Supreme, Off-White, Palace, Nike – all part of a collection of “hypebeast” brands that have taken the world of modern fashion by storm through challenging the accepted value proposition of more conventional clothing brands. Supreme ‘bogos’, otherwise known as ‘box logos’ hoodies are an icon of streetwear which have online resell prices of over $500 even for the most basic models. So why are people willing to pay so much for a hoodie, which costs only $148 at retail price? This is explained by a phenomenon which is more usually associated with luxury brands.
Thorstein Veblen coined the phrase ‘conspicuous consumption’ in 1899 as a view of people who desire to publicly ‘show off’ their wealth through expensive goods. Normally, the price of a product represents the point which equates the supply and demand. Therefore, the higher the price, the lower demand. However, Veblen realised that with some goods, demand would actually grow as the price increases.
Typically, items such as luxury jewellery, cars and champagne have always been classified as Veblen goods because even though their quality may not be noticeably higher than the lower-price equivalent, there is still latent demand for them. Rolls Royce cars are desirable because of their high price and brand image of an opulent style rather than having an advantageous benefit over another luxury car.
However, with younger generations, streetwear is supplanting these traditional goods, largely due to the boost of ‘hype’ (thus the name ‘hypebeast’), provided by online media creators and influencers such as Kanye West and Travis Scott. Furthermore, some luxury brands are collaborating with ‘hypebeast’ brands to create the same hyped effect that results in higher selling price as well as high demand. This April 2020, Nike and Dior will release a ‘drop’ of their new sneaker that will retail for $2000, with only 1000 pairs being made. Previously, shoes such as these have resold for up to $20000 on websites such as StockX. As a result of this, there is an influx of people who buy the apparel just to resell rather than to wear, which has an unprecedented impact on the market. This contributes to a brand’s Added Luxury Value (ALV). This is a result of both tangible and intangible effects resulting from how people intuitively connect to a prestigious brand’s reputation. For example, by creating ‘drops’ and seasons, companies can create a buzz and also promote exclusivity through scarcity marketing. It is incredibly important for brands such as Supreme or Nike to maintain a status that is desirably expensive for people to buy. Many brands create their pricing based on production costs, otherwise known as cost-based pricing, but for luxury, the ALV allows them, and sometimes forces them to double if not triple that original RSP (Retail Selling Price) which they may have calculated. This is partly caused by the fact that many consumers seek for expensive items, when looking for luxury. The drive for expensive items with the specific purpose of showing them off is what the Veblen effect explains. In this case, Supreme and other ‘hypebeast’ retailers, very effectively manage their costing, creating big price tags to attract attention and demand.
So, how is the Veblen effect responsible for ‘hypebeast’ brands becoming increasingly popular in comparison to the luxury industry?
“Many first-time buyers of luxury apparels go for the products to experience of high quality and to portray a certain image in the society. Most of the times, this converts into brand loyalty and as a result, they do not mind spending some extra amount for purchasing from their favourite brands.” A study by Grand View Research analysing the growth of luxury apparel, hypothesised that word of mouth and brand reputation was one of the largest driving factors for the market. Subsequently, as younger generations spend more time on social media and promoting their preferred companies, brands like Supreme benefit far more than more traditional brands such as Churchor Asprey, which might not have such a wide online fanbase.
The Veblen effect, as opposed to the somewhat similar Giffen effect which focuses on basic necessities, rather than luxury goods, requires a constant demand in order for the product to increase in price. ‘Hypebeast’ brands in particular, are extremely effective at controlling demand in proportion to their price by use of social media, which is in general, much more popular with their target customers compared to more traditional goods. However, the result of this means that 70% of their target consumers earn less than $40,000 per annum, as they are generally younger customers. So, while the price paid may be high compared to other highstreet brands, it is far cheaper than buying some items from more traditional luxury brands such as Gucci or Hermes. Resultingly, this is a far more attractive business model for younger audiences, seeking to display their wealth, while also keeping within a tight budget. Furthermore, since these ‘hypebeast’ retailers sell collections of items at much higher prices, the brand image retains exclusivity and luxury.
Ultimately, Supreme’s business model focuses on creating a scarcity of their products. In a 2009 interview with James Jebbia, founder and CEO of Supreme, he said “if there’s demand for 600, we’ll make 400” . Subsequently, it is important to stress that ‘Hypebeast’ brands are increasingly following an upwards curve in growth rate. This is very important considering that with the use of social media and changing consumer trends in the luxury market, such as age and price, it seems that ‘hypebeast’ brands will become increasingly popular compared to the traditional equivalent. So, unless the traditional luxury market is able to manage and adapt to the changing market for high-tier goods, streetwear brands might become the new luxury.