Luxury brands hike prices to make up for losses
People shop at Chanel boutique at Lotte Department Store in Myeong-dong, central Seoul, on May 13. Korea times file
By Kim Jae-heun
In March, when the COVID-19 pandemic was in its early stages, U.S. consulting firm Bain & Company said in its report “Luxury Study 2020 Spring Update” that the industry will likely face a global sales decrease of 20 percent to 35 percent this year.
However, the results are showing just the opposite in China, the most important market for luxury firms, and in Korea, a test bed of the Asian market.
Despite COVID-19 concerns, people have been forming long lines in front of luxury stores even after high-end fashion brands announced price hikes for their products.
When a rumor surfaced that French fashion house Chanel was going to increase prices, people flocked to its boutiques, waiting in long lines before department stores opened to get a chance to buy Chanel handbags and shoes before the price hike.
In China, another French luxury brand, Hermes, set a sales record of $2.7 million in a single day on April 11.
The craze for luxury goods is ongoing here, and other premium fashion firms are also showing signs that indicate a likelihood of future price hikes.
Following Louis Vuitton's price increase ― two times in the first half of this year ― Chanel and Christian Dior quickly followed suit raising prices by big margins in May and July, respectively.
This month, Italian brand Salvatore Ferragamo and high-end U.S. jeweler Tiffany & Co increased their prices. Next month, Cartier and Omega are expected join the list.
There are several reasons behind the luxury firms' price hike. In regular times, the main factors in price hikes are headquarters policy, currency exchange fluctuations and rising labor and material costs.
But this year, luxury firms saw sales drop in other parts of the world and they want to make up for it in China and Korea.
The world's biggest luxury conglomerate Louis Vuitton Moet Hennessy (LVMH) recorded an earnings shock to show a 27 percent decrease in sales and 71 percent nosedive in operating profit between January and June.
It put up a good defense in Asia but its performance in the U.S. and Europe was poor.
From March to June, in particular, LVMH's fashion business in the Chinese market saw sales soar by 65 percent. In the U.S. and Europe, its sales plunged by 39 percent and 54 percent, respectively.
But starting from June, when the world was starting to see a decrease in the number of COVID-19 patients, the luxury market quickly began to recover in most regions.
SK Securities Analyst Jeon Young-hyun said psychological factors have more influence than rational decision-making when it comes to luxury products.
“People have shown a tendency to purchase more luxury goods following life-threatening experiences,” Jeon said.
In China, which is recovering fast, the demand for luxury items is at its highest.
SK Securities quoted from a thesis titled “Terror Marketing” published by the University of Pennsylvania saying people develop more self-attachment after brushes with death. This has led people to lose interest in saving money.