[AMG Power]

The US / China trade war is about to get dirtier.

Chinese suppliers are now offering products they make for top luxury brands such as Birkin, Louis Vuitton, Chanel, Estee Lauder, and Bobbi Brown lto consumers at one tenth the marked price, and sometimes even lower.

X has been flooded with videos of several such Chinese suppliers detailing the high-quality materials and highly skilled labour they use to produce the luxury items, explaining the cost break-up before offering to sell the products without the brands' logos.

The videos appear to be a concerted attack by China, aimed at hurting the businesses of leading American luxury brands amid the ongoing trade tussle with Trump.

A supplier who makes bags for Birkin said that the cost price of models that sell for $34,000 (about Rs 29 lakh) are actually as low as $1,400 (Rs 1.2 lakh). He added that the bag makers get a very low profit margin, while the majority is pocketed by the brands for their logos.


Source

[shankar.balan]

Here are some facts for everyone’s benefit.

1. It is true that the mark ups on luxury items are very high and have little relation to the cost of production.
2. The MRP/ RRP can be and usually is, a very high multiplier from the cost.
3. One pays for the ‘Brand’’. For example, a leather jacket may be exported from India at an FOB price of USD 80 each but may Retail at 1000 Euro or USD.
4. It is not much different in the world of cars. BYD for example makes excellent cars but BMW is still more of a ‘storied’ brand which people pay for.
5. Brands like Louis Vuitton, Chanel etc are not American but French/ European. Many of these are owned by the LVMH conglomerate belonging to one of the world’s richest men, Bernard Arnault.
5. Birkin is a classic ‘line of bags’ made by Hermes. Hermes used to make leather saddles and bridles for horses belonging to the nobility but quickly reinvented themselves more than a century ago, into making luxury goods for rich folks.
6. In Paris, New York and London and Milan, many times I have observed chaps setting up pop up shops on the pavements outside or nearby the big brand stores, selling knock offs at a fraction of the price.

Here are a couple of articles. One old one and one new one, both which deal with roughly the same topic.

https://www.newyorker.com/magazine/2...ags-in-tuscany

https://www.msn.com/en-in/money/tops...e912f2dbd&ei=7

[dragonfire]

1. You may hate the USA, but that does not mean you should glorify illegal business practices. Irrespective of who makes it, only the company who owns the brand name can put the logo on it. Without the logo, it is just another Chinese "knock-off".

2. These suppliers are only shootting themselves in their foot. True, there is some chaos, but once the dust settles down, they all will have to "go back to work". They can't sell "knock-offs" forever.

3. Rather than directing their wrath on the Americans these suppliers should instead direct it towards the Chinese govt who unfairly tarrifs the American goods.

Oh wait, they cannot! Right?

[Comrade]

I don’t understand why no one talks about indirect expenses and overheads that these “brands” have to go through and not just COGM/COGS. What about paying the design houses or designers to come uo with something unique & desirable? What about logistics? What about ensuring quality is maintained throughout the supply chain? What about real estate costs like running store fronts? What about building that brand to “luxury” or “premium” status through 1000s of hours of marketing? What about paying millions of $$ to all the brand ambassadors worldwide. There maybe very high profits but just comparing MRP vs COGS is myopic!

[Gansan]

It is perfectly normal business practice for reputed brands to source their products at very competitive prices and sell at premium prices. There are several reasons for it. I may pay 15k for a Ray-ban, but will not buy if their supplier says "this is Bay-ran, same thing as Ray-ban, take it for 1.5k". Because I will not trust them with my eyes, nor does their brand carry any snob value.

Many years ago my brother had a small leather unit and was supplying ladies footwear to a very popular multi national brand. He will manufacture, pack the product in cartons which said "price Rs 1999.95" and deliver at their godowns, and receive about Rs 190 per pair after three months. He tried to sell the same product for Rs 200 without the brand logos, but nobody was interested.

My wife works for a MSI which supplies cosmetics (eye-liner,lipstick,eyebrow pencils,kajal etc) to several reputed nation wide brands. Read their price tags and your jaw will drop if I tell you their actual supply price!

A friend who once audited a popular multinational soft-drink beverage unit told me the actual cost of 300 ml which was then selling for Rs 10.00 was actually Re 0.70!

