Consumer fatigue aside, luxury brands still jacking prices

Industry

Published: 06 Jun. 2023, 17:55

Consumer fatigue aside, luxury brands still jacking prices

Mannequins stand at a Chanel store in Seoul on May 24. Chanel Korea upped its prices for the second time this year, raising prices for its main products such as its classic flap bag between five and six percent from May 23. [YONHAP]

Luxury brand makers are continuing to raise prices despite sluggish consumer sentiment amid an economic slowdown.

Chanel Korea and Louis Vuitton Korea recently raised the prices of its main products by six to eight percent.

Chanel’s large classic handbag now costs 15.7 million won ($12,071), while the price tag on Louis Vuitton’s Capucines MM bag is now 10.55 million won.

Even small bags now cost well over 10 million won due to price hikes over the last few years when Korea’s luxury goods market experienced a rapid surge in the aftermath of the Covid-19 pandemic.

Before the pandemic, Koreans typically purchased luxury goods overseas where they tend to be less expensive, particularly in duty-free stores.

With travel restrictions nearing to an end with the dwindling of the pandemic, consumer demand for high-end designer brands is weakening due to the economic slowdown, yet luxury brand makers continue to jack up prices. Critics say the brands are riding on so-called “greedflation” — exploiting inflation to create excessive profits.

Chanel Korea upped the prices of its main products four times since last year, while Louis Vuitton Korea recently upped its prices again after raising them last November.

Prada Korea raised the prices for all of its products by 5 to 10 percent earlier this year. Celine raised prices by 4 percent.

Bottega Veneta raised the prices for its main products by 10 percent, having previously raised prices six months ago.

Louis Vuitton’s Capucines MM bag [LOUIS VUITTON]

High-end jewelry brands in Korea such as Van Cleef & Arpels, Cartier and Damiani have either raised or are planning to raise their product prices between 5 to 15 percent.

Domestic luxury brands have gone through multiple price hikes over the year, boosted by the so-called “revenge shopping” trend during the pandemic. They also gave multiple reasons for their price hikes, citing changes in their respective headquarters’ price policies, rising raw material prices, costs from logistics and human resources and fluctuating exchange rates.

Department store sales reflect waning demand for high-end designer products.

Shinsegae Department Store’s sales for luxury brands increased on-year with single-digit growth of 5.6 percent from January to May. Hyundai Department Store’s sales jumped 6.8 percent compared to the same period the year before.

The figures are in stark contrast to 2022’s first-quarter sales growth when Shinsegae grew by 37.2 percent while Hyundai grew by 30.6 percent.

Galleria Department Store even suffered a loss in sales for the last five months this year.

“The brands have upped their prices under a marketing strategy to retain their image as premium luxuries during the Covid-19 pandemic, but now the price hikes are attributed to attempts to make up earning losses,” said an anonymous luxury industry insider. “Market growth for luxury brands is slowing down globally, and consumer spending for domestic luxury brands is also rapidly halting as traveling restrictions are lifted.”

“Open runs”— people lining up for hours or even overnight to get their hands on limited products, a frequent phenomenon at department stores over the last two years — are dwindling as well.

Another factor behind the rising prices is the falling value of the won. European premium brands are known to be sensitive to euro exchange rates. The euro was hovering around 1,300 won just a year ago but rose to 1,470 won in April. The euro was trading at a little below 1,400 won on Tuesday.

People line up in front of a Chanel store in Seoul before the store opens on July 21, 2021. [NEWS1]

Chanel also attributed its price hike last month to euro exchange rates.

While consumers are feeling fatigued by the frequent price increases by luxury brands, the brands show no sign of slowing their hikes down. Symbolized by their iconic logos and design, such brands boost consumer desire and product value through exclusively high prices and scarcity rather than through improvements in product design.

“Frequent price hikes are not merely due to rising costs in production, human resources and logistics,” said trend analyst Lee Jung-min, who heads Trend Lab 506. “Due to the character of luxury brands, which can only survive through [spending] from upper classes, they will continue to distinguish themselves from other products through their prices, especially during the economic slowdown.”

BY YOO JI-YOEN [lee.jaelim@joongang.co.kr]