Very interesting question and discussion! I have no real answers, and I think there must be several, but here's my thought on why spend money on expensive clothing:
It occurs to me that we often think of buying clothing beyond a reasonable amount as frivolous in a way. If the money were spent on something else (we didn't exactly need), we probably would have justified it easier. Example: DH bought cycle gear for quite a lot of money lately. He has a budget for this, and his hobby means a lot to him. Then he needed/wanted an expensive trench. He hasn't bought decent Spring outerwear in years, so it was a reasonable desire. The purchase would blow his clothing budget for a few months, but that's okay, too. The difference was that he didn't think twice about spending on cycle gear, but paying for a trench, that's another matter. How come? I think that an activity or hobby holds so many positive values in the society, that most people would think that spending in this area is a good and even necessary thing. Doing sport or hobbies keep you in shape, give you skills etc. If clothing are merely seen as functional, then splurging on very expensive clothing makes no sense. I think we all make similar distinctions (like Rachy mentioned) on some level.
To me, and I suppose most of the YLF members, clothing are a lot more than functional items. They are bearers of ideas, hopes, dreams, values and how we see ourselves, or want to be perceived. That means, to me, that splurging on a trendy item that never will get a very low CPW is okay, occasionally. I think of clothes as an equivalent to a hobby. To keep up with trends is an expression for an interest in colors, shapes, textiles, and then it is more likely that we buy more, and more current trends.
I think it is obvious that paying more for staples and essentials is sound economy. But if the answer to the questions 'Do I love it?' 'Do I have the money?' 'Does it play with other things in my closet?' is yes, then splurging - within reasons, of course, is not only okay, but desirable, even if the CPW never whittles down all that much. Clothing are not only covers. What *your* answer to this is, is probably depending on how much you value the art of self-expression.