The real reason luxury brands like Chanel and Louis Vuitton are raising their prices post-pandemic

Would you be willing to swallow a 25 per cent price increase on your favourite Louis Vuitton bag?
PHOTO: Cristiano Burani

It’s no secret that both modern and heritage fashion houses employ myriad strategies in a bid to retain current clients, and attract future buyers, all while preserving the value and prestige of their product.

The idea that luxury brands increase prices on a regular basis goes far beyond keeping up with factors such as inflation.

Rather, for many companies and industry analysts, it’s seen as a way to control brand image and ensure the perception of prestige remains – something that’s widely accepted as normal practice from luxury fashion houses.

Chanel, for example, increased the price of its small leather goods this spring, and is expected to do so again later this year, while Louis Vuitton introduced price hikes twice in 12 months on its small leather goods and handbags.

Chanel’s latest mini bag for spring/summer 2021 may cost a little more than it would before the pandemic, but regular clients don’t seem to mind.
PHOTO: Chanel

The brand’s Onthego GM Monogram Canvas went up from US$2,690 (S$3.620) to US$2,790, for instance – a 3 per cent rise- while another of Louis Vuitton’s bestsellers, the Pochette Accessoires Monogram Canvas, went up a whopping 25 per cent from US$630 to US$790.

But what else might be a motive for price hikes – if not to account simply for inflation and to retain prestige? Certain industry analysts believe that the strategy of luxury brand price increases goes beyond even these factors.

Diana Nguyen is a former investor and trader who worked in banking in Singapore before returning to North America to launch Lux Second Chance, an online second-hand luxury retailer that specialises in status symbol products that can be difficult for the average consumer to find new on their own.

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According to Nguyen, luxury brands increased prices in 2020 and early 2021 to make up for losses in 2020. Thanks to decreased cross-border travel, sales were significantly lower compared to 2019.

“Luxury brands make 20 - 30 per cent of their revenue from tourists. Due to the pandemic, there were fewer tourists to European countries like France and Italy which houses iconic brands like Chanel, Hermès and Louis Vuitton,” explains Nguyen.

“These brands saw a high percentage of sales from Chinese tourists travelling to Europe. That’s because China’s luxury prices are on average 25 - 30 per cent more expensive than in Europe, so many Chinese tourists will fly directly to France or Italy to shop for luxury goods.”

As prices go up, so does demand. 
PHOTO:  Louis Vuitton

While the luxury market may have taken a hit over the course of the pandemic, there’s no doubt that price increases still play into the scarcity-driven nature of the luxury market. The industry continues to offer waiting lists for certain products; even as prices continue to go up, demand follows suit.

Luxury has always been about exclusivity; those who can afford it are able to buy a coveted handbag or watch; but over time, more people have been able to afford luxury items and this has allowed high-end fashion houses with a certain level of brand power to increase prices and still keep up the appearance of scarcity without sacrificing reputation or running the risk of harming brand loyalty

“I don’t believe that massive pricing increases affect brand reputations whatsoever. In fact, I think that many consumers genuinely believe that a Birkin bag, for example, is in short supply,” explains Michael Tonello, former luxury reseller and author of Bringing Home the Birkin. “Those who know that the scarcity factor is all a ruse don’t seem to be bothered by that charade and continue to be loyal customers and play the game.”

“Today, Hermès is still the only brand that retains its high level of exclusivity,” echoes Nguyen. “They require you to have an influential profile to buy the Birkin bag and that exclusivity is actually a good thing for a brand. When a brand overproduces and pushes sales at the expense of margins, it loses its influence and value since it has become too accessible.” 

Hermès Birkins with diamond-set hardware are perennially hot items at auction. 
PHOTO: Hermès

So while strategic price increases might seem like an easy way to lose the trust of potential clients, creating and developing a narrative of exclusivity is actually believed to help the brand maintain its status – just look at the blooming resale market.

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“If the price of an item on a resale site is close to the retail price – if not more – it means the brand is very coveted,” explains Nguyen. “If you look at Hermès or Chanel, you’ll see they don’t lose much value in the resale market whatsoever.”

Hermès, in particular, does an excellent job of maintaining the demand for its items because they appear rare or hard to find, so much so that people will go to the secondary market sites to find pre-owned goods – even if the item in question costs more upfront than it would be to buy directly from the boutique.

According to Neri Karra, an associate professor of strategy and entrepreneurship at IESEG School of Management in Paris who specialises in fashion and luxury brands, high-end fashion houses are well aware of the effect price increases have – not just on their existing clients but on the trickle-down market – which allows them to capitalise on brand loyalty by way of those who aspire to eventually move up to become direct clients of the brand rather than being second-hand shoppers.

Luxury brands increased prices in 2020 and early 2021 to make up for losses during Covid-19.
​​​PHOTO: Dior

The second-hand market has itself been booming over the past several years, partly thanks to the price increases in the primary market.

“Luxury brands have also recognised this market [is one] to capitalise on: consumers who still want their products, but cannot afford the price tags of the brand-new ones,” Karra explains. “This is the reason we see things like the Kering group investing into the second-hand Vestiaire Collective.”

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The pre-ownership trend is seeing upwards momentum, something that, in a way, fosters the circular economy while providing a category of goods at a price at times more transparent than when dealing directly with a boutique waiting list prone to seasonal price increases.

Nguyen says price increases affect the resale market a lot less than the primary market since resale items are items people have bought in the past. They themselves have paid less and therefore expect to sell those products on for less.

“To get the most value retention when buying new or pre-owned, it is best to stick to timeless classics,” says Nguyen. “They increase in price in the primary market (retail) more often and retain their value in the secondary market (resale),” she adds.

This article was first published in South China Morning Post.