Chanel claims the price increase again. Analysts applaud the price list adjustments of Hermès. But they reproach a Gucci of having taken them too far, ending up in a shadow between premium and luxury. Fashion is pushing upwards to protect margins in this difficult 2024 for volumes. But precisely for this reason, keeping the balance in balance price/positioning ratio is critical. Especially in light of the uncertainties of Chinese marketamong the wealthiest but, apparently, intending to put the brakes on.
Who can afford it
The analyst Thomas Chauvet explains why the price increase is good for Hermès: for accounting reasons. Considering that the leather goods production of the brand is growing by 7% every year, in 2024 overall revenues could be affected by a flattening of revenues from non-leather products (watches, jewellery, clothing, and more). “However – writes Chauvet – the pricing (+7% in 2023 and +8-9% in 2024) should limit the risks of a decline in revenues”. Chanel wants to follow in the footsteps of Hermès and, in fact, is continuously raising prices, to the point that some of its bags have reached 10,000 euros worth. A month ago it was the president of the fashion division Bruno Pavlovsky who explained why prices are increasing. This time she is the CEO of Chanel Leena Nair to reiterate the concept to Bloomberg: “We use high-quality raw materials and our production is very rigorous, laborious and artisanal. So we increase prices accordingly to inflation”. Nair also reiterated that the company has no plans to go public.
The delicacy of the price/positioning relationship
But brands like Hermès and Chanel have high pricing power: they are at the top of the luxury pyramid. Anyone who is not in the same condition cannot exercise the same power. This is the case of Gucci, especially in China. Kering’s CFO confessed this Armelle Poulou: “The Chinese market is quite polarized between customers’ appetite for high-end or more affordable products. Gucci, more positioned in the middle, does not benefit from this polarization”. It is the Chinese customer who determines the success or failure of brands, which record such contrasting performances. As Bernstein points out, Chinese revenues of LVMH they increased by 10% in the first quarter of 2024. While retail sales fell by 19% in Asia for Kering and by 28% for Gucci. China has dragged Brunello Cucinelli up. Bernstein sees a “market normalization and changing travel patterns and a weaker economic environment.” (mv)
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