The Curious Economics of Luxury Fashion: Millennials, Influencers and a Pandemic

by Don Thompson

This is the third edition of the book updated to 2022. New York’s Metropolitan Museum of Art Costume Institute Benefit Ball, run by Anna Wintour, the editor of Vogue, is the most difficult-to-obtain ticket for any cultural event in America— in spite of being a hundred thousand dollar, tickets + outfit evening. The size of the logo on a Louis Vuitton handbag is inversely related to its price; less expensive bags have larger logos, the most expensive has the smallest (those who matter to the owner recognize the tiny logo; those who don’t, don’t matter). Luxury fashion conglomerate Louis Vuitton Moet Hennessy is the second most valuable company in the European Union, after Royal Dutch Shell. In The Curious Economics of Luxury Fashion, economist and bestselling author Don Thompson offers these and other insights and fascinating examples in discussing the intriguing and fast-evolving world of luxury fashion. Why does one handbag sells for five times the price of another that looks and feels pretty much the same? How does a luxury label justify a runway show costing many millions of dollars, when most of the outfits paraded will never appear for sale? Why are fall fashions shown on the runway in March, and spring fashions in October? The book includes stories of the people and workings of luxury fashion, from New York, London, Paris, Milan—and in the rapidly growing markets of China. It includes a chapter on “Death by Amazon and AI”, the inroads and existential threat of Amazon to the luxury fashion world as it previously existed.

Genres: Nonfiction, Economics, Sociology

280 pages, Kindle Edition

Published February 26, 2021

About the author

Don Thompson is an economist and Emeritus Nabisco Brands Professor of Marketing and Strategy at the Schulich School of Business at York University in Toronto. He is the author of The Supermodel and the Brillo Box. He has taught at Harvard Business School and the London School of Economics, and is the author of 11 books. He writes on the economics of the art market for publications as diverse as The Times (London), Harper’s Magazine, and The Art Economist. He lives in Toronto, Canada.

Reviews

[Petra X · Rating 5 out of 5]

Review Fashion. That went by the wayside a bit during the lockdowns, sweats and shorts and fluffy slippers substituted for sharp business suits worn with crisply-ironed shirts. The fashion business took a slide too. This book documents that, but more interestingly, the business of high-end fashion, how it operates, where it is going in this online age among its main demographic - millenials and Gen Z especially.

There is a lot to take away from this book, but three things stood out to me. The first one was how the three divisions of the luxury end of fashion are distinguished from each other. The second, just how complicit we are in being scammed out of our money in our desire to show our status, how cool and successful we are; how we are the people who matter. The third, the future, which ties in very much with Racing Green: How Motorsports Became Smarter, Safer, Cleaner and Faster (for which I will write a proper review).

The first. There are three tiers to the top end of fashion. The luxury end, Chanel, Louis Vuitton, Gucci et al. Their reaction to everything that threatens them, whether it is the new rent-a-designer dress businesses, online discounters, the pandemic, or flagging sales is to appeal to exclusivity. Make less (handbags), and put up the already exorbitant price that has no relation to costs at all. When others are discounting, they put up the price even more, it can never be too high.
A handbag at $50,000 will really show them who you are! Or you husband, no doubt a banker at Goldman Sachs, if not 'old' money.

They are all known for fashion, mostly pretty awful unwearable stuff shown on tall, thin, androgenous models of such plainness that pics of them will not distract from the clothes. But who really cares about the clothes? The media is more concerned with who got to sit in the Front Row and who is closest to Anna Wintour and isn't that Rihanna over there? And Amal Clooney? All paid to attend.

The clothes they sell are not to tall, thin, young women, but either celebrities like Beyonce, Oprah Winfrey, the 5'2" 40" hip Kim Kardashian, or very wealthy people you've never heard of unless you actually read the society pages of some magazine or other. But they don't make any money from them. Bags, belts, scarves, lipsticks and perfumes make money.

Bag advertising is quite amusing, there are bidding wars in order to get them placed in tv shows. But there was a furore when Snookie of Jersey Shore (for the British, a show about people without any class at all, TOWIE) had a designer bag. Would it hurt sales? No they decided, no one who watches Jersey Shore would actually want a $25,000 handbag. True. Neither would I . I favour designer bags too, but not that level, Betsey Johnson, and preferably from Ross!

