Did You Buy the 'E·Ru·Sha' Luxury Bag? ... 85% of Net Profit Goes to the European Headquarters

Top 3 Luxury Brands' Domestic Sales Reach 2.4 Trillion KRW Last Year
Cut Advertising and Employee Training Costs, Earn 134 Billion KRW in Dividends

[Asia Economy Reporter Jo In-kyung] The three major luxury brands Hermes, Louis Vuitton, and Chanel recorded sales reaching 2.4 trillion KRW last year. Combined net profits of the three companies amounted to 275.7 billion KRW, a 1.5-fold increase compared to 184.5 billion KRW in 2019. Given the nature of luxury companies that remit most of their profits to their European headquarters, dividends amounting to 134 billion KRW last year are expected to increase to as much as 200 billion KRW this year.

Unveiling the Performance of the Three Major Luxury Brands

On the 15th, with Chanel Korea being the last to disclose, the performance results of the three major luxury brands were all revealed for the first time. Chanel Korea recorded sales of 929.6 billion KRW last year, with operating profit and net profit of 149.1 billion KRW and 106.9 billion KRW, respectively. Although sales, which had exceeded 1 trillion KRW in 2019, slightly decreased, operating profit increased by 34.4% and net profit by 31.8%.

The biggest factor was the continuation of a high-price policy, including a 5-26% price increase in May last year for popular handbags such as the 'Boy Bag' and 'Classic Bag,' followed by another 2-3% increase in November. Chanel also raised prices by up to 10% in January this year for items like the '19 Flap Bag' and 'Coco Handle.'

As revenge consumption patterns have fully emerged after COVID-19, a remarkable scene has been unfolding for a year in front of department stores housing Chanel stores, with long lines forming even before opening. Because prices are raised every time, consumers are lining up from early morning to get waiting numbers, saying "buying now is the cheapest."

Hermes, regarded as the "luxury of luxury," also maintained double-digit sales growth last year. Sales increased by 15.8% year-on-year to 419.1 billion KRW, with operating profit and net profit rising 15.9% and 15.8% to 133.4 billion KRW and 98.6 billion KRW, respectively.

Louis Vuitton Korea's domestic sales surged 33.4%, surpassing 1 trillion KRW. This is more than double the 497.3 billion KRW reported in 2011, the last time a domestic audit report was filed. Last year, operating profit and net profit soared 176.7% and 284.7% to 151.9 billion KRW and 70.3 billion KRW, respectively.

[Image source=Yonhap News]

Headquarters Remittances May Exceed 200 Billion KRW This Year

These three companies, headquartered in Europe, remit most of their profits to their headquarters or Asian subsidiaries such as those in Hong Kong through dividends. Last year, Hermes Korea paid dividends amounting to 85.2% of its net profit, or 84 billion KRW, and Louis Vuitton Korea paid dividends amounting to 71.1% of its net profit, or 50 billion KRW. Excluding Chanel, which did not pay interim dividends, a total of 134 billion KRW was remitted to headquarters. In 2019, Louis Vuitton postponed dividends, while Hermes paid 84 billion KRW and Chanel 33 billion KRW, totaling 117 billion KRW in remittances.

With luxury consumption surging from the beginning of the year and all three brands raising prices, the scale of remittances to headquarters by the three major luxury brands is expected to approach 200 billion KRW this year. An industry insider said, "Not only the three major luxury brands but most luxury companies are enjoying a super boom, so the scale of dividend payments is expected to increase further this year," adding, "Instead of going to Europe, it is as if money is being deposited into European luxury companies."

While earning money, they remain passive in domestic investment and employment. Last year, due to the impact of COVID-19 and other factors, all three companies cut domestic advertising expenses by more than half and significantly reduced training expenses for employees. Currently, the number of employees is only 286 at Hermes, 809 at Louis Vuitton, and 1,366 at Chanel.