On December 5, 2024, media reports confirmed that Hermès will implement a new round of price increases before January 1, 2025. A representative from Hermès China also verified the news and stated that the exact price increase and levels will vary by store. It is reported that the price hike will range from 6% to 12%, mainly affecting handbags. The iconic Birkin bag is expected to surpass 100,000 yuan.

In fact, due to rising production costs, increasing demand, currency fluctuations, and market strategy needs, many luxury brands adjust their prices annually at the end of the year. From 2020 to 2024, the practice of implementing price hikes “once a year” or “multiple times a year” to boost profits and cope with cost pressures has become a common strategy for many luxury brands.

For example, earlier this year, in February, Louis Vuitton raised the prices of certain products in the Chinese market by an average of 6%. In the second half of the year, five months later, LV raised its prices again by 5% to 7%, marking the tenth price increase for the brand in the past three years. Similarly, Chanel raised prices for the first time this year in March, followed by a second increase in September, with an increase of 6% to 8%.

Price increases are understandable, but how long can the profit “magic” of only raising prices and never lowering them last?

Reflecting on the Luxury Price Hike Trend

A luxury goods market report released last month by Bain & Company, in collaboration with the Italian Luxury Goods Manufacturers Association, showed that global personal luxury goods consumption is expected to decline by 2% to 363 billion euros in 2024. Bain noted that amid the cooling trend in the global luxury goods industry, the number of luxury consumers has decreased by about 50 million in the past two years, with a particularly significant loss among younger consumers. Although high-net-worth individuals continue to purchase luxury goods, they are feeling that the exclusivity and rarity of these products are diminishing.

In the third-quarter earnings report season at the end of November, the performance of different brands showed a clear divide. Most brands experienced slower or declining revenue due to the unstable global economic environment, while a few, such as Hermès and Miu Miu, managed to maintain growth despite the broader economic downturn. As luxury goods have outpaced inflation in pricing, the increasing prices have become increasingly difficult to accept. Many brands have begun to reconsider the issues caused by their “luxury price hike strategy.”

During the Bain luxury market report press conference, Andrea Guerra, CEO of Prada SpA, harshly criticized the price hike trend in the luxury goods industry. He believed that the rise in luxury prices to such an extent in recent years was a “huge mistake” and that this strategy was an overly simplistic solution. “This is our biggest failure because by doing this, we betrayed the consumer. For consumers, price hikes do not bring better products. Moreover, even entry-level products have seen price increases, and the entire luxury industry is moving further toward the high-end market,” Guerra stated. On November 19, Marco Bizzarri, the former CEO of Gucci, also publicly stated that excessive price hikes were one of the main reasons why the luxury industry is struggling. Faced with third-quarter earnings reports showing declines, British luxury leather goods brand Mulberry and American accessible luxury giant Capri Group both pointed out that the excessive price increases had led to a dramatic drop in consumer demand and announced price-cutting strategies.

Returning to Rational Luxury Consumption

Industry analysts have pointed out that international luxury brands are currently pursuing two different pricing strategies: one, represented by top-tier brands like Hermès, sticks to the price hike path, while the other, among mid-range and smaller luxury brands, is facing the road to price cuts. The question is: why does the price hike strategy work for some brands but fail for others, eventually forcing them to lower their prices?

On one hand, pricing reflects the “perceived value” of a product, and luxury pricing is closely linked to brand positioning. The perceived value of a luxury brand is often far more important than its actual value.

Daniel Langer, founder and CEO of luxury brand consultancy Équité, stated, “The moment a brand offers discounts, it sends the signal that its original price was too high or unreasonable. This not only devalues the discounted products but also harms the value of the entire brand portfolio. That’s why even a single promotional discount, in the long run, can do significant damage to a brand.”

Top-tier luxury brands, as they are more widely recognized by high-end consumers, are better able to increase profits through price hikes. In times of economic downturn, they can select consumers with the purchasing power to compensate for the loss of foot traffic. Langer added, “I don’t know of any luxury brand that can achieve long-term success through promotions or discounts. Brands like LVMH and Luxury YSL, which are the most successful, steadfastly refuse to engage in any promotional activity. They understand that the power of luxury lies in its rarity and the belief that the product is worth its price. The strategy of top-tier brands is often the opposite of mid-range brands: they relentlessly focus on building brand assets and providing excellent brand experiences. This translates into their ability to regularly raise prices and ensures that their products’ perceived value remains high, regardless of the economic climate.”

On the other hand, luxury pricing is not just a number; it reflects the actual value a brand provides to its customers. Excessive pricing can suppress demand from some consumers, especially those in the price-sensitive middle class.

A report released by Bernstein revealed that over the past 50 years, luxury brands’ annual price increases have ranged from 5% to 7%. Since 2020, the pace of price increases has accelerated, with some brands raising prices by double digits every year. Luxury industry analyst Luca Solca stated, “In the years following the pandemic, price inflation has been unbalanced… even some accessible luxury products are priced far above their long-term average and have exceeded double-digit percentages.” He pointed out, “Excessive price hikes sever the connection between aspiring middle-class consumers and the core products of these luxury brands.” Therefore, even though price hikes are happening across the board, consumers of mid-tier luxury brands are more sensitive to price increases, which has led to some brands’ price hike strategies ultimately failing.

Furthermore, luxury goods, being high-end products, need to truly meet consumer needs and reflect the uniqueness that justifies their high price. Without such justification, even wealthy consumers will not pay inflated prices.

The luxury industry is currently facing an oversupply problem, coupled with the industry’s “lack of creativity,” and without a solid reason for consumers to pay a premium, even the wealthy are unwilling to be long-term “milked.” Claudia D’Arpizio, partner at Bain & Company and co-author of the luxury market research report, stated, “In recent years, Generation Z consumers have been heavily favoring streetwear and sportswear, but now they feel abandoned. Even super-wealthy individuals are beginning to question the high prices set by the industry, especially when they feel the product does not justify its price. This sense of being ripped off is compounded by the lack of innovation in new products from major brands.”

About Myhermeshub

We are a proudly Chinese enterprise committed to bringing the allure of luxury handbags to everyone. Our mission is simple: to deliver exquisite, high-quality handbags at prices that make luxury accessible.We believe elegance should not come at an overwhelming cost. That’s why we prioritize exceptional craftsmanship and meticulous attention to detail in every product we offer. Our collection features a diverse range of luxury handbags designed to meet a variety of styles and preferences, ensuring that every customer can find something uniquely tailored to their taste.

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