Economy

Why Living Rich Is Costing More And More

That Rolex won't come cheap, ever more so...
That Rolex won't come cheap, ever more so...
Nicole Vulser

PARIS - The price of luxury products is skyrocketing. The quasi-hypnotic appeal of some brands and the increasing number of extremely wealthy clients throughout the world is enabling luxury brands to hike prices to stratospheric levels year after year.

A pair of John Lobb shoes, a Kelly Hermès bag, a kilo of Petrossian Sevruga caviar, a bottle of 2002 Dom Pérignon champagne, a session with a Fifth Avenue therapist, a face-lift by a famous plastic surgeon, two seats at the Metropolitan Opera in New York, the chicest of Sikorsky’s helicopters, or a Rolls-Royce Phantom – these are some of the essential 40 goods and services used to calculate the renown “Cost of Living Extremely Well” index, created in 1976 by Forbes magazine.

In the past 35 years, the index has surged by 800%. During the same period, the American index of consumer prices only increased by 300%.

The transition to the euro confirmed this trend. Since 2001, the price of a dozen of luxury’s most emblematic products has increased much faster than the general index of consumer prices in France, which was calculated by the National Institute for Statistics and Economic Studies (Insee) between 2001 and 2011 (23.5%).

Really, really expensive products

For instance, in the past 11 years, the price of a Burberry gabardine cotton raincoat was multiplied by 5.6, from 122 to 1,190 euros. A pair of leather and textile Louboutin high heels jumped from 249 to 425 euros. Even more spectacular, a steel and platinum Rolex Yachtmaster watch went from 5,488 to 39,000 euros. A pair of Tod’s picot moccasins cost 122 euros in 2001; today it costs 270. A twill silk Hermès scarf now costs 310 euros, instead of 229.

Slightly more reasonable is the legendary pair of Ray-Ban Wayfarers, worn by movie stars and John F. Kennedy. It was sold for 90 Euros in 2000 and costs 145 today (+61%). Taking inflation into account, it is one of the rare products whose price has decreased during the past decade.

The price rise of eternal Chanel NËš5 perfume has been kinder: 7 milliliters (ml) of perfume went from 67.84 euros to 106 eleven years later. The 50 ml Allure men’s cologne from Chanel increased more, going from 32 euros to 58 today.

Waiting list

According to Thomas Mesmin, a luxury sector analyst at Cheuvreux, “for fashion and leather goods, prices have increased between 2001 and 2011 by 62%, and by approximately 78% for watches and jewelry.”

At a time when there is a waiting list and a minimum six-month delay to buy a 4,500-euro Hermès bag, a 3% price hike won’t change much. “These types of products target only a minority of clients, who are so wealthy that this kind of change has almost no impact on their purchasing,” says Mr. Mesmin

He says that “the highest prices are in China and Asia” - over 50% more expensive than in Paris – and that “some important brands” would not hesitate to risk losing their European consumers. “Price, in luxury, can be a positive way to differentiate a product,” he says.

Alexis Karklins-Marchay, an Ernst & Young partner, agrees. “The real players in the luxury sector use price increases to strengthen the fetishist aspect of brands,” he says. The higher the price, the more desirable the product. This is true for wines and spirits, but also for perfume, even though most of the “juices” are not actually very expensive.

Some companies, like Rolex, hiked their prices twice in 2011 alone, says Karlins-Marchay. On the used market, watches lose little value – a maximum of 20% compared to new watches – and buyers know they are not losing a lot of money with these yearly price increases.

Fetishism

Watches are actually one of the rare luxury products seen as financial investments. Some fans – or cautious investors – buy two of the same model twice. They wear one and leave the other one under cellophane in a safe, waiting to be resold.

For Serge Carreira, a teacher at the Sciences Politiques university in Paris, the luxury sector is unusual because “the more expensive a product is, the more it is defined as luxurious.” Many companies abandon entry-range products to focus on exceptional ones.

Mr. Carreira also says that the significant increase of luxury prices comes from shortages in some raw materials, such as crocodile and alligator skins or leather goods. But craftsmanship is also disappearing. In Italy, the number of workshops able to meet high-end clothing orders has decreased so much that those remaining can set their own prices.

Finally, and most importantly, the biggest companies have been rapidly expanding geographically for the past few years. Increasing prices is a way for them to continue reaping extremely confortable profit margins, all the while financing this costly expansion.

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Geopolitics

Iran-Saudi Arabia Rivalry May Be Set To Ease, Or Get Much Worse

The Saudis may be awaiting the outcome of Iran's nuclear talks with the West, to see whether Tehran will moderate its regional policies, or lash out like never before.

