Year after year, the luxury consumer has come to expect that their favourite handbags and ready-to-wear items will increase in price. Alongside inflation, the cost that goes into creating these pieces creep up and is reflected in their prices. Brands trend towards gradual price increases not only to recover direct expenditures and overhead, but also to realise the goal that all businesses seek- achieving and maintaining profitability. In essence, luxury brands function much like the majority of other businesses; at the end of the day, money must be made in exchange for providing goods and services.
Photo Credit: Quartz
Basic economic theory states that a business can make money one of two ways: through quantity or price. Never has this concept been more true than during the pandemic, when the supply chain was so thoroughly shaken that basic materials were all of a sudden virtually inaccessible. With global delays in shipment and procurement, brands were left scrambling to produce goods to meet current customer demand. Without a steady stream of raw materials, it comes as no surprise that in order to make up for quantity deficiencies, brands like Chanel and Louis Vuitton implemented price increases upwards of 20% on current stock to maintain margins and financial targets. Diana Nguyen, former Singapore based investor and founder of online second-hand luxury retailer Lux Second Chance, also attributes price increases to “decreased cross-border travel and tourism…[meaning] sales were significantly lower compared to 2019”
“However, even though it was significantly impacted by the pandemic, price increases still play into the scarcity-driven nature of the luxury market”
-Kaitlyn McInnis, South China Morning Post
Exclusivity has always been the name of the game in the luxury market, and prices tend to go hand in hand with the concept of scarcity. Those products that are more difficult for consumers to get their hands on command a higher price point in the market. Take, for example, a classic Hermes staple- the Birkin. One of the most sought after luxury pieces, a brand new Birkin bag can range anywhere from $9,000 USD to upwards of $400,000 USD. On the resale market, these prices soar even further than their boutique counterparts.
Photo Credit: @hermes_ginza_xiaoma
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”
-Kaitlyn McInnis, South China Morning Post
When items go from having the appearance of scarcity, to the reality of true scarcity, this provides an impetus for brands to further increase prices. Not only are they maintaining exclusivity, but the idea of scarcity and pricing items accordingly actually help preserve brand status and prestige. This strategy has had a trickle down effect on the resale market as well. On average, the resale prices for classic Chanel, Hermes and Louis Vuitton tread around the same price range as they do in boutiques, holding, and often increasing, in value.
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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”
-Diana Ngyuen, Founder of Lux Second Chance
A fascinating result of the price increase technique is the effect it has on clients of second hand and resale outlets, whose loyalty parallels brands’ current customers. Luxury houses are able to capitalise not only on the steadfast allegiance of resale customers, but also on their pursuit to eventually become direct clients. In knowing that these individuals seek to one day have a relationship with the brand, luxury marquees can rest easy knowing they can increase prices without sacrificing reputation or brand loyalty, while continuing the chase for these resale clients.
Photo Credit: lifestyleasia
The real reason Louis Vuitton and Chanel are raising their prices? Brands aren’t just weathering the pandemic – luxury goods only get more desirable when they’re less accessible…
-Kaitlyn McInnis, South China Morning Post
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Updated: April 14th, 2021
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