Milton Pedraza, chief executive of the Luxury Institute, a research company that focuses on the top 10% of the country’s wealth, said some people are more able to justify spending $275 on a t-shirt than others.
“It may be incredibly wasteful to some people, but it makes you feel powerful,” Pedraza said. “It makes you feel wealth. You’re paying for that intrinsic value.”
In the past three years, the luxury sector of the retail industry has enjoyed tremendous growth. In February, the International Council of Shopping Centres reported an 11.2% increase in sales at luxury department stores open at least a year. That compares with a 1.5% increase at discount stores and a 0.8% decrease among apparel chains in the same period.
But Pedraza expects a slowdown in growth this year because of falling stock prices and higher interest rates, coupled with a drop in home sales. Under such circumstances, undifferentiated products like overpriced black t-shirts are an extravagance that can be cut out of a person’s budget without a second thought.
Pedraza said some aspects of pricing can be explained by how a product is made — for instance, if it is hand-stitched. But that is only a small part of the equation.
“There’s some added value, but the reality is there’s not much more cost involved,” he said. The bigger part of the equation is the name.