Why Are Luxury Handbags So Expensive? The Reason For High Prices

Some things about the broad appeal of designer bags are easy enough to understand, even for people with no interest in them: They’re powerful status symbols in certain social circles, and, unlike with high-end clothing, you don’t have to worry about sizes or fit, and you can carry your favorite bag as many days in a row as you want. What’s more bewildering to most people is why handbags are expensive in the first place, and why some cost so much more than others.

The bizarre logic of luxury pricing is not well understood outside the industries that live and die by it, which is probably why last week’s decision by a US federal judge to block the merger of Capri Holdings Ltd. and Tapestry Inc. seems to have caught those within fashion off guard. The two companies own a handful of handbag brands between them—most notably, Coach, Kate Spade and Michael Kors. They all retail in the low- to mid-three figures, situating them toward the bottom of the luxury pricing hierarchy.

In the ruling, the judge sided with America’s antitrust watchdog, the Federal Trade Commission, which argued the combination would reduce competition in the mid-priced handbag market, allowing the brands to jack up prices, among other potential harms to consumers and workers. With most products, this would be a pretty sound argument: Mergers do often lead to higher prices and fewer choices. But luxury goods, whether they’re handbags or supercars or fine wine, don’t straightforwardly adhere to the pricing rules that govern most consumer products. When the thrill of buying something expensive is fundamental to the pitch to customers, the price itself becomes part of the product.

In economic terms, what we’re talking about are Veblen goods, named after Thorstein Veblen, the Gilded Age economist who first described the consumer phenomenon of products for which demand increases in tandem with price. That ran counter to the conventional wisdom at the time, which was that high prices suppress demand and low prices stoke it. Veblen goods are a type of status symbol, intended specifically to signal one’s economic status; their high prices are essential to the products’ consumer appeal. Handbags, which offer a lot of opportunities for distinctive design or logo adornment (and, therefore, recognizability), are among the most effective Veblen goods in consumer history.

But not all Veblen goods—and not all handbags—are intended to appeal to the same group of consumers or signal exactly the same financial status, and none of them can infinitely increase both their price and potential customer base. Women’s leather goods are a highly segmented market, with major brands covering virtually every price point that could conceivably be characterized as luxurious, from “accessible” brands that can be sold at any suburban mall for a few hundred bucks to five-figure trophy purchases from Hermès and Chanel. These bags have status-signaling power in different contexts: Those priced at the low end of the continuum are particularly useful for demonstrating middle-class consumer comfort or working-class upward mobility, and they serve as a crucial (for the industry, at least) introductory vehicle to fashion for young people eager to impress their peers. At the high end, bags are useful for signaling that your or your spouse’s bonus was good last year, that you have access to the best of everything in general or that you’d be a worthwhile target for burglary.

Tapestry’s and Capri’s biggest handbag brands are in the price tier that aims squarely at regular Americans hoping to treat themselves to something nice. Almost every Kate Spade bag costs less than $400, and Coach nets out only a little higher, though it does occasionally reach for a true luxury buyer with a much more expensive bag in an exotic leather, such as the $10,000 Rogue in crocodile currently on the brand’s website. Moves like this, which the brand has been playing with at least since I was covering the leather goods market in the early 2010s, are mostly a branding exercise to burnish a company’s luxury bona fides, rather than a true move upmarket. None of these brands seems especially keen to increase its prices across the board; Coach and Kate Spade, both Tapestry brands with somewhat overlapping customer bases, haven’t even raised prices enough to keep pace with inflation since Coach Inc. acquired Kate Spade & Co. in 2017. (The company changed its name to Tapestry a few months after the transaction closed.)

And of course they haven’t—doing so would be a fundamental misunderstanding of what they sell and to whom. In the grand hierarchy of luxury bags, the sky isn’t the limit—the limit is set by whatever brands are immediately above yours in both pricing and consumer perception. Moving a fashion business significantly upmarket is an enormously difficult proposition, especially when that would involve leaving a huge chunk of your price-sensitive customer base behind and convincing a wealthier cohort of buyers that your product is just as good as all the more expensive things they’ve long perceived as superior.

And this is true even among brands with far less price-sensitive customers than those at the bottom of the luxury market: Louis Vuitton can’t raise its prices so high that they surpass Chanel’s, and Chanel can’t raise its prices so high that they surpass Hermès’. At the very top of the luxury market, those pricing bands are far wider—thousands of dollars, not hundreds—and the brands that inhabit them have in recent years taken far greater license in raising prices than their counterparts at the bottom.

Because of their positioning, Coach and Kate Spade and Michael Kors don’t have thousands of dollars of leeway. The FTC doesn’t seem to understand that what they sell—what they’ve sold for decades—isn’t just handbags. They’re handbags that cost roughly $200 to $600. That price range, and its meaning to the people who buy within it, is as much their primary product as anything made out of leather.