WHICH SHIRT COSTS $275? / Brand loyalty, bargain hunting and unbridled luxury all play a part in the price you'll pay for a T-shirt
There it is, hanging on a rack next to all the other clothes.
It's just a black T-shirt for women, nothing special. In fact, it looks quite ordinary. But the price tag on it can tell a different story -- both about the company that makes it and the person who buys it.
If you browse through Gap, you'll find that black T-shirt for $14.50 ($20 if you buy two). Go to H&M and sift through the piles and you can get one for only $7.90. Stroll across the glossy floors of Bloomingdale's and you'll find a simple black T-shirt in the Armani section of the store priced at $275.
Why such a wide discrepancy in price? It may just be that you get what you pay for. Or perhaps it's what you think you're paying for. In the case of Armani, it could simply be about status.
Milton Pedraza, chief executive of the Luxury Institute, a research company that focuses on the top 10 percent of the country's wealth, said some people are more able to justify spending $275 on a T-shirt than others.
"It may be incredibly wasteful to some people, but it makes you feel powerful," Pedraza said. "It makes you feel wealth. You're paying for that intrinsic value."
In the past three years, the luxury sector of the retail industry has enjoyed tremendous growth. In February, the International Council of Shopping Centers reported an 11.2 percent increase in sales at luxury department stores open at least a year. That compares with a 1.5 percent increase at discount stores and a 0.8 percent decrease among apparel chains in the same period.
But Pedraza expects a slowdown in growth this year because of falling stock prices and higher interest rates, coupled with a drop in home sales. Under such circumstances, undifferentiated products like overpriced black T-shirts are an extravagance that can be cut out of a person's budget without a second thought.
"There are some things you're going to compromise and some things you aren't, and in my mind the black T-shirt is the first to go," Pedraza said.
For those willing to pay for it, the $275 Armani T-shirt is admittedly superior in cut and finish than the ones found at Gap and H&M. It is made in Italy. It is stylish. But the fabric is 70 percent nylon, 25 percent polyester and 5 percent Elastane -- hardly the stuff of luxury. And at the end of the day it's still a black T-shirt, nothing more, nothing less. You could easily find a similar designer shirt at a discount store like Ross and most people would not know the difference.
Hard to distinguish
Between Gap and H&M, it becomes increasingly difficult to distinguish among brands. Gap's black T-shirt is 100 percent cotton, while the one from H&M is 97 percent cotton and 3 percent spandex. The two look virtually the same, yet one costs almost twice as much as the other.
Pedraza said some aspects of pricing can be explained by how a product is made -- for instance, if it is hand-stitched. But that is only a small part of the equation.
"There's some added value, but the reality is there's not much more cost involved," he said.
The bigger part of the equation is the name. Armani, along with brands like Louis Vuitton, Gucci and Marc Jacobs, have spent years cultivating a following not because of their overpriced T-shirts but because of their evening gowns, suits and handbags. Theirs are the labels on dresses worn to the Academy Awards.
"Value is not only quality, function, utility, channel of distribution," said Arnold Aronson, managing director of retail strategies for Kurt Salmon Associates and former chief executive officer of Saks Fifth Avenue. "Part of that value is a customer's appreciation for the luxury connotations of that item or that lifestyle or the brand or designer who has developed over years a certain cachet."
Aronson added that when a brand like Armani is able to sell its merchandise for hundreds, if not thousands, of dollars, it hardly makes sense for it to sell a black T-shirt for $15.
"In a luxury store like Armani, he's not going to price items that are disconnected from each other," he said.
Nonetheless, reality dictates that not a lot of people are going to shell out $275 for a black T- shirt, regardless of who made it. That's why a luxury brand is not going to carry huge stockpiles of them.
A limited market
"A certain amount of those T- shirts are going to sell, but they're not going to sell 100,000 units," said Harry Bernard, a partner with the San Francisco fashion-marketing and consulting firm Colton Bernard Inc.
Mass production of black T- shirts are left to the masters of mass production -- stores like Gap, H&M and Target. In this arena, volume dictates and prices are allowed to fall. Some retailers struggle with not letting them fall too low, as has been the case with Gap, which is trying to hold onto the cachet of its name. Meanwhile, merchants like H&M thrive by selling cheaply to customers who have little brand loyalty.
Still, Bernard pointed out that in order to remain successful, retailers can't rely on just low prices; they need to be fashionable. That's why stores like H&M are constantly changing their window displays. And that's why discounters like Wal-Mart have had a hard time convincing shoppers that they have more to offer than just price when for so long they have relied on that credo. "There are very few people who shop strictly by price," he said. "By and large, people will buy their garments based on what it looks like and what it feels like."