If it seems to you that the prices for hot luxury items like Chanel handbags and Christian Louboutin shoes are going up at a dizzying rate, you are not mistaken. The Wall Street Journal reports that prices for luxury brand items from labels like Prada, Louis Vuitton and Cartier have risen by as much as 70% in the last five years alone, and customers, many of who were already willing to lay out a couple of thousand dollars for a handbag, are starting to balk, or just buy fewer things. The Louis Vuitton 'Montaigne' bag pictured above is now $2,410, which seems high for a non-leather bag even from LV. According to WSJ, the price of a classic quilted Chanel bag rose 70% to $4,900 since 2009, and coveted brands like Jimmy Choo have jacked up prices by 50% even on basic styles. The brand representatives claim that rising costs of labor and materials have caused the increases, but experts counter that such factors shouldn't count for more than a 5% increase over the time period. The Journal's theory is that as less expensive but aspirational brands like Michael Kors and Coach (which is one of the most popular import labels in China) gain ground, the high-end luxury brands want to distinguish themselves as offering a finer, and therefore more expensive, product. The thinking is that if customers will pay it, they can charge it, but the Journal is telling us that well-heeled customers who are used to what most other folks would consider extravagant spending are fed up. In fact, the wildly inflated prices are showing up on balance sheets as growth, but are hiding the fact that unit sales are dropping as the possibility of having one of those status items seem ever out of reach.
Now, growth is slowing, so what does this mean for luxury prices in the future? Will they level off, or even drop? It is unlikely that a brand like Chanel will lower the overall prices of its basic products, but perhaps they will reconsider when pricing new items. Luxury prices overall may stabilize for the next few seasons, because as enthusiastic as the 1% is about buying luxury labels, they are also quick to turn on a brand if they feel that they are being gouged at the register. As emerging markets overseas continue to present themselves, however, these brands may not have to trade too far down to hit projections, they can just expand globally. There may not be much of an end in sight.
Soaring Luxury-Goods Prices Test Wealthy's Will to Pay (Wall Street Journal)