Shoes are another high end product that are made to be recognised, and priced according to what people will pay. Designer sneakers are made from good-quality fabrics and do cost $40-$60, but then sell for $450-$1500! Louboutins have recognition cornered with their red soles. A woman I know always insists her shoes are genuine but I know she sprays them red. She doesn't do it because she can't afford Louboutins, but because they are so uncomfortable. In Manhattan there are doctors who will inject your feet with a painkiller so they can be worn for a few hours until you can slip your shoes off in the limo back home.

The saddest story, the most scamming thing I think I've ever read about a product, was an episode of Sex in the City where Carrie announced she had spent $40,000 on Manolo Blahnik shoes and wrote a newspaper column about shoes. No doubt everyone thought it was a genuine story. But Manolo Blahnik paid for that. And kept on paying, fighting off all other product placement offers. It seems that US tv isn't broken up every few minutes by ads, but even the shows are commercials too.

The next tier down is Premium. Srella McCartney (although she thinks she's special and owes her entire training and career to Daddy, his money and connections), Calvin Klein, Marc Jacobs etc. They all discount heavily at the end of season, and Stella McCartney sells to TJ Maxx.

Then there is the Accessible level. Michael Kors, Tommy Hilfiger and some of the numerous Armani brands. This is just one step up from the ordinary fashion stores like Guess, Zara (beloved of flat-bottomed, small-bosomed white girls. Us Latina-figured women can't get the zips up), H&M and Diesel (which has a fab hotel in South Beach, the Pelican with weirdly themed rooms.) They discount, they make special ranges for stores in discount malls, they'll do anything for a buck, but their clothes still have great design and are nicely made.

So if brand labels matter to you, follow the old-fashioned advice and have 'good' accessories and one 'good' suit. Then don't go round telling everyone you got the top and sandals at Old Navy, no cachet at all, everything discounted and .. .wonderfully comfortable. If you really want those labels and have the money, consider the many outfits like Rent-the-Runway. For a couple of thousand a year, you can have four or more new outfits a month and then return them, having impressed everyone with your new designer label clothes and handbags at every ladies-who-lunch day.

I was a designer once. My bff had a European clothing company based in London with manufacturing run by her partner in Bali, and I had a boutique (this is before the bookshop) and I used to design clothes and fabrics for her and go out to Bali four times a year. You could get Versace jackets for $220 and Calvin Klein jeans for $11. All genuine. The labels might say 'made in Italy', and the final step would be done in Italy, or France for high-end French fashion, but mostly they were made in Bali and the 'factories' would sell the extras they made from spare fabric or overruns made in case all were not up to the quality demanded.

The third and last thing I took away from this book, was a combination of scamming and the future. I don't really understand NFTs - non-fungible tokens -but sort of see that they are digital art. And so there is 'virtually augmented' garments to purchase. I can't think of anyone who'd buy one but one of those influencers who are forever taking pictures of themselves in foreign places enjoying a millionaire lifestyle with skin and figure photoshopped, sometimes quite obviously, to perfection. They send a picture of themselves to say, Louis Vuitton, who will charge them huindreds of dollars to dress their digital image with a virtual designer outfit which can then be posed anywhere they never were!

Amazon, owns us, literally, this is Goodreads, and literally because there isn't much they don't know about you, and Alexa does spy on you, does analyse anything and everything while it's on, and it knows all about your friends too, the ones you send things too and who likes the highlikes you made on Kindle.

Amazon has a new business fashion model, not wildly popular yet, where for a premium sum, you can upload yourself and the clothes you have just purchased and it will tell you which outfit looks the best. Ultimately, with the more data it gets, the algorithm will suggest things you might want to wear (ie buy) and tell you all about the latest fashions. A Goodreads sort of model, but GR recommendations are crap, Amazon recommendations are crap, and I don't have any confidence that their fashion recommendations will be any better.

This is what I think. Having a lot of people use an app like that, means that just as we have print-on-demand books, so eventually, inevitably, it will be so with clothes. 3D printers at that, I think. That will save wastage, that will mean the end of out-of-season stock sales, that will mean more profit for Amazon because they aren't going to pass the savings on to the consumer more than they have to. And these days Amazon isn't particularly cheap, it's just convenient.

