We have all seen it when looking at some huge online retailers (Saks, Neimans, etc); a limit placed on the amount of bags we can buy. Have you ever thought why there is a limit? An article in yesterdays New York Times gets down to the bottom of why there is a limit on these goods, and much of it has to do with the weak dollar. We all know the dollar is weak, we see it when we travel, we hear it on the news, it affects us. But for all of the handbag aficionados it is affecting us more than we know. In February, luxury brand Hermes will have a much larger than usual price increase (rumored to be around 12% which is absolutely insane) because of the weak dollar. While it is just part of the iceberg, the US dollar being so weak does effect what happens to the designer market. This is a very interesting read below:

Article via NYT and writer Eric Wilson

FOR products that are truly in demand, like Wii game consoles, tickets to the Super Bowl or cans of corn Niblets on double-coupon day, it may seem reasonable to limit the number a customer can buy at one time.

But readers of the fine print on the Web sites of luxury retailers like Saks Fifth Avenue, Neiman Marcus and Bergdorf Goodman may be surprised to discover that such a policy also now applies to designer handbags, like Prada’s latest ruched nylon styles, which cost $1,290; Bottega Veneta’s signature woven leather hobos, at $1,490; and the new rectangular Yves Saint Laurent clutch that looks like a postcard addressed to the designer (with a $1,395 stamp).

“Due to popular demand,” potential shoppers are warned, “a customer may order no more than three units of these items every 30 days.”

Popular, the bags may be. But how many of the customers who can afford them really want more than one, or for that matter, three?

On its face, the policy sounds odd; that is because it really doesn’t have anything to do with popular demand. Rather, it is the fear that foreign buyers, taking advantage of the severely weakened United States dollar, will hoard the bags, then resell them in Europe or Asia, where the same items in Prada and Gucci stores typically cost 20 to 40 percent more. The popular Yves Saint Laurent Downtown bag, which is restricted to three per customer at Saks Fifth Avenue and Bergdorf Goodman, costs $1,495. At Harvey Nichols in London, the same bag is £910 (or about $1,796).

Foreign tourists who are treating American department stores as if they were a nationwide outlet sale have largely been viewed as beneficial to retailers, and by some estimates those shoppers were the only bright spot in what was otherwise a feeble holiday sales season. But that spending power has not been so welcome to luxury companies like Gucci and Prada, which have spent the last decade trying to reach those customers in their home countries by opening expensive new shops throughout Europe and Asia.

Now those companies stand to suffer a sting from increasingly educated comparison shoppers, if not a more serious blow from a gray market of designer goods resold from American stores.

Ron Frasch, the chief merchant of Saks Fifth Avenue, which has 54 stores across the country, said the number of foreign shoppers trying to buy multiple items in stores was “pretty minor,” but he added, “it is certainly an issue that we watch.” Besides restricting online sales, Saks may deny a customer’s purchases of duplicate merchandise in stores on a case-by-case basis.

“What we try to do is use a lot of logic and common sense if we sense that someone is taking advantage,” Mr. Frasch said. “We monitor at the store level and at the corporate level for any patterns. We are very sensitive, first and foremost, to serving the customer, but secondly to any potential for reselling by customers.”

Ginger Reeder, a spokeswoman for Neiman Marcus, said its online policy applies to certain bags and shoes sold from designers who asked the company to limit sales.

“We work with our vendors,” Ms. Reeder said. “It’s primarily a protection for them, to protect their distribution from bags getting out there on the gray market.”

For now, the policies of Saks, Neiman Marcus and Bergdorf Goodman apply only to online sales of handbags and shoes from Prada and the Gucci Group labels (Gucci owns Yves Saint Laurent and Bottega Veneta), but not other luxury brands like Dior or Givenchy, which are owned by the competing fashion conglomerate LVMH. Meanwhile, LVMH sells its Louis Vuitton handbags online only on its own site, www.eLuxury.com, where the policy is even more strict: two of each style per customer, per calendar year.

