’Chanel is mean’

By Yoon Ja-young

Hong Ji-hee works for a local conglomerate and bought a Chanel Classic Caviar bag in April. “I bought it for 4.63 million won. I heard that it costs around 5.7 million won to get the same bag now,” said the 30-year-old.

She was just browsing in the Chanel shop at a department store in downtown Seoul, but she was soon determined to buy one. The sales assistant told her that the price would go up in May. Hong even had to put her name down on a waiting list as the shop had run out of stock. Shoppers were coming from outside of Seoul to get the bag before the price hike, according to the sales assistant.

Chanel and many luxury brands have been continuing to raise prices. Only 10 months after a price increase last July, Chanel imposed another by 25 percent in May. In 2008, the price tag had swollen by nearly 50 percent.

“I regret not having bought a Chanel bag before getting married,” said Kim Eun-young, mother of a three-year-old in Bundang, Gyeonggi Province. “I am not saying it was cheap then. An entire one month’s salary was needed to get one, but now even two months’ salary isn’t enough. I wonder if I could get one for my 10th wedding anniversary,” she said. The price of the classic caviar bag has more than doubled since early 2008.

As the price for coveted Chanel handbags inches higher and higher, some say that the bag has become a means of investment ― buy a Chanel and use it for a few years, and then sell it second-hand. “You won’t get the full amount back, but you aren’t losing anything, considering the benefit of the bag you enjoyed,” said a representative of Cocolux, a second-hand luxury brand shop in southern Seoul. She said that most of the consumers who sell their bags have many of them. “They sell their older bags that they are bored of, and buy the latest one.”

Other luxury brands usually raise the price without giving notice in advance, but Chanel announces the plan a couple of months ahead, prompting people to splurge. The sales of luxury brands at department stores in the country soared by 43 percent in April, largely due to Chanel’s announcement that it plans to raise prices in May. The sales at Chanel grew by 55 percent in the first half of this year from the previous one, while Gucci, which kept its prices the same, grew only 20 percent.

The gradual but consistent rise offers customers a “rationalization” to buy the expensive bags. Han Min-a, who works for a foreign company in Seoul, bought a Chanel Vintage 2.55 bag last May. She said she bought it as a reward and compensation for her hard work at her previous job. “I would need one million won more now if I hadn’t bought it then,” she said.

Veblen effect

Kim Ran-do, a professor of consumer studies at Seoul National University, said it doesn’t seem rational to buy a Chanel bag as an investment. “If the consumer believes it is worth five million won, it is rational for her to buy it, but if she doesn’t think so, the rational decision would be not buying it no matter how much Chanel raises the price,” Kim said, mentioning the Tulip mania in the Netherlands during the 17th century as a similar occurrence.

He said Chanel is faithfully and successfully working the Veblen effect, where people want the company’s products more due to the higher price. “When you have loyal customers as Chanel and Hermes do, there are ways to make more profit. Hermes decreased the supply, making people wait in line despite the high price. Chanel, meanwhile, raised the price. Consumers expect goods to become more expensive, and they can show off their consumption,” the professor said. He expected Chanel to continue raising prices, as long as there remain faithful customers willing to spend money.

“Chanel is mean. They know that people will buy no matter how much they raise the price. I wish that consumers could collude not to buy Chanel purses,” said Paula Hong, a 35-year-old accountant in Seoul. Her dream of consumers uniting against the luxury brand is unlikely to come true. Especially since she also caved in and bought a Chanel bag at a duty free shop last year.