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Opinion

Luxury prices are going up, and that’s good news

Fabio Bonavita

By Fabio Bonavita26 juin 2020

Canadian hair salons and the luxury industry have one thing in common: both responded to the virus containment strategies by raising their prices. For the former, this was to compensate for the financial consequences of the pandemic – much to the chagrin of their customers. As far as luxury brands are concerned, the logic is different. The higher the price of a product, the greater its desirability (also known as the “Veblen effect”). So, last month when Chanel announced price increases of between 5 and 17% on its iconic 11.12, 2.55, 19, Boy and Gabrielle handbags, few were surprised. Likewise, in South Korea, economic media site Pulse News Korea’s report that Bulgari, Tiffany&Co and Louis Vuitton brands have increased their prices by an average of 3 to 11% was met with a collective yawn. It seems that the market shrugs off these price increases as being justified by higher raw material costs and unfavorable exchange rates.

What might sound like consumerist elitism is actually good news for the sector. Increasing desirability, and therefore rarity, puts more distance between luxury players and their premium segment competitors, and moves them closer to the ultra-luxury category that caters to only a handful of hyperwealthy customers. In other words, there is hope for the luxury industry gradually returning to what it was. However, this process was underway well before the coronavirus pandemic. According to a study conducted by IFOP, luxury goods prices rose by more than 80% between 2012 and 2019, with the most iconic products in the sector leading the way – leather goods, watches, and fashion. This strategy is expected to have consequences on the upcoming financial figures for the major luxury groups. And while the strategy may be sound in terms of image-building, it could also be putting the brakes on very short-term purchases, especially at a time as tumultuous as the one we have been experiencing for the past few months…

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