket– and the assumption that they were made for the top 1% income earners (Rick Owens, n.d.). However, recent trends in marketing strategies and demographic polls show that designer companies actually target middle-class consumers. In this article, we will uncover the economic and marketing strategies of designer companies. Through this, it will become apparent that luxury companies market the perception of wealth, when actually, they are responsible for keeping their consumers poor.

Part of the prestige that makes designer companies so valuable is their ability to have control over the market’s supply and adjust to different demand levels. In traditional microeconomic theory, a company should only produce if the cost of production is less than or equal to the willingness of the consumer to pay for that amount of units. But, in cases where a producer makes more supply than needed, they should discount their product to reach the desired equilibrium price. One would think that if this was the recipe for economic success, then all companies would adopt this strategy. Except, designers do this differently such that their brand is held to a high level of prestige. Designers have been found to produce more supply than needed, like Burberry for example, and eliminate their surplus through incineration. In the past, they have destroyed more than £90m of goods (BBC, 2018). For Burberry, it is more favorable to absorb the cost of destroying their products rather than putting them on discount and diminishing the assumed value of the bag. In addition to growing revenue over the years, designer companies have a vow to convince consumers that there’s implicit prestige in their products.

Although it is apparent that designers want to hold their name on a pedestal through control of the market supply, how are they able to absorb the cost of destroying their products? This practice stems from designer companies’ cost of inputs compared to their gross margin for a good. According to an experienced Leatherman Volkan Yilmaz, a Saint Laurent bag he cut into shouldn’t cost more than $250 to make, but he paid $2,500 for it (Biondi, 2023). Knowing this, it is clear that designer companies can destroy their products because the cost of input is so cheap compared to the size of the revenue of selling it. Additionally, the opportunity cost of incurring the economic loss is greater than selling their product because doing so, the brand would lose its prestige. If they did sell at a discount, consumers would strategically wait until the end of the season to get the best price.

Now that we know the strategies behind how designer companies control their supply chain, how do they intentionally target middle-class consumers, and is this economically sustainable? Regardless of how involved or removed one is, everyone from a young age can point to a fashion influencer or famous actor. Designer companies know the power of influencers, and this is precisely how they target a younger audience. For example, CEO of luxury fashion company Golden Concept, Puia Shamsossadati exclaimed “When people like Neymar, Cristiano Ronaldo, and the Kardashians products, they become very visible” (DeAcetis, 2020). Utilizing celebrities publicly promotes designer products to his fans and sells a lifestyle along with the goods. Lower-class consumers would buy the goods to relate to the influencer, emitting the perception of having wealth. This has proven to be successful in stimulating economic growth. In the first 9 months of 2023, Moët Hennessy Louis Vuitton (ticker LVMH) had a 14% growth in revenue (LVMH Investor Relations, 2023).

In essence, designer industries have played their cards right in maximizing their profits. They hold themselves to the highest standards, refusing to discount anything. In doing so, it attracts celebrities to their products which outreaches to middle-class consumers. For example, In New York, the monthly middle class income in 2019 was $6,283 (Hallett & Maidan, 2021). Compared to the United States in 2018, in this income range 24% of people reported owning a Louis Vuitton item (Kunst, 2022). It’s apparent that designer companies know how to raise revenue, but one must consider the repercussions of marketing a false reality of wealth to the middle class. Their targeted consumers spend the little disposable income they have on designer products which makes it difficult to adjust to the changing economy. Designer companies shouldn’t be restricted, but there should certainly be more clarity publicized about the purpose of marketing campaigns. Beyond their tangible qualities lies a complex web of aspiration, identity, and societal status, weaving together the fabric of consumer culture.

References

BBC. (2018, July 19). Burberry burns bags, clothes and perfume worth millions. BBC. Retrieved April 11, 2024, from https://www.bbc.com/news/business-44885983

Biondi, A. (2023, March 2). What are the true costs of making your handbag? Financial Times. Retrieved April 11, 2024, from https://www.ft.com/content/0ac15868-69ac-4e37-bbef-e3c5d40e8f55

DeAcetis, J. (2020, October 24). The Perfect Balance: How Luxury Brands Can Maintain Exclusivity And Still Be Relatable Online. Forbes. Retrieved April 11, 2024, from https://www.forbes.com/sites/josephdeacetis/2020/10/24/the-perfect-balance-how-luxury-brands-can-maintain-exclusivity-and-still-be-relatable-online/?sh=12b251467e44

Hallett, S., & Maidan, L. (2021, April 16). How Much You Have to Earn to Be Middle Class in Every State. Business Insider. Retrieved April 11, 2024, from https://www.businessinsider.com/personal-finance/how-much-to-earn-middle-class-in-state-2021-4

How Can ‘Absurd’ Luxury Prices be Justified? (2023, November 7). The New York Times. Retrieved April 12, 2024, from https://www.nytimes.com/2023/11/07/style/luxury-fashion-brands-prices.html

Kunst, A. (2022, February 23). Americans who own Louis Vuitton fashion or accessories 2018, by income. Statista. Retrieved April 11, 2024, from https://www.statista.com/statistics/719424/affluent-americans-who-own-louis-vuitton-brand-apparel-accessories-footwear/

Luoto, K. (2020, March 04). Designer bag area. Wikipedia. Retrieved April 21, 2024, from https://www.flickr.com/photos/stockmanngroup/49617537277/

LVMH Investor Relations. (2023, October 10). LVMH. Retrieved April 12, 2024, from https://www.lvmh.com/news-documents/press-releases/organic-revenue-growth-of-14-in-the-first-nine-months-of-2023/

Rick Owens. (n.d.). Rick Owens US. Retrieved April 11, 2024, from https://www.rickowens.eu/en/US/