Luxury Brands – from Louis Vuitton to Gucci and Hermes to Bulgari have been raising their retail prices at a steady pace. The materials are more expensive, labor costs have risen but so far, the luxury shoppers have accepted the increases. That mood may not last.
Last week Louis Vuitton raised their prices on dresses, shoes and handbags. While prices have crept up selectively in the past, the massive increases were an indication that costs have risen and forced management to take this action. Bernstein, who tracks prices closely, estimate the increase between 6% and 7%, Purse Bop estimates the increase is about 4% for lower priced bags but 15%-18% for higher priced purses. The company, part pf LVMH. did not comment. Tag Heuer, another LVMH company, announced that they will raise their prices shortly. The estimate is 5%-6% increase.
Real inflation has hit hard the luxury market and luxury shoppers may abandon their favorite brands. Of course, the sophisticated customer may still want to pay the higher prices. For instance, a Chanel bag nearly doubled in price in the past five years and customers continued to pay the price. Nonetheless, that may change soon. Even luxury customers may resist the high prices luxury brands are charging.
Here are some of the reasons luxury prices are sky high:
1. Inflation. The costs of manufacturing as well as shipping goods has risen sky-high. Since 2019 food prices have risen over 7%, apparel prices have rising about 14% and furniture prices have risen about 32%. In 2021 overall prices rose 7.5% and they have risen sharply since last year.
2. Higher Interest rates. The Federal Reserve will raise interest rates three to five times this year, which will cause more pain.
3. Popular brands. Popular brands like Crocks pass along price increases and cause comments.
4. Leisure time. Vacationer’s will find that their travel and hotels have raised prices which will impact their discretionary spending while on vacation.
5. Private Labels. Nordstrom and other stores are placing more emphasis on private labels and giving them more display space on the selling floor.
6. Salaries. Salaries are not being raised as much as store merchandise is increasing since 2019. Investors in the stock market, which was buoyant, are currently scared and unfocused.
Prices have risen because companies could do so without customer resistance. However, the cost of raw material, supply chain increases and other factors have made inflationary pressures a major factor.
There is a point-counterpoint. The crypto market, which created some very super-rich consumers, has turned negative and more volatile. In addition, Chinese crackdown on conspicuous consumption has cut down luxury purchases by wealthy shoppers. Both factors may reduce demand for luxury merchandise and slow the rising price spital.
POSTSCRIPT: Will inflationary pressures bring about a recession? Or will inflationary pressures hurt luxury sales and cause a slowdown for luxury stores like Neiman Marcus, Sacks Fifth Avenue and other fine luxury stores? At this point it is hard to tell. People are looking at their valet and it is much thinner than a year ago. That vacation trip with the family still looks very attractive and may prevent many purchases.