The latest luxury price increase has arrived, with Chanel putting new increases into effect on March 3 in Europe, South Korea, the United Kingdom, Taiwan, Hong Kong, Australia and Canada. Reflecting on the price hikes of some bags, the brand’s fashion president, Bruno Pavlovsky, said they stem from the price harmonization policy that Chanel introduced in 2015, which the brand implemented. implemented in order to “ensure that the differences between the retail prices of its products do not vary by more than 10 percent from region to region”, and therefore, to combat price arbitrage, or practice of buying products in one market in order to benefit from lower prices, and then selling those products at a higher price in a different market, thereby fueling a burgeoning gray market.
“Our objective is to offer the same price everywhere to limit the parallel market, [which is] an important signal for our customers, because it is a way to engage with them in an honest way”, Pavlovsky says WWD on the latest price increases from Chanel, which has quadrupled the price of its classic models and more than 50% since the start of the pandemic. “Today, there is no reason to penalize a Chinese customer compared to an American customer. It is normal that they pay the same price for the same product.
The United States and, more interestingly, the Chinese market are not included in the latest round of price increases, which means that “the price differential between China and Europe has narrowed further and is now below 10%,” according to Jefferies analyst Kathryn Parker. The price of “most other luxury brands” products is 30-40% higher in China compared to their home country, which certainly leaves room for ruffling the feathers of luxury-loving Chinese netizens. and fueling China’s daigou market, which has been impacted following a COVID-induced disruption to international travel.
A shift towards resale?
As for what these consistent price increases by brands might mean for the broader luxury goods market, The RealReal, for its part, expects to benefit from recurring increases coming from the biggest players in luxury. Following the release of fourth quarter and full year 2021 earnings on February 23, which saw it generate $468 million in revenue for the year (up 56% from 2020), the Management at the San Francisco-based luxury resale giant said that in addition to constantly expanding the use of technology in its operations, which has helped “improve unit economics, enable scaling the business and increasing average selling prices,” the company predicts that the efforts of luxury groups like Chanel, LVMH, Kering, etc. raising prices will cause a shift in the luxury space that will work in its favor.
(Chanel isn’t alone in raising prices, of course. Louis Vuitton raised prices in February by 26%. Kering management revealed around the same time that it would raise prices for all of its brands, following price increases for its major brands in 2021. Gucci, for example, raised prices twice in 2021. Dior implemented price increases for its bags, such as the Medium Lady Dior, which was up nearly $1,500 from 2019, and Hermès confirmed that its prices rose across the world by an average of 3.5%.)
Speaking to analysts on February 23, The RealReal founder and CEO Julie Wainwright declared that the “pretty significant increases in LVMH [the prices of] their handbags absolutely benefit the resale and certainly benefit us and our shippers. Wainwright asserted that such price increases by LVMH – which reflect overall trends in the luxury segment – “allow us to increase the price of these bags”, while “still offering[ing] better value for the consumer. Growth in metrics, such as average selling price on a per-unit basis and average order size, over the past two years, in particular, shows that The RealReal is “getting more wallet share and people are embracing resale,” she noted.
While handbag sales have “been strong throughout COVID” and “continue to be strong,” Wainwright says she expects to “see some people leaving the main retail market for resale as that the price gap continues as luxury brands increase their prices.”
The notion isn’t entirely far-fetched, especially given the growing dissatisfaction of at least some consumers with the ongoing price hikes by Chanel. “People are shocked not only by the number of times Chanel raises prices, but also by the amount,” said Meaghan Mahoney Dusil, co-founder and CEO of PurseBlog.com and PurseForum.com, told the Wall Street Journal last month. “They also complain that the quality does not increase with the prices.” Luxury-focused retailers like The RealReal and Fashionphile are reaping benefits, ranging from higher prices for their Chanel branded offerings to increased searches for (and purchases of) Chanel bags.
Fashionphile founder Sarah Davis recently confirmed that price increases by luxury brands such as Loiuis Vuitton and Chanel, coupled with inflationary pressures, are likely to be “a boon to luxury resale” as they “fuel the ‘growing appetite for second-hand ultra-luxury’. Meanwhile, the annual shipments report The RealReal released in January suggests it has seen a direct impact from Chanel’s recurring hikes: the resale price of Chanel flap bags on its site and in its stores has risen an average of 11% during 2021.
Although the increasingly frequent price hikes appear to be having a positive effect on the resale market, they are unlikely to cause a seismic shift away from retail, at least for luxury brands like Chanel. , which have more room than their more intermediate market. counterparts to raise the prices of their offerings without alienating their core consumers. Ultimately, “even though some people are upset about Chanel’s price increases, they continue to buy,” says Mahoney Dusil. As prices go up, “it becomes unaffordable for some, but key customers won’t be outrageously priced.”
Against this backdrop, the question remains whether/when Chanel will move more aggressively to bring resale under its own roof to control this enduringly popular aspect of the market.