Posted : 2012-12-25 19:09
Updated : 2012-12-25 19:09

Veblen effect vs. bargain hunting

People flock to buy cheap items on clearance sales in the top photo, while a female shopper checks out luxury bags at a department store in the bottm photo. Consumers show two opposite consumption patterns, namely buying high-end goods and bargain hunting amid the economic downturn.
/ Korea Times files

High-end goods sell well amid economic slump

By Kim Tae-jong

The key word to best describe the 2012 retail industry would be "sluggish private consumption." However, during the year-end period, there emerged two conspicuous consumption patterns that dominated the industry ― the Veblen effect and bargain hunting.

In the midst of the prolonged economic slump, sales of both high- and low-end goods have been soaring. Although overall sales at department stores and discount outlets remain in the doldrums, luxury goods stores and clearance sales shops are full of people.

On Dec. 6, people were lining up to shop at Lotte Department Store. The typical instant thought would be it was for big discount sales on popular items. In fact, they waited for hours to buy products from Prada. The Italian luxury brand did not offer any discounts.

Customers flocked to the shop as the brand had announced it would raise the prices of all their products from Dec. 17 by 2 percent on average and up to 8 percent on certain items. It was the third price hike by Prada, after those in February and August.

Luxury brands have taken advantage by introducing top-end products or simply increasing price tags. Observers point out that conspicuous consumption, otherwise dubbed the "Veblen effect," might be the impetus for the unexpectedly strong sales of expensive goods.

Named after U.S. economist Thorstein Veblen, the effect refers to market behavior where high-end users snap up higher-priced products even though cheaper substitutes are an option.

Some types of luxury goods, such as high-end wines, designer handbags, and luxury cars, are Veblen goods. Veblen believes that a price increase of such goods may increase their status and perception of exclusivity, thereby making the good even more desirable.

The strong demand for expensive goods is also observed in the sale of luxury perfumes. At major department stores, the sales of cosmetics have plunged but luxury perfumes brands have enjoyed brisk business, recording about 30 percent sales growth rate.

According to Shinsegae Department Store, the sales growth rate of cosmetics dropped to 3 percent in January and September period, from 17.6 percent last year and 40.7 percent in 2009.

But the growth rate of perfume sales stood at 15 percent this year, and that of premium perfumes jumped to 30.1 percent.

The sales of premium perfumes whose prices are ranged from 300,000 won to 500,000 won stood at 1.2 billion won in 2009 at the department store, but it doubled to 2.1 billion won in 2010 and jumped to 3.4 trillion won last year. It stood at 3.2 billion won as of September.

"We believe that consumers want to buy luxury perfume products because they can't afford other luxury goods such as Channel or Gucci bags, and as an alternative way to enjoy premium goods," an official from Shinsegae said.

The longing for luxury and expensive goods contrasts with the opposite consumption pattern, namely hunting for the cheapest goods.

Lotte Mart, the discount chain of retail giant Lotte Group, said sales of its own private-brand (PB) products have been on rise amid the sluggish economy.

"As our PB products are cheaper, compared to those by established brands, a lot of customers buy them," an official from Lotte Mart said. "We produce PB products which are categorized as Prime L, Choice L and Save L, depending on their quality and prices, and the sales of Save L is much larger than the other two."

She also said a lot of customers buy products at clearance sales, which include items with their packing damaged or food with their expiration date imminent as they are sold at half the original price.

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