Chanel, Louis Vuitton raise handbag prices. Will other brands follow?

Top luxury brands, including Chanel and Louis Vuitton, have increased prices of some of their most coveted products as they seek to make up for sales lost during weeks of coronavirus lockdowns.

High-end houses have all reported brisk business in South Korea and the key Chinese market, where shops began to reopen in March, partly offsetting a slump in Europe and the United States - where restrictions are only just starting to be lifted.

But with consultancy Bain estimating sales for the US$300 billion (S$428.7 billion) sector to fall by up to 35 per cent this year, bringing to a crushing halt a decade of spectacular growth, luxury groups are moving quickly to protect margins.

Chanel said it was increasing prices on handbags and some small leather goods by between 5 per cent and 17 per cent around the world as the pandemic had pushed up the cost of certain raw materials.

"These adjustments are made while ensuring that we avoid excessive price differentials between countries," it said. The Korea Times reported price rises of 25 per cent on Chanel goods in South Korea.

Industry powerhouse LVMH's star fashion label Louis Vuitton - which the company said last month was enjoying sales growth in excess of 50 per cent in China in early April - has also been raising the prices of handbags in the United States and Europe.

As an example, its Neverfull MM Monogram bag, which costs US$1,500 on its website, was priced at US$1,430 at the beginning of May and at US$1,320 at the end of October, meaning its price has risen by nearly 14 per cent.

Louis Vuitton declined to comment.

In China and South Korea, people were queuing outside Chanel stores this week as soon as rumours of imminent price increases began to spread on social media. Xie Lan, a documentary-film maker in Beijing, says she had managed to buy a handbag for nearly 30,000 yuan (S$6,036) before the price hike.

"Work is busy and stressful, I wanted to give myself a treat," she says.

US jeweller Tiffany, which is being bought by LVMH, increased prices of some of its products in South Korea by 10 per cent on May 6, a Seoul store manager says.

"Tiffany regularly reviews its pricing strategy including within each of the markets in which we do business to reflect among other things, currency fluctuations and business input costs," a spokesman for the company says.

Analysts said that the strongest brands, like Louis Vuitton, could be tempted to push prices up given the hit to sales from the virus crisis, which has caused a freeze on international travel and a recession in Europe and the United States.

"It's a strategy to defend margins," says Luca Solca, luxury goods analyst at Bernstein. However, not all labels would follow that route because it could trigger a backlash from consumers, he said.

Tod's, a family-owned Italian leather-goods label, says it is not planning any significant change to the group's pricing policy for now.

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Brands are also grappling with a large amount of unsold stock which they will be reluctant to sell at a big discount in stores, outlets or online for fear of denting full-price sales and the aura of exclusivity of their goods.

Raising prices also carries risk. In Beijing, Luna Xin, a finance broker, said she was giving up for now on her dream of buying the mid-sized Chanel Classic Flap bag, whose price went up by 14.5 per cent, to 48,900 yuan, this week. "Last September, it was only 39,000 yuan, and now, only a bit more than half a year later, it costs 10,000 more," Xin said.

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Chinese shoppers are key for luxury brands, as they accounted for 35 per cent of global luxury spending in 2019. Consultancy Bain expects their influence on the sector to grow even more in the next few years - and says they will account for nearly half of all luxury sales by 2025.

With global travel not expected to return to normal levels for up to two years, Chinese consumers who used to make two-thirds of their luxury purchases abroad will largely be shopping at home, accelerating a trend that was already under way.

That means that luxury brands are under pressure to further align prices in mainland China - which have traditionally been higher than in other parts of the world - to encourage Chinese consumers to buy in their own country.

Prices in China have gradually come down in recent years, as the government cut import duties and other taxes that had kept them higher. Brands also spent heavily on marketing and store rents when they first began trying to crack the market there.

"We believe it is essential not to penalise our clients on the basis of geographic considerations," Chanel says.