[The Editors' Verdict] Omnipotent Luxury Brands, Korean Consumers Are "Easy Marks"

The prices of overseas luxury brands are continuously rising. In the past, price increase news was heard roughly once every six months, but recently it seems that price hikes occur quarterly, and French brand Chanel appears to raise prices almost every month. While there may be grounds for price increases due to rising costs of raw materials such as leather and metals, labor costs of artisans, and global logistics and transportation expenses, it is questionable whether direct factors like food and daily necessities have increased. The centuries-old "hand-stitched" production process is now no different from factory production due to technological advances, so if prices were to change, they should decrease rather than increase. Moreover, if exchange rate fluctuations are a factor, it is unjustifiable for luxury brands to raise product prices based on exchange rates, given that the Korean won is undervalued.

Where does the luxury craze originate? One can point to the so-called "revenge consumption," where consumer sentiment suppressed by COVID-19 shifted to purchasing high-priced goods such as overseas luxury brands. In the past, the Veblen effect (a phenomenon where demand increases despite rising prices due to conspicuous consumption by certain social classes) dominated, but recently the panoply effect (a phenomenon where individuals purchase goods consumed by a certain class to feel they belong to that class) seems to be gaining strength, stimulating luxury consumption. Additionally, not only famous celebrities but also YouTubers and influencers have increased individual consumers' accessibility to luxury goods through luxury hauls and unboxing videos. Especially, attitudes toward luxury goods have changed with groups like the "For Me" generation and "M economy," who do not hesitate to spend money on themselves, igniting luxury consumption.

Furthermore, the three major department stores?Lotte, Shinsegae, and Hyundai?are engaged in a sales war centered on luxury brands, competing fiercely to bring in luxury brands that competitors have not secured and to attract customers with popular luxury goods. As a result, luxury brands have become more arrogant, creating a supplier-dominant situation. In fact, luxury brands leverage their high sales proportions to negotiate lower department store sales commissions compared to domestic brands. Domestic brands in department stores pay more than 20% of sales as commission, whereas luxury brands pay only in the 10% range. The three major luxury brands?EruSha (Herm?s, Louis Vuitton, Chanel)?are known to pay even lower commissions.

Price increases are made without prior notice or clear explanations, and department stores claim they have no proper way to respond because luxury brands play a significant role in expanding department store scale. There are voices criticizing that Korean consumers are treated as "hogang" (easy customers). There is a saying, "If it's free, even bleach water is drunk." This perfectly matches the epidemic-like luxury addiction trend. Appearance is just outward form; wearing luxury goods all over the body does not elevate a person's character. The luxury addiction that benefits other countries should stop at this point. For that to happen, consumers' awareness must change. Establishing a sound and rational consumption culture that can control the brazen business practices of luxury brands is urgently needed. Only then will domestic companies have the opportunity to nurture luxury brands.

Kwangho Lee, Head of Distribution Economy Department