Why is Louis Vuitton so expensive? | CNBC Explains

Louis Vuitton has held the title of the world's most valuable luxury brand for more than a decade. Their limited edition bags can cost more than $55,000, or 175 times the average cost of a new bag in the United States. So how does this French fashion house manage to charge so much? The beginnings of Louis Vuitton date back 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 472 kilometers on foot to the French capital to work as an apprentice trunk maker.

At the same time, trains and steamships made travel more accessible and industry was booming. Vuitton took advantage of this when it opened its first store. In 1858, he introduced 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 print with an intertwined L and V, in honor of his late father, who died in 1892. From 19th-century French royalty to contemporary celebrities In modern times, owning Louis Vuitton has a long history of being seen as a status symbol.

I really enjoy the Louis Vuitton x Supreme collaboration. I am 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, bags, clothes, shoes, jewelry and even a toilet. The brand is worth a whopping $47 billion. One of the reasons why Louis Vuitton products are so

expensive

is the high manufacturing cost. For example, the luxury brand produces its bags here in France and avoids outsourcing manufacturing to cheaper places. Their collections are handmade by experienced craftsmen from Europe and the United States using

expensive

materials.

Despite technological advances, the company claims that the most advanced machinery used by its products is the humble sewing machine. But even the highest quality products 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 reaches its sales goal. Often, when brands produce too much of a product, they get rid of the leftovers by keeping sales or selling them at discount outlets. By controlling its supply, Louis Vuitton has managed to avoid both. In fact, it claims to be the only brand in the world that never makes 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, their products accounted for more than half of the fake luxury products found on the market. Experts say there are many fakes on the market because the brand's classic style has been virtually the same for the past 150 years, giving those on the black market time to create near-perfect imitations. Counterfeiting of luxury brand products has become so widespread that e-commerce giants like Amazon and Alibaba have begun cracking down.

For example, Alibaba seized nearly $500 million worth of counterfeit goods in 2018. Although Louis Vuitton had its humble beginnings here in France, it developed marketing strategies to attract a large following in other countries. These strategies have been especially effective in China, one of the most crucial markets for Louis Vuitton. The brand had its eye on this market as early as 1992, when it became the first foreign luxury brand to open a physical store in the country. At that time, China was still seen as an emerging economy. 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 rise as an economic superpower, its growing middle class and high net worth individuals have grown. That has turned the country into a lucrative market for luxury brands. Chinese consumers at home and abroad spent $115 billion on luxury goods in 2018. That's a third of global spending, with each luxury-consuming household spending an average of nearly $12,000 per year. By 2025, Chinese consumers will account for 40% of total global spending. All this demand is driving up the price. In China, products from luxury brands such as Louis Vuitton are 21% more expensive than the world average. That means the average Chinese consumer is paying $420 more for a $2,000 bag.

That adds up. So much so that some wealthy buyers have begun hiring agents to buy luxury brands from abroad. Luxury goods sell 22% less than the world average in France and Italy. The same $2,000 bag would end up costing a Chinese buyer $860 less in France than if he had bought it at home. Despite being over 150 years old, the brand is now focused on finding ways to appeal to younger, more affluent audiences. It has brought in influencers such as 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 movement, his streetwear collection. Streetwear culture, popularized by designers like Virgil Abloh and Kanye West, was infiltrating the luxury industry and attracting younger people around the world. Louis Vuitton wanted to capitalize on this and in 2018 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 in a short period of time. For example, this pop-up space in London launched Abloh's debut collection as artistic director.

The collection was only available for one week. Because there were so few items and a time limit, consumers flocked to the store, where hoodies sold for as much as $2,395. These strategies and, of course, high prices have helped Louis Vuitton maintain its title as the most valuable luxury brand in the world. But as younger consumers begin to make more purchases, it will need to continue to evolve to maintain its position at the top. Thank you very much for watching my video about Louis Vuitton. How much would you spend on a bag? Let me know below in the comments.