A drop in the value of the euro, which slid below $1 for the first time in two decades in July, could prompt a new round of luxury-level price increases in Europe. Chanel, for one, is rectifying the price differential between markets – namely, the U.S. and Europe – for its coveted (and increasingly expensive) flap bags by sending price tags up by almost 10 percent in the EU this month. Prior to boosting prices, PurseBlog reported that Chanel’s Large Classic Flap, for example, was selling for $10,165 (including tax) in the U.S., whereas the same bag retailed for €7,832 ($7,952) in Europe, and American travelers were, in fact, taking advantage of the price differences and buying up luxury goods in the EU during their summer travels.
In addition to raising the prices of its bags, such as the Small Classic Flap, which went from €7,750 to €8,450, the Medium Classic Flap (up from €8,250 to €8,990), and the Jumbo Classic Flap (now €9,700, up from €8,900), Chanel is also reportedly expected to raise prices for some goods across its fashion and leather goods division by roughly 5 percent. (TFL sources say that while handbag prices are rising in Europe, Chanel may actually cut Cruise collection footwear prices in the U.S. to help address pricing disparity given the rate at which American clients are holding off on shopping in the U.S. in favor of Europe.) The handbag price hikes come on the heels of Chanel chief financial officer Philippe Blondiaux revealing in May that the company “could implement” a price increase during the summer “to account for currency fluctuations and inflation,” and ultimately, reduce the price gap between different regions.
Chanel’s rising price tags follow from a string of increases in 2021 and early this year, with the famed fashion house raising prices three times in 2021 and in March 2022, “meaning some of its signature handbags now cost up to twice what they did before the pandemic in 2019,” per Reuters. While many major luxury brands “have raised prices throughout the coronavirus emergency to protect margins and, more recently, to counter rising costs of transport, logistics and raw materials,” Chanel has been “more aggressive than rivals in a move that analysts say also aims to increase the exclusivity of the brand.”
Reflecting on the March 2022 boost in prices, which took effect in Europe, South Korea, the United Kingdom, Taiwan, Hong Kong, Australia, and Canada, a rep for Chanel stated that it was “not a price increase, but a harmonization of the prices of our entire in-store offer, a principle we have been applying since 2015 and which aims to avoid excessive price disparities between the markets where we are present.” At the same time, the brand’s President of Fashion Bruno Pavlovsky said that the “objective is to offer the same price everywhere to limit the parallel market, [which is] an important signal to our customers, because it is a way of engaging with them in an honest way.”
The latest price hike from Chanel is striking, as “in the past, the focus has always been Europe/China given the implied threat from the Common Prosperity narrative,” (and given that China is one of the largest markets where European luxury goods are sold, along with the U.S.), Jefferies analysts Flavio Cereda and Kathryn Parker said in a recent note. They assert that the results of a comparison of prices for certain luxury goods in Europe versus the U.S. are “quite revealing,” stating that if a U.S. resident were to buy a certain “iconic popular bag from the largest leather goods brand” (read: Louis Vuitton) versus buying the same bag in a Paris store, they would pay “an excess of 60 percent.”
Against this background, Cereda and Parker anticipate that “momentum [in the EU market] will stay healthy in Q3,” while the “gradual sequential deceleration” in performance that is underway in the U.S. is “set to continue.”
LVMH management echoed this sentiment in the group’s first-half earnings call late last month, claiming that while the U.S./EU price differences “create some activity with U.S. clients in Europe,” they do not have plans to take any “urgent action” regarding prices, and instead, are in a “wait-and-see” mode. Prada management expressed similar thoughts in a call with analysts in late July, saying that they are waiting to determine what to do in terms of price increases for the second half of the year. “They are not in any rush to change the price gaps across regions, but are closely mentoring it,” according to Bernstein analyst Luca Sola, who said that the Italian brand – which raised prices for all leather goods during the first half of 2022 – bases its pricing strategy on “local market demand and conditions rather than focusing on price gaps across regions.”
Finally, Hermès may be looking to boost prices, with Bernstein’s analysts stating in a note last month on the heels of the Birkin bag-maker reporting its H1 results that management “looks at price increases from the lens of inflation, the cost of raw materials, and wages,” noting that the French luxury stalwart hired over 800 people and increased wages twice this year and awarded bonuses to employees. However, the analysts caution that it is not “frequent for Hermès to increase prices globally; it is always targeted, [and the company] does not increase prices without a good reason.”
One thing that is also clear: Hermès – and luxury brands more generally – “almost never cut prices” for their in-demand leather goods, and so, if they want to address price differentials between markets, that will usually come by way of an increase in relevant markets and not a decrease in others.