[PreludeSH]

Originally Posted by Comrade

I don’t understand why no one talks about indirect expenses and overheads that these “brands” have to go through and not just COGM/COGS. What about paying the design houses or designers to come uo with something unique & desirable? What about logistics? What about ensuring quality is maintained throughout the supply chain? What about real estate costs like running store fronts? What about building that brand to “luxury” or “premium” status through 1000s of hours of marketing? What about paying millions of $$ to all the brand ambassadors worldwide. There maybe very high profits but just comparing MRP vs COGS is myopic!

True. Everything is inflated and might not actually be of same value. I think the Chinese should keep quality and do their own designs and brands without copying.

This is exactly what they have done in EVs, high technology etc. Days are not far when they will be considered seriously in other things too.

[am1m]

Originally Posted by Gansan

He tried to sell the same product for Rs 200 without the brand logos, but nobody was interested.

That is very interesting indeed.

I guess with luxury brands, the same buyer logic for other purchases doesn't apply. For such purchases, the logo/brand is the whole reason for the purchase and the brands understand that and the buyer. But for the rest of us, it would be good to search around beyond the brand and find equivalents that do the job just as well without the cost attached to the snob value.

[Jaguar]

Leaving aside ultra luxury brands, the reason people gravitate towards brands is for the trust the name brings in terms of quality or after sales support. But with so many fakes and first copies, even that is becoming difficult. See this shoe for sale in Myntra for example. Two sellers one charging double for the same item.

[DigitalOne]

Originally Posted by am1m

That is very interesting indeed.

I guess with luxury brands, the same buyer logic for other purchases doesn't apply.

This is true for everything, not only luxury brands, right from atta, sugar, noodles, toothpaste, footwear, clothing etc.

For "normal" brands, the premium charged will be 1.5x - 2x. For luxury brands, the premium would be 10x. I routinely buy store branded goods for washing soap, floor cleaners, Muesli, Oats, cookies etc from either Medplus or Reliance. Typically, these would be around 50-60% price of a Unilever/Nestle/Kelloggs branded equivalents. (Yup, I am that value-conscious )

[Briarean]

It is not only about the brands being snobby, but also the assurance that the product has quality and the customer will get reliable support if anything goes wrong.

The Chinese guys in those videos might say they are selling the same quality goods for 1/10th of the price, but where is the quality assurance? Whom to contact if the product has issues?

Manufacturing is only one part of the entire product life cycle.

No one buys something (unless it's dirt cheap) without the minimum assurance of quality and support. Once the product reaches the customer, its usage begins. The customer needs support during the usage of the product as well.

If they want to show that their products have quality, then they should design, manufacture, sell and support their own products rather than selling knockoffs.

[Cyborg]

With all the tensions going around do you expect them to say any different? They want to soil/sully the name of prominent brands by this kind of talk and disrupt the market.

First, second and third copies of big brands have always been available for a long time but they will remain that - copies.

Cheers

[JediKnight]

So finally, they are selling for what things are really worth. More power to them.

I will pay for great workmanship and quality. And if the majority of the money goes to the actual worker who built it even better. I will never pay just for a brand.

I have very low opinion about people who pay for luxury brands. They are just playing status games.

Luxury brands play devious mind games, like creating artificial scarcity to fool people. And the rich guy in Western Europe gets even richer. The poor guy who built it gets pittance.

[PreludeSH]

Originally Posted by JediKnight

So finally, they are selling for what things are really worth. More power to them.

I will pay for great workmanship and quality. And if the majority of the money goes to the actual worker who built it even better. I will never pay just for a brand.

I have very low opinion about people who pay for luxury brands. They are just playing status games.

Luxury brands play devious mind games, like creating artificial scarcity to fool people. And the rich guy in Western Europe gets even richer. The poor guy who built it gets pittance.

This is fine from capitalism point. As long as you say what its made of (you cannot tell leather as gold !), you are not doing anything wrong.

People also point to such owners owning such brands as having achieved something. The same product without that name is not worth for showing off.

[AMG Power]

As the quip goes, most folks end up spending money they don't have, to buy things they don't need, to impress people they dont like.

[ValarMorghulis]

Wait! Who in their right minds thinks the Birkin Bags or Hermes Ties actually cost what they charge?

Such people would be surprised to know that neither do diamonds, LV bags or any other luxury item actually cost what is charged. Heck even a lowly iPhone Pro which costs Apple to make ~$500 is sold for $1100.

Heck, does anyone actually think that a Balenciaga destroyed shoe costs $1800 to make?


It is all about perceived value for luxury items.