Tue. Jul 5th, 2022

French fashion house Chanel is pushing up the cost of luxury again.

At the end of 2019, a classic Chanel quilted calfskin flap bag with a gold-tone metal chain could be picked up for £ 4,720 at the French luxury brand’s boutique in London’s Bond Street.

Today, that looks like a veritable bargain as the same bag now costs £ 6,930.

After raising prices by roughly 20 per cent over the past 18 months, Chanel has this week rolled out another round of increases in several countries as the luxury house levels prices across the globe.

Prices on core Chanel handbags and accessories and seasonal ready-to-wear will rise 6 per cent in the eurozone, 5 per cent in the UK, 5 per cent in South Korea, 8 per cent in Japan and 2 per cent in Hong Kong. No changes are being introduced in China and the US.

In contrast to increases in the previous 18 months, the latest changes are designed to “harmonize” pricing across markets, Bruno Pavlovsky, Chanel’s president of fashion, told the Financial Times. “Because of the evolution of the exchange rate, the gap between prices in Europe and prices in Asia was becoming too big.”

The changes mean that a Chanel Boy bag now costs the same in Shanghai as in Paris – a rarity in the luxury sector. Products in China tend to cost 30 to 60 per cent more than in Europe, which has for decades driven the country’s luxury shoppers to buy handbags and scarves when traveling abroad or from overseas personal shoppers known as daigou.

But pandemic travel restrictions led to more of the country’s consumers buying luxury products locally and in duty-free hotspots such as Hainan.

“We need to privilege our local customers and give them access to our range at the same price everywhere,” said Pavlovsky. “We are the only luxury brand today to act this way. It’s a very modern posture. ”

He said the increases were partly because of rising manufacturing costs and reflected the value of new in-store restoration services and a five-year guarantee on bag purchases.

Jefferies analyst Flavio Cereda-Parini said the changes at Chanel were less about rising costs and more about positioning the brand in the same price category as rival Hermes and above Louis Vuitton and Dior.

Louis Vuitton raised prices 7 per cent late last month after jumps of 10 per cent in 2021 and 4 per cent in 2020. Hermès lifted prices 3.5 per cent last year compared with 1.5 per cent previously.

“We are the ultimate luxury house, and we need to position at the level of the market,” Pavlovsky said.

Cereda said inflation was also driving prices higher. Historically, top brands price products at 2.5 times the rate of inflation, making handbags in particular not only a justifiable purchase for luxury consumers but also an attractive proposition for investors.

Customers have responded well to the changes. Raising prices has not only improved margins for leading brands but also boosted their prestige, creating what UBS analysts call “a virtuous circle of pricing power and brand desirability”.

It is also exacerbating the polarization between the sector’s top players and everyone else. At Louis Vuitton, which accounts for about half of parent company LVMH’s revenues, higher prices have led to record margins of 41.6 per cent, according to UBS analysts, which LVMH is using to invest in other brands in its portfolio.

But Cereda questioned whether continued price increases were “sustainable”. Luxury companies have benefited from a spending shift from experiences to goods during the pandemic, which is likely to taper off as restaurants reopen and international travel resumes.

“Can you put prices up 50 per cent in the next two years? I do not know, ”Cereda said. “Maybe I’m wrong. Maybe you can. There’s a lot of rich people out there with money. ”

In tandem with the new pricing structure, Chanel announced that it was donating € 2mn to organizations that support refugees fleeing Ukraine. Like other businesses in the luxury sector, it has been criticized for continuing to do business in Russia despite the conflict.

Chanel closed its Russian boutiques on Monday and Tuesday but reopened them for some clients on Wednesday.

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