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How Commodity Trading Affects the Price of Your Luxury Items

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Achieving success in the luxury goods market is a delicate balancing act. Everything from the retail price and branding to the exclusivity of what’s being sold needs to be taken into account. Beyond that, experiences count. According to research by The Guardian newspaper in collaboration with Pernod Ricard, luxury brands need to focus on six things in order to create the right experience. However, when customer rituals, iconic visuals and mythical stories fall away, the ultimate fate of luxury goods is determined by the commodities market. When traders trade, the price of materials changes – and that has an impact on the top brands. Put simply, the natural consequence of these fluctuations is an increase or decrease in production costs, costs which are then reflected in retail prices.

Although commodities trading has always had a bearing on consumer markets, recent innovations have made it more obvious. Thanks to the advent of online technology, almost anyone can now trade commodities online and via their mobiles. In fact, as the industry has evolved, apps now offer training in all areas of commodity trading. By downloading software such as IG Academy trading app for Android, novices are shown where and how to invest in commodities. What’s more, video tutorials outline core concepts such as leverage and risk, while customizable trading plans allow users to formulate their own strategies. The overall aim of these products is to educate traders who, in turn, add more liquidity to the commodities market.

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Cotton Changes Affect Clothing Brands

Online trading platforms have not only made the industry more accessible but shown just how powerful market movements can be in the retail sector. Indeed, when you consider a commodity such as cotton, the price charts have always had a bearing on the cost of luxury clothing brands like Fendi, Versace and Dior. According to data from Statista, the price of cotton has experienced some interesting changes in recent years.

In 1990, the price per pound was 82.71 US cents. After dropping as low as 45.44 US cents in 2002, the price spiked to a two-decade high of 155.7 US cents per pound in 2011. These price movements are down to the volume of cotton traded on the commodities markets over time. However, it’s not simply the whims of traders that causes these changes. As you can see from the infographic above, various factors will affect the value of a commodity such as cotton.

In 1861, the American Civil War slowed cotton production which, in turn, increased its price. With the costs reaching unworkable levels, the British textile industry went into meltdown. If it’s not political events disrupting the price of a commodity, extreme weather can change things too. A harsh winter can harm crops and lead to lower yields. The end result is a scarce commodity which, in turn, is worth more. In essence, the law of supply and demand is at play here. If supplies are strangled, demand increases. That drives up the price of cotton in the trading world which, in turn, makes it costlier for luxury brands to work with. 

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Innovations Contributing to Change

To give the above points some modern context, British consumers may find that luxury garments suddenly cost more in the wake of Brexit. Although the true impact of the European split won’t be known until long after the March 29, 2019, separation, reports suggest clothes could cost more. As per the stats, around 75% of the materials used in the UK are imported. If higher tariffs are applied to EU materials coming into the UK, costs would increase. These changes would be reflected by changes in the commodities trading market.

For those invested in the industry, shifts would likely manifest themselves on trading charts before wholesale prices actually changed. To put it another way, commodities trading not only directly impacts the cost of luxury goods but acts as an indicator of when prices will change. If the prices drop, retail prices will follow and vice versa. So, while brands like Versace and Prada can focus on building a luxury experience, they can’t escape the impact of the trading world.

JustLuxe

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