Champagne era for luxury industry prices starts to go flat
Even the well-heeled are beginning to resist the increasing cost of high-end products
At the start of this year, Rolex did something that the luxury Swiss watchmaker hadn’t done in years: it didn’t raise its prices.
Like many luxury companies, it has tended to pass along several price increases to its customers every year since 2020, usually in January and September.
With coveted watches ranging in price from $5,000 to more than $100,000, Rolex has had the market clout, product quality and branding to do so. But that wasn’t always the case: up until 2018, the company only increased prices every two to three years, according to Morgan Stanley.
The fact that even Rolex is now backing off on price rises marks a big shift in the luxury industry. Along with an expansion in offerings to aspirational middle class consumers, years of aggressive increases had spurred a multiyear global boom for the luxury industry with double-digit annual sales growth and record profits.
Analysts and investors now expect those price increases to moderate for most luxury companies with the only meaningful increases likely to come from foreign exchange shifts, particularly in Asia where the yen and renminbi are weak but might rally, thus increasing the value of sales in the region when converted back to euros or dollars.
Companies like to claim that price increases reflect their costs in a high inflation environment. But the price increases most luxury companies have pushed through in recent years go well beyond that. The average price of luxury goods tracked by HSBC has increased by 50 per cent since 2019.
Some increases have been more aggressive than others: the price of some Louis Vuitton Speedy bag models in France has doubled to €1,600 in that period, while a large Chanel flap bag is more than 80 per cent more expensive at €10,500.
Luxury sales slowed for much of 2023 and by the end of the year, some executives had already started hinting that the pricing cycle needed to moderate. Though luxury customers are less sensitive to pricing, they are not immune.
Johann Rupert, the chair of Swiss group Richemont, warned in September that inflation and higher costs were damping demand even among well-heeled European buyers. “We are seeing a squeeze on people,” he said. Chanel’s president of fashion Bruno Pavlovsky said that increases in 2024 would be lower, reflecting the lower rate of inflation.
Some brands including Chanel have experienced a backlash from customers, who have complained about the steep rises. Pavlovsky described the increases as a “normal evolution” correlated to inflation and positioning relative to its competitors in an interview with the Financial Times at the end of last year. “The idea is not to be the most expensive, but just to be sure the prices are at the level of the business,” he said. “We do not want to disconnect anyone from the brand.”
The UK’s Burberry, which is in the midst of a turnaround and has improved the quality of its product offering under a new designer, has been punished by buyers who have experienced “sticker shock” as prices were raised too far, too fast. And higher prices also appear to have hit Kering-owned Saint Laurent, where sales began to fall in the second half of last year.
While most luxury brands are expected to rein in their price increases in 2024, there are some exceptions. Hermès, the maker of Birkin handbags, has said it will raise prices by 8-9 per cent this year globally, up from 7 per cent in 2023.
Italian luxury outerwear brand Moncler also expects to put up prices in the mid single digits this year. However, both brands are playing catch-up compared with peers. Hermès, for instance, has put through 3-4 per cent price increases a year on average throughout the boom years — far less than many others.
Up until now, the luxury industry has managed to maintain the illusion of exclusivity despite dramatically increasing its market size. But as some of the fizz in a champagne era for the industry goes flat, customers may start to ask critical questions about their purchases. At what point does paying astronomically higher prices for what have become more mainstream products stop making sense?
Many luxury houses may need to revert to being more exclusive if they want to justify their products’ cost. Endlessly expanding luxury’s customer base while also increasing prices cannot go hand in hand forever.
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antes disso tinham aceite vender-me um outro modelo caso comprasse o anel de noivado pelo dobro do relógio. Honestamente os modelos da Rolex, a excepção do Panda, da para recorrer ao grey market em vez de esperar anos ou estar a correr atrás dos vendedores. Em relação ao AP, PP, a história é outra.