Fashion Houses Use Inflation As Excuse For Massive Price Hikes On Luxury Goods

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by Tyler Durden
Thursday, Feb 10, 2022 - 02:50 AM

As the CEO of one prominent luxury-goods conglomerate said during a recent earnings call, practically every luxury goods brand has been raising prices by larger-than-typical margins over the past year or two. But Chanel's price hikes have been particularly egregious.

As the WSJ reported in a piece on luxury-goods inflation published over the weekend, few products have seen price hikes like Chanel's small Classic Flap bag - an item that's practically ubiquitous in places like Manhattan, Milan and London.

The bag cost $5,200 as recently as 2019. But after three price hikes in 2021, the price tag on a new purse has risen to $8,200.

Wall Street analysts are warning that these egregious price hikes (which outpace those from other brands) might risk alienating consumers. And some megafans of the brand who were quoted in the WSJ story agree. While a Chanel spokesperson insisted that the price hikes were intended to offset increases in raw materials costs, brand superfans insist that the brand is actually producing more products of a sub-standard quality, exposing price hikes for what they - in all likelihood - are: cash grabs spurred by expectations of higher prices in the future.

Dee Gables, a novelist who tracks handbag prices "as a hobby" told WSJ she has seen examples of shoddy workmanship in the products displayed inside the company's boutiques.

"We expect price increases of a couple hundred dollars," said Dee Gables, a 32-year-old novelist who lives in Clawson, Mich. "But to go up $2,000 in six months upset a lot of Chanel lovers."

Gables, who tracks handbag prices as a hobby, said the quality hasn’t kept pace with the rising prices. She has seen bags in Chanel boutiques in recent years with crooked pockets, missing stitches and chain straps that don’t lie flat.

And she wasn't the only Chanel customer who went on the record to complain. Imagine spending nearly $10K on a luxury handbag only to have the clasp break a few months later. Does that sound like an effective strategy for customer retention?

Valerie Chan, a 33-year-old financial analyst who lives in Forest Hills, Queens, said the clasp on a Chanel camera case broke a few months after she bought it at one of the brand’s boutiques in 2018. "If you’re going to pay such a high price, the materials and craftsmanship should keep up," she said. "I understand they need to raise prices to keep up with inflation. But lately their prices seem to be increasing at a more rapid pace."

But as WSJ exposes in its report, the real reason Chanel has been so aggressive with its price hikes is that it wants to place its bags in the same rarefied territory (metaphorically speaking) as those produced by its archrival, Hermès. So while higher raw materials prices are an excuse for these hikes, they're not the real reason. And as one purse blogger quoted in the story pointed out, while customers have been grumbling, they're still buying (even if that means buying second-hand).

Chanel’s new prices put it more in line with Hermès, whose Birkin and Kelly bags have waiting lists despite prices that run into the tens of thousands of dollars. Chanel’s brand is about as strong as Hermès but until recently its bags were less expensive, said Mr. Rambourg, the HSBC analyst.

"As much as some people are upset at Chanel’s price increases, they are still buying," Ms. Mahoney Dusil said. "As the price goes up, it becomes unattainable for some. But the core customers won’t be priced out."

As a result, prices on second-hand Chanel goods on popular website therealreal have surged 26% since 2020. By comparison, headline inflation as measured by the CPI rose 7% between December 2021 and December 2022, the highest number in 40 years.