All in all, it was a very interesting book about the business of fashion, and written in a warm and friendly way. I really enjoyed it, especially the odd snippits here and there - Louis XVI, wore 4" heeled red shoes to increase his 5'4" height. Only those he accepted at court were allowed to wear red heels. Marie Antoinette wore them to the guillotine, but Louis XVI himself got executed in clunky boots!
__________

Notes on Reading"The curved sole of the 5" stiletto mimics the way a woman holds her feet during orgasm". From that I gather that the original designer of the stiletto heel was a foot fetishist else why else would have noticed?
__________

There seems to be a snobbery built in to the very wealthy who have inherited money rather than actually worked for it. These newly-rich are put down as tasteless and lacking in class. In this book on fashion, it is expressed as

If the newly rich are flaunting a particular luxury label, older money switches to other labels.

In a book I just finished, The Real Life Downton Abbey: How Life Was Really Lived in Stately Homes a Century Ago, the author said that the way the old money people could tell the arrivistes was to look at the silver cutlery. If the fish knives and forks matched, they were 'new money'. These were recent inventions, 'old money' who hung on to everything forever knew that old silver would not have included matching ones. Then they could sneer. Unless it was an American with a marriageable daughter who came with a huge dowry, then they didn't sneer, they proposed.

I'm not rich, but I've been sneered at by these people. I was once in Carriacou, invited there by a Lord I'd met in Grenada. We were sitting on the terrace above the sea, three young women houseguests of his, and me, and they visibly exchanged glances between each other, said something about my accent (I have an English RP accent with perhaps some Welsh vowels; you'd call it 'posh') as I certainly didn't speak like the upper class, the ones we call posh, they call themselves 'smart'. I didn't know their words that marked me out as NQOCD - Not Quite Our Class Darling. They were horrible to me in small cutting remarks that they each found smirkingly funny. I left after tea and never went back.

It's not money that makes them sneer, it's they think they are somehow superior kinds of human beings because they come from titled families that had been rewarded by royalty for sharing their wealth from slave labour on plantations, providing unwilling farm workers, peasants for armies, cutting them in on the spoils of piracy. You'd think they would be kind of ashamed of their ancestors, but no... the opposite.

It isn't any different today. Prince Charles has a go-between who has been fixing British citizenship and titles on payment to his favourite charities which are rebuilding his own houses. Not that Prince Charles knows anything about it...

[erin · Rating 5 out of 5]

Another fantastic recommendation from Tyler Cowen. I enjoy fashion and personal style but have minimal interest in luxury brands. This book requires no previous knowledge or appreciation of fashion to enjoy, just a little curiosity in all of the different niches and complexities that our world is full of.

The Curious Economics of Luxury Fashion is a book of breadth, not depth. Thompson covers a number of fascinating topics in little space. The book's first part outlines the development of two major luxury brands representing vastly different business models and cultures: LVMH and Hermès. He presents individuals who set and change the definition of "cool," including key designers, Vogue's editor in chief, celebrities, and influencers, and explores the distinctions between different levels of fashion (Luxury, Premium, Accessible and Fast). Though interesting on its own, this background information sets readers up nicely to understand the major forces disrupting the industry, such as millenials, COVID, alternative business models, and the Chinese market. I started the book with minimal interest in luxury fashion. I ended it with excitement to see how the industry adapts to these challenges in the coming years.

Though the focus of this book is economics, Thompson is acutely aware of how much economic information a lay reader can stand. He credits his wife for editing unintelligible economic jargon into "terminology suitable for humans." Thank goodness. The result is an informed, engaging, and accessible read.

My few complaints about the book stem from the author's position as an outsider. This adds to the book in that Thompson brings focus and insight that insiders would lack. However, I found myself slightly irked by his representations of women and millenials. Thompson acknowledges his focus is women's luxury fashion and suggests parallels in men with luxury cars and watches. Despite this, the writing has a subtle underlying tone of "why do women care about this shit?" without attempting to name or understand that question. However, I recognize that this is not the book's aim, and both of these complaints are minor. It's still a 5/5.

Strongly recommended.

