What's In A Name?

A tour round high-class shopping malls in Hong Kong on a non-working day, in particular the designer brand goods stores and counters, would suggest that the SAR's luxury retail sector is still faring much better than that in other big cities like New York and London, which has buckled under the onslaught of the financial tsunami. Whether Hong Kong shoppers' unaffected glee is due to deliberate oblivion or ignorance of what's going on in the leading world economies, or absolute confidence in spill-over effect of the mainland's gargantuan economic stimulus package, it is anybody's guess. But the glaring difference in fortune between Hong Kong's and New York's luxury retailers can be detected in the former's obvious reluctance to offer deep discounts (via my observation) and the latter's panic-mode reaction to the present economic downturn (as reported in news).

A New York Times article describes in vivid details how the financial meltdown has landed the luxury goods business in hot water, which observation also reveals how obscenely overpriced some luxury products were (and thus obscenely high their profit margin) before distressed retailers scramble to slash prices in a bid to stay afloat.

"What seems inevitable is that the pain will worsen as the price reductions provoke questions among consumers of how stratospheric profits must have been when the economy was riding high. How great, really, was the surcharge to consumers for participating in fashion fantasy?"

Indeed, fashion fantasy is exactly what luxury goods consumers indulge in, but are they even aware of the cost of what appears to be nothing less than an expensive addiction? The cost is the stratospheric premium charged by a brand name, which may have little or nothing to do with the underlying quality of these products, especially when the bulk of these are indiscriminately made, these days, in China anyway.

According to the article, even an industry insider wonders what the real profit margins are for luxury goods traders when New York's Saks Fifth, who has just slashed prices by up to 70 percent for most of its fall fashion and accessories, can still offer new Saks credit card customers another 15 percent discount.

"That question gives rise to another: once consumers become acquainted with slash-and-burn prices, how can designer fashion regain its mystique? Will shoppers ever again want to buy luxury goods at full price?"

When a US$2,950 Valentino dress can be subjected to a merciless 70 percent cut in price, which other well-known designer brand can expect to escape the retailers' scythe? But the more important point is that such a drastic price cut on such a sacrosanct brand name product seems to send a jolting message to consumers who paid full price previously: "You were being ripped off!" The classy, not-of-this-world image that the brand used to project vaporizes along with the shocking price cut. If one starts thinking critically about it, what's really in a name but consumers' own vanity?

If the Hong Kong finance sector's lagging reaction to the U.S. financial fiasco can serve as a precedent, her luxury retail sector may be a little too complacent for its own good. On the other hand though, thanks to undiscerning mainland shoppers in Hong Kong who tend to be less well-informed about global happenings and thus may provide a comfortable cushion, the sector may continue to outshine its overseas counterpart for a while yet.