LVMH, Other Luxury Brands Raise Prices, Betting Wealthy Customers Won’t Mind

Unlike other consumer brands, luxury makers face less restraint by shoppers amid today’s inflation

Louis Vuitton, owned by LVMH, has been ratcheting up prices for its handbags.
Louis Vuitton, owned by LVMH, has been ratcheting up prices for its handbags.

The world’s luxury-goods giants are raising prices on handbags, clothes, shoes and jewelry — and facing little resistance so far from shoppers.

LVMH Louis Vuitton Moët Hennessy SE increased its handbag prices globally this week, in some cases by double-digit percentages, according to Bernstein Research.

LVMH declined to comment, but Bernstein, which tracks the closely followed industry proxy, estimates that global handbag price hikes at LVMH’s Louis Vuitton brand came in on average at between 6% and 7%.

The price of some popular handbags in some markets rose by as much as 25%, Bernstein found. In China, a medium Louis Vuitton Coussin bag, for instance, rose from 30,000 yuan, about equal to $4,730, to 37,500 yuan.

With affluent customers who accept — and in some cases seek — hefty price tags, luxury brands are typically able to raise prices without affecting demand for their products.

That is in contrast with many mass-market consumer brands, which face tricky decisions about whether to pass costs on to price-sensitive customers.

“We have an advantage on quite a few other companies and groups, which is that we have a degree of flexibility on our prices,” said Bernard Arnault, LVMH’s chairman and chief executive, on a January earnings call. “In the face of inflation, we have the ways and means to react.”

On Thursday, Jean-Marc Duplaix, chief financial officer of Gucci owner Kering SA, said the company’s priority this year is to safeguard profitability gains made in 2021, making price increases an option.

Compagnie Financière Richemont SA, whose luxury brands include Cartier, has also been raising the prices of some of its watches and jewelry in recent months.

Versace and Jimmy Choo plan to raise prices for those brands’ clothing and shoes, said John Idol, chief executive of Capri Holdings Ltd., the brands’ owner, on an earnings call earlier this month.

Some price rises have faced pushback. Chanel SA has lifted prices for its handbags sharply, The Wall Street Journal reported, triggering an outcry from some shoppers.

The luxury sector is already flying high after a grim 2020, during which the pandemic hammered sales. Demand roared back last year, with luxury consumers flocking to stores as Covid-19 lockdowns eased.

The industry is striving to maintain that strong momentum in 2022, said Kathryn Parker, an analyst at Jefferies Group.

Part of the strategy is pricing hikes, she said, since most players have the luxury of raising prices to maintain margins without scaring customers away.

“Luxury really is immune,” said Ms. Parker, noting that even during low inflation periods, many players raise prices over and above rising costs. “They have the pricing power to offset any underlying cost inflation.”

Jefferies expects global luxury revenues to increase by around 15% this year, despite inflation.

LVMH, Europe’s most valuable company by market capitalization, said last month that 2021 was its best year ever: Revenue came in at €64.2 billion, or about $73.1 billion, up 20% relative to pre-pandemic 2019. Profit for the year rose 49%, to €17.2 billion, from 2019.

Kering on Thursday reported 2021 revenue of €17.6 billion, up 13% compared with 2019, while profit was up 38% at €3.2 billion. Results pushed Kering stock up around 7% by early European afternoon.

Gucci, Kering’s largest brand but a relatively weak performer recently in growth terms, had a strong fourth quarter of 2021, with sales up 18% compared with the same period in 2019.

Analysts said that the movie House of Gucci, though disavowed by the Gucci family, may have boosted the brand’s profile and helped its growth to rebound.

Source: the wall street journal