[Kendall Hidalgo · Rating 3 out of 5]

Good overview of key topics affecting luxury fashion today. For anyone that is very knowledgeable about the industry, it is unlikely to produce new revelations but perhaps reinforce existing knowledge. The writing is mediocre (very white, American, male "this isn't my scene, man") and the editing abysmal with unforgiveable errors like sentence repetition across two adjacent paragraphs.

[Kshitij Dewan · Rating 3 out of 5]

This industry, like jewellery, is dependent on artefact signalling from people with low self-esteem and a high propensity to negative social comparisons and judgemental perspectives.

It's interesting how artificial scarcity is maintained by literally setting stock on fire. Though Don doesn't expound on how low costs are maintained through worker exploitation, he does touch on the topic.

all in all, an interesting insider's view into a personality disorder turned subculture

[Hudson Dizon · Rating 4 out of 5]

This is a wonderfully entertaining non-fiction book that has so much data and information, but makes it fun and accessible. It goes through and acknowledges almost every possible concept of fashion. It’s great, it talks about social and cultural issues as well as economical ones. Wonderful! Shows how fashion started, how it grew, and how it will change in a post-pandemic world. It’s focused on luxury fashion, but it really goes through everything.

[Jon · Rating 4 out of 5]

Interesting, a deep dive into the modern business of fashion, ranging from luxury (Hermes, Chanel, etc.) to "accessible" (still pretty fancy stuff in my book, Ralph Lauren etc.), largely focused on womenswear. Many unsurprising details (e.g. the massive markups, the manufactured scarcity for brands like Hermes and Supreme), and gives a general sense of the precarity and the winner-take-all nature of the modern fashion business. Certain brands (Louis Vuitton, Chanel, Hermes) are absolutely cleaning up, while most remain barely profitable or unprofitable. Gives too much attention to passing fads (e.g. virtual clothing) but otherwise largely informative.

[Francesca · Rating 4 out of 5]

The second book by Prof. Thompson that I read and love. His writing is simple, the topics very interesting and smartly organised. Like it has happened with the "Shark", which taught me lots about the world of contemporary art, this one has taught me quite several interesting things about the economics of fashion. Highly recommended!

[Hiccopolit · Rating 3 out of 5]

2.5

Reads like a series of case studies the author wrote for a business course supplemented with some skin deep analysis on the pandemic/millennials.

As a basic journalistic primer to the fashion industry it just about covers the bases - but for a book with economics in the title, it talks remarkably little about economics.

[Kevin Postlewaite · Rating 4 out of 5]

Fascinating, wish it went into even more detail

[Steve · Rating 4 out of 5]

A decent read - littered with errors though, which is sad for a book in its third edition.

[Ramojus · Rating 4 out of 5]

Informative book for anyone interested in the luxury fashion economic sector, plenty of specific details, insights, insider information. You'll definitely know more after reading.

[ecartan · Rating 4 out of 5]

if you have no clue about the tension between high-end and fast fashion, here is your key to the world of fashionistas!

[Shubhanshu Dubey · Rating 3 out of 5]

Super informative but not so great when it comes to writing and composition.

[Stephen Taylor · Rating 4 out of 5]

Curiously interesting!

[Firsh · Rating 4 out of 5]

Aside from the ridiculous cover that looks like a messed-up omelette, this was mildly interesting because I have some stakes in luxury companies, namely LVMH and Gucci, which is Kering. And I aim to decrease them a little bit because I did not learn to like them anymore after reading this book. Things stood out like some of these shoes or most of them are "not meant to be comfortable" and they are very open about this, wtf. And to me that's just ridiculous along with the price tags. I had a phase when I used to like to make money off of other people's stupidity, but when it comes to investing with real money and stakes, this is just not something to base your strategy on. And to think that your customers are stupid to buy your high-priced stuff?! So in a sense, when you're buying stocks of these (and any other) companies, you are becoming an owner. And I find it a little bit hard to align with the mentality of other owners, these designers and people who have founded these companies and how they basically destroy their inventory when they don't sell, not discount, like all this exclusivity stuff seems made-up. It looks or sounds very exotic and prestige, but my values are different and I could come up with better sectors to invest in. In the end, I'm not determined to keep more than one or even just one in my portfolio. The book has nudged me toward this realization. So because of that, I think it was helpful.