Since the start of the pandemic, demand for high-end goods has surged. As travel and other services have halted, consumers’ accumulated savings have been spent on long-term investment luxury items, such as handbags and watches.
Last year was a massive success for LVMH. The conglomerate reported revenue of €64.2 billion ($101.3 billion), representing 44 per cent growth over 2020. This was largely thanks to a strong fourth quarter in which the fashion and leather goods division, including names like Dior, Fendi, Celine and Loewe, recovered to pre-pandemic levels.
Breaking down Louis Vuitton’s latest pricing
Traditionally, Louis Vuitton has adjusted prices for its bags up to three times a year. However, this latest round of price hikes is said to be the highest yet.
Last October, the brand lifted prices for a selection of its leather goods and bags, such as the Pochette Accessoires, a common entry-level product whose price rose from US$790 to US$1,050. All sizes of the Speedy model went up by 17 per cent as well.
A mere four months later, those Pochette Accessoires will set you back US$1,290 – a 23 per cent hike over the highest previous price. The Speedy has gone up by 10 to 17 per cent again and the Neverfull, Louis Vuitton’s iconic canvas-and-leather tote, increased between 16 and 20 per cent for certain sizes.
Market research firm Bernstein found that the latest round of hikes will increase prices of women’s leather goods by 3-20 per cent, men’s leather goods by 7-10 per cent, and accessories such as scarves and jewellery by 2-6 per cent. Also, perfumes, a new addition to the brand, will receive their first price adjustments since 2020 – hikes of 1 to 7 per cent.
Price hikes drive urgency in China
As rumours of the price adjustments began circulating, several Chinese bloggers posted the latest prices of key Louis Vuitton products, indicating much higher price increases for customers in Asia.
One blog post mentioned models of the Capucines and Neverfull handbags would be increasing to RMB52,000 ($11,458) and RMB14,400 – 11.8 per cent and 20 per cent – respectively. The Pochette Accessoires, which had increased by 23 per cent in Europe, will be hiked by a whopping 54 per cent in China, raising prices from RMB3,500 to RMB5,400.
Although this blog post was never verified or confirmed at the time, Chinese customers began flocking to Louis Vuitton boutiques in Shanghai to stock up on the leather goods before the price went up. Numerous images of the hours-long queues became viral on Chinese social platform Weibo.
Other LVMH-owned brands to follow suit
Louis Vuitton will not be the only LVMH brand that inflation and rising costs affect. The second most important profit generator under the company’s fashion division, Christian Dior, is also due for a major price adjustment soon.
Bernstein states the prices for the brand’s signature Medium Lady Dior model have gone up by US$1,500 since 2019. Taking into account exchange rates and import tax, prices for the Lady Dior are highest in China, where the compound annual growth rate across the Dior bag range has increased by 20 per cent between November 2019 and January 2022.
Fellow LVMH brand Tag Heuer confirmed its watches would undergo a price adjustment in the near future as well. An interview with CEO Frédéric Arnault mentions the luxury watch brand will be raising its prices “regularly”, beginning with the brand’s upcoming offering in April. Prices are expected to go up between 5 and 6 per cent.
Hublot, another luxury watch brand under the LVMH umbrella, cited rising raw material costs for gold and diamonds in raising prices 3 to 4 per cent across its watches, starting in April or May. Hublot and Tag Heuer’s moves are aligned with the LVMH watches and jewellery division’s latest strategy, which aims to increase the average price of its luxury watches annually, as division president Stéphane Bianchi stated in an interview.
Competition among legacy brands heads up
Undoubtedly, Louis Vuitton’s decision to increase its prices so soon after Chanel and Hermès will have a domino effect within the luxury ecosystem.
As Bernstein research shows, Dior’s slightly lower pricing will place the brand in an advantageous position in comparison with its competitors. With Chanel and Louis Vuitton aiming for Hermès’ prestige price point, Dior may now dominate the mid-tier luxury space.
Take the example of the Chanel Classic Flap vs the Lady Dior. The last Chanel price hike, in which prices soared by four times, was not well-received by a large portion of its longtime customers. The medium-sized Classic Flap, now priced at €7,800, is a mere €100 euros cheaper than a Birkin 30 in Togo calfskin. And given the Lady Dior is more than 30 per cent cheaper than the Classic Flap, there is a large chance customers will opt for Dior instead.
Many fans argued that while Chanel wants to be in direct contention with Hermès, the Parisian designer house still lacks in quality and service compared with the latter. Despite the uproar, however, Chanel is confident wealthy shoppers will still pay the hefty price for its bags.
Dior’s next best competition is Kering’s Gucci, which has yet to confirm any price changes in the immediate future. However, China’s online luxury watchdogs are predicting Gucci will increase prices for its highly popular Marmont bag by 3 per cent and for smaller accessories by 10 to 15 per cent.
After a string of price hikes last year, margin adjustments could potentially be luxury’s strongest playing chip in 2022. Although prices of luxury items in Europe have historically been cheaper than in the US or Asia, Louis Vuitton’s latest round of price adjustments will reduce the gap between France and China pricing ever so slightly.
The lack of travel in the past two years has focused brands more on domestic sales as tourism shopping has dwindled. Also, brands have been able to raise prices as they please, as customers’ access to Europe’s lower costs has been limited due to ever-changing quarantine regulations.