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Will the channel lead a new wave of luxury-level price hikes?

A fall in the value of the euro, which fell below $1 for the first time in two decades in July, is prompting a new round of luxury-level price hikes in Europe. Chanel, this month is correcting the price difference between the markets for its coveted flap bags by sending price tags down by about 10 percent in the EU — namely, the US and Europe. Before the price hike, Purseblog reported that Chanel’s Large Classic Flap, for example, was selling for $10,165 (including tax) in the US, while the same bag retailed for €7,832 ($7,952) in Europe, and American travelers were, in fact, taking advantage of the price differences and their summer Buying luxury goods in the EU while travelling.

The Small Classic Flap, which went from €7,750 to €8,450, the Medium Classic Flap (from €8,250 to €8,990), and the Jumbo Classic Flap (now €9,70, 9, 70, 9, 70, 9, 70, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9, 9) has increased the prices of its bags. from €8,900), Chanel is expected to increase prices by approximately 5 percent for small leather goods, shoes and ready-to-wear across its fashion and leather goods division. The price hikes come after Chanel chief financial officer Philippe Blondiaux revealed in May that price increases could be “implemented” in the summer to “account for currency fluctuations and inflation” and ultimately reduce the price gap between different regions. .

With Chanel’s soaring price tags set to triple in 2021 and in March 2022, “some of its signature handbags now cost double what they did before. The pandemic in 2019,” per Reuters. “To protect margins throughout and, more recently, to raise prices to combat rising costs of transportation, logistics and raw materials,” analysts say, Chanel is “more aggressive than competitors. To enhance the brand’s uniqueness.”

Reflecting on the March 2022 price hikes that took effect in Europe, South Korea, the United Kingdom, Taiwan, Hong Kong, Australia and Canada, a Chanel representative said it was “not a price increase, but a harmonisation”. The pricing of our entire in-store offer, a principle we have been applying since 2015, aims to avoid excessive price disparity between the markets we are in. At the same time, Bruno Pawlowski, the brand’s fashion president, said that “the aim is to offer the same price everywhere to limit parallel marketing, [which is] An important signal to our customers, as it is a way to engage with them in an honest way.

Chanel’s recent price hike is notable because “in the past, given the threat posed by Europe/China General Prosperity narrative,” (and China is one of the largest markets for European luxury goods, along with the U.S.), Jefferies analysts Flavio Cereda and Kathryn Parker said in a recent note. The results of a price comparison of some luxury goods in Europe versus the U.S. are “quite revealing,” they assert. If a resident buys a certain “conventional popular bag from the biggest leather goods brand” (read: Louis Vuitton) instead of buying the same bag in a Paris store, they will pay “up to 60 percent”.

Against this backdrop, Cereda and Parker say, with such differentiation in mind, they “expect momentum.” [in the EU market] will remain healthy in Q3, but the “gradual sequential decline” in ongoing performance in the US is “set to continue.”

LVMH management echoed the sentiment in the group’s first-half earnings call late last month, saying US/EU price differences will “create some activity with US clients in Europe,” adding that they have no plans to take any “immediate action.” Prices, and instead, are in “wait and see” mode. Prada management expressed similar thoughts on a call with analysts in late July, saying they were waiting to decide what to do in terms of price increases in the second half of the year. “They are in no rush to change the price gap across regions, but are guiding it closely,” Bernstein analyst Luca Sola said, adding that the Italian brand – which has raised prices for all leather goods in the first half of 2022 – bases its pricing on “local market demand and conditions rather than focusing on price gaps across regions”. Based on the technique.

Finally, Hermès may be looking to raise prices, analysts at Bernstein said last month, on the heels of the Birkin bag maker reporting its H1 results last month that “looks at price increases through the lens of inflation, raw material costs, and wages,” which has hired more than 800 people and raised wages twice this year. and gave bonuses to employees. However, analysts caution, “It’s not often that Hermès raises prices globally; It is always the goal, [and the company] Do not increase prices without good reason.

One thing is also clear: Hermès – and luxury brands more generally – “almost never cut prices,” and therefore, if they want to address price differences between markets, it will come from increases in related markets and not decreases. Among others.

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