There are no stated restrictions on shopping inside the 39 branches of Neiman Marcus or at the company’s Bergdorf Goodman store in Manhattan, Ms. Reeder said. But a sales associate at Bergdorf said this week that the staff was instructed to use discretion with customers looking to buy a large number of items. A salesman at the Louis Vuitton store across the street said a customer trying to buy more than two bags would be asked to give a reason. Both spoke on condition of anonymity because they are not allowed to speak to reporters.

None of the makers of the designer brands would speak for the record about such policies, but several executives acknowledged privately that they are meant to prevent bags from being resold.

During the luxury boom of 2000 and 2001, when shoppers lined up in the street outside Gucci, Hermès and Vuitton shops in Paris, the companies drew criticism for putting into effect bag-per-customer limits that appeared to be aimed primarily at Asian shoppers. Some Asian customers complained they had been banned from Vuitton stores, and they could be found on the Champs-Élysées offering to pay Western tourists to buy bags for them.

What has surprised some retail analysts is how quickly the concept of quotas has arrived in the United States “” and not just for handbags. In its online store, Apple currently limits customers to five iPhones per order.

“This is not an unusual situation for designer brands,” said Claudia D’Arpizio, a luxury goods consultant at Bain & Company in Milan. “It’s unusual for the United States. What is changing now is the geography of the touristic flows.”

In the ’80s, American and Asian tourists commonly shopped for luxury bargains in Italy, when the lira was weak against the dollar. But since the dollar began its spiraling decline against the euro in 2000, shortly after its introduction as the European common currency, the value-minded tourist tide has shifted to the United States.

Travelers who buy multiple items to resell to friends back home are only a small portion of the gray market, said Fred Felman, the chief marketing officer of MarkMonitor, a San Francisco agency specializing in brand protection. It is more problematic when professional networks of buyers resell luxury goods through small shops throughout Asia, or through online retailers like eBay.

Last month, Patricia Pao, an independent retail consultant, arrived at Newark Airport from Los Angeles and was approached by a young woman who asked her to help close a suitcase by sitting on it. The woman was returning to Slovenia with what appeared to be 200 pairs of designer jeans, the least expensive bearing a price tag of $228.

“She said that by selling the jeans back home she could not only cover the expenses of her trip, but she could also make a profit,” Ms. Pao said. “The weakened dollar makes everything here look like a bonanza.”

As anecdotes about foreign shoppers flocking to buy electronics, toys and Manhattan real estate become more common, analysts are debating the long-term impact of shopping tourism on brands that place a premium on their exclusivity.

“Imagine a scenario where you have people buying all your stuff,” Ms. Pao said. “In the short term you benefit, but in the long term, you don’t, because you don’t know where the sales are going, and that is very scary to these people.”

Given how difficult it is to control every aspect of distribution, though, some would argue that an indication of desirability “” a burgeoning gray market, say “” should be seen as an opportunity for brands to capitalize when demand is strongest.

“There is an underground railroad of iPods going back to Europe,” said Susan Nelson, an executive director of Landor Associates, a branding agency in San Francisco. “Contrary to damaging the brand, I think it creates a bit of a mystique.”

Of course, handbag quotas may not be the most effective solution anyway, considering the many ways determined shoppers can get around them “” by using multiple credit cards, for instance, or buying from more than one store. But the alternative “” raising prices of European luxury goods sold in the United States, as many companies have begun to do “” risks alienating American consumers, or giving an advantage to American luxury competitors.

“What they don’t want to see,” Ms. Nelson said, “is for the market to be flooded with what they consider to be cheap handbags.”

Especially not their own.

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Share Your Thoughts With Us

  • babe

    I think they limit quantity of per customer can purchase is not how many bags we can afford or need but because of “gray market”. Since US dollar is getting weaker and for further prediction, US dollar will be even weaker in 2008, travelers will be more than happy to shop in states to purchase THREE bags and re-sell in their own countries. I think that is the matter!! And of course none of luxury brands will want to take this risk to see the value of their products has reduced. So, guess that might be the reason.