Military parade in Tehran, Iran, on Oct. 3

-Analysis-

LONDON — The Iranian Foreign Ministry spokesman Saeed Khatibzadeh said earlier this month that Iranian and Saudi negotiators had so far had four rounds of "continuous" talks, though both sides had agreed to keep them private. The talks are to ease fraught relations between Iran's radical Shia regime and the Saudi kingdom, a key Western ally in the Middle East.

Iran's Foreign Minister Hossein Amirabdollahian has said that the talks were going in the right direction, while an Iranian trade official was recently hopeful these might even allow trade opportunities for Iranian businessmen in Saudi Arabia. As the broadcaster France 24 observed separately, it will take more than positive signals to heal a five-year-rift and decades of mutual suspicions.


Agence France-Presse news agency, meanwhile, has cited an unnamed French diplomat as saying that Saudi Arabia wants to end its costly discord with Tehran. The sides may already have agreed to reopen consular offices. For Saudi Arabia, the costs include its war on Iran-backed Houthis rebels fighting an UN-recognized government in next-door Yemen.

The role of the nuclear pact

Bilateral relations were severed in January 2016, after regime militiamen stormed the Saudi embassy in Tehran. Amirabdollahian was then the deputy foreign minister for Arab affairs. In 2019, he told the website Iranian Diplomacy that Saudi Arabia had taken measures vis-a-vis Iran's nuclear pact with the world powers.

It's unlikely Ali Khamenei will tolerate the Saudi kingdom's rising power in the region.

He said "the Saudis' insane conduct toward [the pact] led them to conclude that they must prevent [its implementation] in a peaceful environment ... I think the Saudis are quite deluded, and their delusion consists in thinking that Trump is an opportunity for them to place themselves on the path of conflict with the Islamic Republic while relying on Trump." He meant the administration led by the U.S. President Donald J.Trump, which was hostile to Iran's regime. This, he said, "is not how we view Saudi Arabia. I think Yemen should have been a big lesson for the Saudis."

The minister was effectively admitting the Houthis were the Islamic Republic's tool for getting back at Saudi Arabia.

Yet in the past two years, both sides have taken steps to improve relations, without firm results as yet. Nor is the situation likely to change this time.

Photo of Iranian Supreme Leader Ali Khamenei in 2020

Iranian Supreme Leader Ali Khamenei in 2020

commons.wikimedia.org

Riyadh's warming relations with Israel

Iran's former ambassador in Lebanon, Ahmad Dastmalchian, told the ILNA news agency in Tehran that Saudi Arabia is doing Israel's bidding in the region, and has "entrusted its national security, and life and death to Tel Aviv." Riyadh, he said, had been financing a good many "security and political projects in the region," or acting as a "logistical supplier."

The United States, said Dastmalchian, has "in turn tried to provide intelligence and security backing, while Israel has simply followed its own interests in all this."

Furthermore, it seems unlikely Iran's Supreme Leader Ali Khamenei will tolerate, even in this weak period of his leadership, the kingdom's rising power in the region and beyond, and especially its financial clout. He is usually disparaging when he speaks of Riyadh's princely rulers. In 2017, he compared them to "dairy cows," saying, "the idiots think that by giving money and aid, they can attract the goodwill of Islam's enemies."

Iranian regime officials are hopeful of moving toward better diplomatic ties and a reopening of embassies. Yet the balance of power between the sides began to change in Riyadh's favor years ago. For the kingdom's power has shifted from relying mostly on arms, to economic and political clout. The countries might have had peaceful relations before in considerably quieter, and more equitable, conditions than today's acute clash of interests.

If nuclear talks break down, Iran's regime may become more aggressive.

Beyond this, the Abraham Accord or reconciliation of Arab states and Israel has been possible thanks to the green light that the Saudis gave their regional partners, and it is a considerable political and ideological defeat for the Islamic Republic.

Assuming all Houthis follow Tehran's instructions — and they may not — improved ties may curb attacks on Saudi interests and aid its economy. Tehran will also benefit from no longer having to support them. Unlike Iran's regime, the Saudis are not pressed for cash or resources and could even offer the Houthis a better deal. Presently, they may consider it more convenient to keep the softer approach toward Tehran.

For if nuclear talks with the West break down, Iran's regime may become more aggressive, and as experience has shown, tensions often prompt a renewal of missile or drone attacks on the Saudis, on tankers and on foreign shipping. Riyadh must have a way of keeping the Tehran regime quiet, in a distinctly unquiet time.

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