European luxury brands ― profiteers?

A 27-year-old office worker, who identified herself by her last name Lee, earns a good salary at one of Korea’s largest conglomerates and was looking forward to the effectuation of the free trade agreement (FTA) between Korea and the European Union (EU).

By Kim Da-ye

A 27-year-old office worker, who identified herself by her last name Lee, earns a good salary at one of Korea’s largest conglomerates and was looking forward to the effectuation of the free trade agreement (FTA) between Korea and the European Union (EU).

Lee owns several designer bags including a Chanel large classic 2.55 quilted flap bag, and had her eyes on another Chanel purse, expecting it to be lower in price as the FTA removed tariffs on European goods.

Chanel, however, hasn’t shown any signs of selling items cheaper. In contrast, Lee has instead heard rumors that the brand will raise prices twice this year, first in July and then in October.

“I am really frustrated. The prices in Korea included the 8-percent tariff on leather goods, which is now gone. If they raise the price, it only cancels the reduction and doesn’t make any sense,” Lee said.

An official at Chanel said that there is nothing confirmed regarding a rise in prices in July and October or if it is planning cutting price tags because of the FTA.

The Korean branch, however, is losing consumers like Lee who now plans to travel to Europe where she says she can buy the 6.98-million-won model for 3,400 euros (5.06 million won) and even get a tax return.

Such frustration is widely shared by Korean consumers who had anticipated the luxury goods of their dreams to become more affordable. And some of the feelings have turned into disappointment as a series of media reports noted that branches of foreign luxury brands conduct few corporate social responsibility (CSR) activities here despite ballooning sales.

According to officials at Lotte and Shinsegae department stores, the nation’s largest chains, no European luxury brands have reflected the removal of tariffs in their pricing as of Tuesday.

Another source working in the retail industry said, “We hoped the FTA would help our customers. But what luxury brands did instead was raise prices suddenly before the FTA took effect. There isn’t anything distributors like department stores can do because these brands wield much leverage.”

French brand Louis Vuitton hiked prices back in February and again in June and has no plan to bring them down anytime soon.

Italian luxury brand Prada followed suit on July 1, hiking prices of 456 products out of 7,370.

Chanel is the most aggressive in marking up. The latest hike was in April at 25 percent, and the bag Lee wants saw its price skyrocketing 1.4 million won from 5.58 million won.

It is widely known here that some keep a stock of Chanel bags purely as a financial investment.

And the sales of these brands, in most cases, soared as fast as the prices of their products.

Louis Vuitton Korea’s sales rose to 427.31 billion won in 2010 from 372.1 billion won the previous year while its operating profit jumped to 52.3 billion won from 41.8 billion won.

In 2000, it made less than a tenth of the current sales at 38.2 billion won with an operating profit of 4 billion won.

Prada Korea’s sales grew to 175.7 billion won in 2010 from 119.6 billion won the previous year while operating profit nearly doubled from 26 billion won to 43.7 billion won. In 2000, it posted sales of 23.5 billion won and an operating profit of 2 billion won.

Gucci Group Korea saw sales slightly sliding from 282 billion won in 2009 to 273.1 billion won last year and operating profit drop from 45.3 billion won to 43.1 billion won. But, like its competitors, its sales grew more than 10-fold in a decade — it generated 23.8 billion won in revenue and 4.4 billion won in operating profit in 2000.

Growing more profitable didn’t translate into being more philanthropic for many of them.

Louis Vuitton Korea is one of the most generous givers, donating 58.6 million won last year. It represents a mere 0.000137 percent of the sales although it is significantly more than the 40 million won given in 2009, according to the auditor’s report.

Prada Korea doesn’t even have a record of donations between 2008 and 2010. The auditor’s reports showed that Prada donated 7 million won in 1999, but none in 2000, half a million in 2001 and 2002, 7 million won in 2003, 1.35 million won in 2004, none in 2005, 764,496 won in 2006 and none in 2007.

A Prada Korea official said the firm’s policy is not to comment on the issue.

Gucci Korea donated 37.3 million won last year, up from 31 million won a year ago.

Businesses aren’t obliged to make donations, but such small contributions are a stark contrast to their more charitable counterparts.

Luxury fountain pen maker Montblanc, for instance, holds the Montblanc de la Culture Arts Patronage Award annually which honors supporters and patrons for cultural activities.

The firm awards 15,000 euros (22.4 million won) to the winner who can then spend the prize money to support artists.

Montblanc has chosen only 12 countries where this award is given every year, and Korea became one in 2004.

“The award is more important and meaningful than the fountain pen business,” Lutz Bethge, Montblanc International CEO, said when he visited Korea in early July for the award ceremony.