  • lisa

    That was a really interesting article- I thought those online bag quotas were strictly to keep people from reselling on ebay- it never occurred to me it had to do with the weak US dollar. its a shame that American shoppers will suffer the consequences and see ridiculous price increases. Its also interesting to think about how difficult it is for the luxury retailers to protect their brand, even if it means limiting retail sales in order to keep the products from being resold. I thought fakes were the biggest obstacle to protecting the brand, I never figured that reselling would also be a problem.

  • karolynka

    it’s undoubtely true. i spent 4 months in florida (amazing!!!) last year and everything was so *cheap* to me and my other european friends..here life is very expensive and wages are not proportioned..the situation is very bad here too..as for the shopping.. i’m from italy and sometimes i’d just fly to the states for a weekend of wild shopping..too bad saks or nm don’t ship internationally…

  • stephanie

    wow, really facinating! knowing this, i’m very surprised it took the premium designer brands to respond. R&D should have caught on eons ago!

  • Bitten

    Actually Karolynka, you can purchase from these sites and use a service like ‘International Checkout’ or ‘Shop Any American Store’ to ship the item to you for a cost. Just a thought.

    I agree shopping in American currency does seem good at the moment. In Australia, the prices for luxury designer goods are finally starting to settle, at last!!

  • jennifer

    Does this have to do with them limiting the amount of ugg boots people can buy? Many sites and their stores (nordstroms, uggs australia, etc..) are saying that you can’t buy more than 4 per household!
    Just curious.

    • CoCo

      BINGO! I was wondering why they only limited uggs to 4 per household. I thought it was stop the ebay sellers but I see as well the problem is the weak dollar and re- selling overseas. I know Sample Sales are starting to say “NO EBAY SELLERS” Sample Sales are probably a gold mine for foreign shoppers and re-sellers! This is not good for the Young Broke and Fabulous American. :sad:

  • Purse-N-Boots

    There were limits on bag purchases before the dollar started to weaken. But it was aimed at preventing the same thing, the gray market. However, I don’t think the gray market would result in lower prices on designer bags, at least not in the US. The handbags are selling at US prices, people are just using different currencies instead of buying in their own country. It seems there is is 20-40% price difference from the US to other countries in Europe and Asia. How much would someone have to save to make it worth it? 10% after travel expenses? As long as the price difference pays for the trip as well it sounds like a GREAT idea to travel to me! These international shoppers are coming to the US and boosting our economy as well. They need plane tickets, a hotel, a car, food, gas, etc. I would love to see the numbers on the additional purchases the international customer are making while here shopping for bags. The weak dollar has been a good thing for our economy by keeping exports high so that we don’t drop even lower. Its very complex and thats my two cents :idea:

  • Ben

    i think it’s funny that these luxury brands (gucci, louis vuitton, etc) are seeing foreign customers (resellers) as the problem instead of seeing their own prices in foreign countries as the problem.

    customers aren’t stupid.

    if you sell the SAME item at a ridiculously higher price in europe/asia, can you expect those people in europe/asia to just accept your higher price when they could simply travel to the states and buy the same thing at a lower price? and of course they would want to buy more than 1 item so that they could resell those extra items – the “profit” would certainly help to cover some of their travel expenses (i have a friend who does this and she’s just another fashion victim that these brands helped to create). anyway, i think it makes sense for people to do so.

    capitalism and freedom of choice should allow people to buy whatever they can afford. wherever they choose to buy it. let’s face it. these are LUXURY items. i don’t think rich americans are complaining about the price, and i don’t think poor americans care about the price of these items at all.

  • Underwear

    i’ve had a busy couple of weeks, so i’m glad to just sit at home and lounge this weekend =) Twitter: Sanderlees

  • Best Designer Boots Shop

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  • Kim

    The problem of price disparities and transhipping of consumer goods has always been a problem, but it is a bigger problem for luxury goods because so much of the value is intangible. When you buy a BMW automobile, 90% of the value is tangible in terms of materials, labor and engineering costs. So the price you pay for the car mostly reflects the cost of production, but when you buy handbags from Gucci or some other designer, the price is often marked up several hundred percent over the actual production cost and varies dramatically from market to market while a BMW will cost you about the same anywhere.