Why is Louis Vuitton so expensive? | CNBC Explains - YouTube

Louis Vuitton has held the title for world’s most valuable luxury brand for more than a decade.

Its limited edition handbags can cost upwards of $55,000,

that's 175 times the average cost of a new handbag in the United States.

So how does this French fashion house get away with charging so much?

Louis Vuitton’s beginnings can be traced all the way to 1837.

France was in the midst of an economic expansion,

and that growth was attracting hundreds of thousands of people to the city of Paris.

A 16-year-old Louis Vuitton was one of them.

He traveled 292 miles by foot to the French capital to work as a trunk maker's apprentice.

At the same time, steam- powered trains and ships

were making travel more accessible, and the industry was booming.

Vuitton capitalized on this when he opened his first store.

In 1858, he debuted his new trunk design.

It was rectangular, unlike its dome-shaped predecessors, making it easy to stack.

The cotton canvas fabric was lightweight, durable and waterproof, ideal for travel.

Many call this design the birth of the modern suitcase.

In 1896, his son Georges Vuitton created the iconic Louis Vuitton monogram,

a floral pattern with an interlocking L and V, in honor of his late father, who passed away in 1892.

From French royalty in the 1800s to celebrities in modern times,

owning Louis Vuitton has a long history of being seen as a status symbol.

I do really enjoy the Louis Vuitton x Supreme collaboration.

I'm so grateful to be able to wear Louis Vuitton and work so closely with the brand.

Now you can find the famous monogram on everything,

handbags, clothing, shoes, jewelry, even a toilet.

The brand is worth a whopping $47 billion.

One reason Louis Vuitton products are so expensive is the high manufacturing cost.

For example, the luxury brand produces its handbags here in France

and shies away from outsourcing manufacturing to cheaper locations.

Its collections are handmade by experienced craftspeople

in Europe and the United States using expensive materials.

Despite advances in technology, the company says

the most advanced machinery touching its products is the humble sewing machine.

But even the highest quality goods can lose value if there are too many of them on the market.

That’s why Louis Vuitton suspends production of a product once it hits its sales target.

Often when brands produce too much of a product, they offload the extras by holding sales

or selling them at discount shopping outlets.

By controlling its supply, Louis Vuitton has managed to avoid both of those things.

In fact, it claims to be the only brand in the world that never holds sales.

And while this helps the fashion house maintain its value, it also makes it a prime target for counterfeits.

Louis Vuitton is the most counterfeited luxury brand in the world.

In 2018, its products made up over half of the fake luxury products found on the market.

Experts are saying there are many counterfeits on the market because the brand’s classic style has virtually

been the same for the last 150 years, giving those on the black market time to create near-perfect imitations.

The counterfeiting of goods from luxury brands has become so widespread that

e-commerce giants like Amazon and Alibaba have started cracking down.

For example, Alibaba seized almost half a billion dollars in counterfeit goods in 2018.

Although Louis Vuitton had its humble beginnings here in France,

its developed marketing strategies to attract a large following in other countries.

These strategies have been especially effective in China, one of Louis Vuitton’s most crucial markets.

The brand had its eye on this market as far back as 1992,

when it became the first foreign luxury brand to open a physical store in the country.

China was still seen as an emerging economy at the time.

Bernard Arnault, the man at the helm of Louis Vuitton’s parent company LVMH,

even said there were more bicycles than cars at the time of the launch.

With China’s ascension as an economic superpower,

its growing middle class and high net worth individuals have grown.

That’s made the country a lucrative market for luxury brands.

Chinese consumers at home and abroad spent $115 billion on luxury items in 2018.

That’s one-third of the global spend,

with each luxury-consuming household spending an average of almost $12,000 per year.

By 2025, Chinese consumers will account for 40% of total global spending.

All of this demand is driving up price. In China, goods from luxury brands such as Louis Vuitton

are 21% more expensive than the global average.

That means the average Chinese consumer is paying an extra $420 dollars for a $2,000 handbag.

That adds up. So much so that some wealthy buyers have started

hiring agents to purchase luxury brands for them overseas.

Luxury goods go for 22% less than the global average in France and Italy.

The same $2,000 handbag would end up costing a Chinese buyer

$860 less in France than if they’d bought it at home.

Despite being more than 150 years old,

the brand is now focused on finding ways to appeal to younger, affluent audiences.

It’s brought on board influencers like Sophie Turner, Chloë Grace Moretz and Kris Wu.

And while the actors appear in traditional Louis Vuitton ads, they also post photos of themselves

wearing the designer on their Instagram or WeChat accounts.

Kris Wu has been the face of another strategic move, its streetwear collection.

The streetwear culture, popularized by designers such as Virgil Abloh and Kanye West,

was seeping into the luxury industry, and appealing to younger people around the world.

Louis Vuitton wanted to capitalize on this and in 2018, it announced perhaps the most

influential streetwear designer, Virgil Abloh, as its creative director for menswear.

The company borrowed a distribution and pricing strategy from streetwear culture, the drop model,

meaning it releases a limited number of items over a short time period.

For example, this pop-up space in London launched Abloh’s debut collection as Artistic Director.

The collection was only available for a week.

Because there were so few items and a time limit,

consumers flocked to the shop, where hoodies were selling for as high as $2,395.

These strategies and of course the hefty prices have helped Louis Vuitton to hold on to its title

as the world’s most valuable luxury brand.

But as younger consumers begin to make up more purchases,

it's going to need to keep evolving to hold on to its seat at the top.

Thank you so much for watching my video on Louis Vuitton.

How much would you spend on a handbag? Let me know in the comments below.