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Thread: Reality Check

  1. #1
    Join Date
    Jul 2008
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    Alexandria VA
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    15,887

    Default Reality Check

    A gentleman came in the store on Saturday looking for a specific nightstand, one with a shallow depth, yet wide and tall. The industry doesn't really make those because they are tipping hazards i told him, but I would go through the 300 or so nightstands we have available to us to see what I could find. As I was headed over to the computer, I asked him what his budget was for this piece and he said "No more than $ 250". Well, that stopped the search instantly and I told him that with today's freight costs, just landing one to my store is $ 125 before we even begin to pay for one. I suggested at that price point he look on Craigslist or Facebook Marketplace for something pre-owned.

    Expectations

    Yesterday I was at Bloomingdale's with my wife to get some new pillow shams for our guest bedroom. We walked by the Louis Vuitton boutique and she saw this handbag she liked. I thought it pretty nice as well. It had a price tag of $ 7,700.

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    Being a leather guy, I was now really curious at the build of this bag. The leather is decent, but not exceptional. I would estimate $ 250 to $ 300 in materials in the bag. The pattern is obviously a CNC cut, since they make thousands of these so that's fast - and the sewing is excellent on it. Let's say another $ 500 in labor tops, then add in $ 100 in packing design and shipping. I'm guessing $ 900 to make it for the manufacturer and that's being generous. Overhead for Marketing / Salaries / Advertising costs of running the biz and maybe we are at $ 1,400. Retailers at least double the price so I can maybe see $ 2,800 for the unit based on it being Louis Vuitton. So where does that extra $ 5,500 come from? Perceived value is where. The nuts and bolts of this handbag are nowhere near the ask price, but it has that value if the consumer thinks it does. My wife would not pay $ 7,700 for any handbag, its not in her makeup so we just kept on going. (Yes, I am aware of $ 80,000 Chanel Birkins!).

    Going back to Saturday, another person in the store looking at a Hancock & Moore sofa didn't think it was worth $ 5,000. Yes it has 50x more leather - a better leather - than in the Louis Vutton handbag, a far more complex build with high end foams and wood/springs, and costs considerably more to ship than a purse. Yet people will stand in line at the Chanel Store and Louis Vuitton with their name in an iPad to get and buy that piece of overpriced leather. Why? Perceived value again. I find that very interesting and actually quite fascinating.
    Duane Collie
    Straight answers from thirty-six years in the business.
    My Private Messages are Disabled - Please ask questions here in the forum.

  2. #2
    Join Date
    Jan 2018
    Posts
    595

    Default Re: Reality Check

    I could be wrong, but I suspect the client that would buy that purse is not the same client that would refuse to pay the price for a Hancock and Moore Sofa, and would head off to Costco. I remember a doctor saying he got a great deal on a sofa table because the interior designer quoted him 12,000.00 for it and he was able to find it for 8,000. That was over 15 years ago. Can't imagine the table he got. But although no one likes to be taken advantage of, if you value quality and are willing and able to pay for it, that would extend to multiple areas in your life. I am sure there are also many who would not hesitate to buy Hancock and Moore but wouldn't touch that purse, lol. o

    I do get the point though. How can some people pay that much for purse and others not want to spend it on a Sofa. And maybe a bit of how do I get those people who will buy that purse, into my store. At least that is what I would be thinking.

  3. #3
    Join Date
    Dec 2017
    Location
    Bel Air, Maryland
    Posts
    28

    Default Re: Reality Check

    This reminds me of Swiss watches, some of which are valued far beyond their material cost. The Patek Philippe Nautilus watch is valued at six figures by some collectors now. A Rolex Submariner is now five figures. There is a perceived value far beyond what the materials cost. Audemars Piguet's Royal Oak watch is another example of perceived value, far beyond its material cost. These fine Swiss watch brands have a cachet, a mystique, a reputation for elegance, though they tell time no better than a quartz Timex. I wear an Omega diver's watch and recently gave my niece a stainless Cartier tank. With its beautifully designed presentation box and well-made bracelet, she was thrilled. A Timex couldn't have done that.

    With the H&M furniture, I think it's a matter of not-knowing quality. A lot of people just look at the outside of a couch and don't consider its interior construction. The general public has never been taught about furniture construction and the "look" is important, not the underlying construction. Even Costco, which vets its products, somehow missed with its furniture. You can be sure that if you buy a Costco product, that it will function properly over the years. Yet this is not true about their furniture with its bonded leather and vinyl.

  4. #4
    Join Date
    May 2010
    Location
    Columbus, OH
    Posts
    563

    Default Re: Reality Check


  5. #5
    Join Date
    Jul 2008
    Location
    Alexandria VA
    Posts
    15,887

    Default Re: Reality Check

    Interesting! I have never heard the term "Veblen Goods" before, I learn something new all the time! Luxury as a status symbol....

    I will admit to owning Rolex watches. I bought my wife one three decades ago when our Son was born and she wore it every day, never took it off. I did replace it for her with a larger size and we transitioned to reading glasses in our 50's and sold that old one for close to what I paid for it, even with the band stretched out.

    I personally have always wanted a Rolex Daytona and have for over 40 years. It was always unaffordable or unobtainable - mostly the latter, they are just not available from an Authorized Dealer. I don't own or wear any jewelry at all, but that watch was a bucket list item. I asked the jeweler I use to call me if they ever got one in that was a blue dial version. This past June 2022 they called, I was at the top of the list. I took a deep breath and bought it four hours after they called though the uncomfortable price tag was cushioned by the fact I could turn right around and sell it for $ 15,000 more than I paid for it. But I can never really get another, so right now its on my wrist most every day though I don't unload furniture trucks with it on. The appeal of Rolex is durable jewelry that you can use, enjoy, and get your money back out of it at a later date, or even make a profit on it.
    Duane Collie
    Straight answers from thirty-six years in the business.
    My Private Messages are Disabled - Please ask questions here in the forum.

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