Commoditizing Designer Luxury By Cutting The Middle-man
Posted on December 31, 2007 - Filed Under Internet
Designer merchandise is a high-demand market. Specifically, the cologne & perfume industry is approximately a $25 billion industry in North America in 2007, and it is forecasted to grow exponentially in the next ten years as today’s generation moves closer towards the trend of being image and fashion conscious. In the heart of this growing trend lies the intense loyalty of consumers towards cologne perfume brand recognition and as youngsters continue to buy from familiar designers of fragrances to compliment their designer attire and accessory choices, the industry grows with incredible speed.
Along with this positive news however, also present is the fact that consumers are always seeking bargains on designer merchandise, which normally come at a hefty retail mark-up. In response, an opportunity in the designer merchandise market has been identified by some key wholesalers and distributors of designer accessories (such as purses, belts, eye wear, perfumes and colognes to name a few.) These key players have identified a niche in the online space of “e-tailing”. E-commerce stores (Internet websites that sell to individual consumers) are being built everyday to cut out the middle-“men” involved in the supply chain of designer merchandise in order to offer “luxury” products at “commodity” prices. In other words, rather than rely on stores to sell the designer products, entrepreneurs are designing websites that deliver the products straight to the consumers, at a significantly lower price.
One might ask, how is it possible to sell luxury products so much cheaper? The short answer is it is very much possible and evidence of it can be observed everywhere (e-bay and yahoo stores). Part of the explanation is that these products are cheap to begin with. By cheap I do not mean inferior quality but rather they do not cost that much to produce. Anyone who has taken an operations management class in business school has learned that a product is marked up by an approximate average of 75% from the time it is manufactured to the time it is purchased by the end consumer. That means that if a bottle of designer perfume costs Carolina Herrera $25 to produce, then it is sold for $100 at your local department store.
Why the $75 markup on one small bottle of perfume? Manufacturers typically deal with distributors, who distribute their products to jobbers and wholesalers, who in turn resell the products to the end seller (i.e. malls & department stores). Many times there are multiple wholesalers involved throughout the product’s life-cycle. Everyone involved in the supply chain has to make their share of the profits, this is accomplished by marking the product price up each time it exchanges hands. The product is marked up the most when it reaches the end seller. This is because most end sellers are large brick and mortar buildings that have the burden of monthly rents to pay, utility bills and other business expenses such as insurance and taxes, among several others. The beautiful showcases, air-conditioning, marble floors and free product samples that you see in stores aren’t free after all. All these costs are passed on to and paid for by you, the end consumer that walks into a mall and purchases a bottle of designer perfume for $100 that costs $25 to manufacture.
Unfortunately this fact is forgotten in our practical day-to-day lives in which our impulses take over our shopping habits. Some shoppers simply do not know how the high price is calculated, nor that they are paying too much for the luxury item. For those that do, the reasons are unclear why these customers would chose to spend 3, 4, 5 or more times the amount necessary to purchase the product that they desire. Calvin Klein, Azaro, Dolce & Gabana, Elizabeth Taylor, Christian Dior, Hugo Boss, DKNY, Giani Versace, Giorgio Armani, Tommy Hilfiger, Valentino, Estee Lauder – everyone recognizes these names.
I personally prefer the luxury of brand name merchandise as well and have spent an incalculable amount of time and money on the names that we all desire to own and wear. But knowing what I know now, am I willing to pay 75% more for a bottle of cologne than I ought to? Absolutely not.
Recently on an international trip, I was shocked to see the prices at which designer perfumes and colognes sold for in some markets overseas. These were the very same perfumes and colognes you and I are used to purchasing at malls and department stores here in the United States of America. The prices of these bottles in China for example (1.7OZ, 3.3OZ, 4.4OZ, doesn’t matter) were almost a third of the prices we are used to paying in the United States of America. Why???
In America, the cost of doing business and complying with Uncle Sam are too rigorous and simply put, very high. In addition, the malls and department stores that we buy from have large fixed costs and overhead structure that they have to pass on to us - the consumers. What happens as a result is that we the consumers end up paying a price three or sometimes four or more times higher than what it would cost us to buy the fragrance from a smaller, “low cost of business” establishment.
The aim of this article is to enlighten those of us who are still spending our hard earned cash at big chain stores - where our impulses take over our budgets in an instant.
How can an online company offer designer merchandise so much cheaper? The key to the success of e-commerce businesses is that the business model can be run at relatively low cost. Since the cost to the consumer increases the minute the product leaves the manufacturing warehouse, by selling directly to the consumer, online companies are able to cut most if not all middle-men and in the process the unnecessary costs of doing business, to provide the consumer with exactly what they want at heavily discounted prices.
During my research I found an opportunity to turn designer merchandise from luxury to commodity goods, thereby making them affordable to the masses. Why should only a few be able to afford a 3.4OZ bottle of Armani for $89.99? Why can’t everyone access this fragrance at half the price all at the convenience of their own home? They can – and the answer is e-commerce (buying and selling on the internet).
These web portals allow individual consumers to purchase genuine designer merchandise at near wholesale prices without having to buy wholesale quantities. In addition, many small retailers are gravitating to these online businesses to procure their inventory for resale in their stores due to the low-cost pricing structure the portals offers. Expect to see continuous growth in the designer merchandise market; and with that growth expect smaller e-commerce companies to respond to the challenges and consumer demands that result from the industry’s expansion.
As an online discount designer fragrance business owner, I wrote this article to address those of you who are still spending your hard earned cash at big chain stores and the likes. Now that you have finished reading this article I hope that you will always think twice before buying a “luxury” product without exploring alternative avenues from where you can purchase the same product, except not pay the various middle-men involved in the product’s life-cycle.
Sunil Sajnani is the founder and President of web-based designer fragrance wholesaler MyPerfumesForLess (MPFL). MPFL is the only web-based wholesaler that maintains a real time inventory listing with up-to-date wholesale prices. MPFL’s membership concept allows the member to purchase unlimited quantities at wholesale prices directly online without the hassle of phone calls and faxing price lists and orders back and forth.
MPFL also caters to individual buyers who may or may choose the membership option. MPFL is able to offers genuine designer fragrances at a heavy discount due to its low operation cost structure. The company promises that you will not find better prices on genuine designer cologne perfumes anywhere else as all items are significantly under retail market rates.
Sunil Sajnani
MyPerfumesForLess
Los Angeles, CA 90003
Phone: (888) 423-6392
Fax: (888) 211-4128
http://www.myperfumesforless.com
support@myperfumesforless.com
Tags: cologne, discount, discount designer perfume, drop ship, perfume, wholesale, wholesale perfume
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