"It's Okay to Raise Prices More"...Is There No Price Resistance in the Top Luxury Consumption Country?[Chosun Price Records]

(25) 'The higher the price, the better it sells' consecutive increases
Aimed at premium consumption
But consumer sentiment shrinks amid economic recession
Consumer fatigue rises

Luxury brands such as Hermes, Gucci, and Louis Vuitton have once again implemented sudden price hikes. This move targets premium consumer demand, where higher prices often lead to better sales. However, consumers are showing fatigue toward the continuous luxury price increases, as their desire for revenge spending has waned after the endemic phase of the pandemic, and prolonged inflation has thinned their wallets.

Quality Declined but Prices Increased?…Consumer Complaints Rise

A member of a luxury community with 600,000 members recently expressed frustration about the 'luxury price hikes,' saying, "The quality or design hasn't significantly improved and is even worse than before," adding, "Prices have doubled or tripled, so I’ve lost interest and don’t want to buy anymore." Other netizens commented, "It seems like it’s time to say goodbye to luxury goods," and "The time to cut losses has come."

Exterior view of the Louis Vuitton store opened on the 1st floor of The Hyundai Seoul. Photo by Hyundai Department Store

The luxury industry has traditionally raised prices once a year, usually at the beginning or end of the year, citing global price adjustments and rising labor costs. However, the frequency of price hikes has recently shortened. Over the past five years, the 'EruSha' brands (Hermes, Louis Vuitton, Chanel) have sometimes implemented up to five surprise price increases annually. Notably, Louis Vuitton and Chanel raised their product prices most frequently in 2021, when the COVID-19 pandemic peaked.

Hermes has typically increased prices once annually at the start of the year with single-digit growth rates, but in 2023, it raised prices by up to 10%. Chanel increased prices three times in 2019, twice in 2020, four times in 2021 and 2022, and twice in 2023. Louis Vuitton raised prices once in 2019, twice in 2020, five times in 2021, twice in 2022, and once in 2023.

This year, luxury brands continue their 'serial price hikes.' In January, Hermes raised the price of its 'Oran' sandals made from lizard leather from 2.45 million KRW to 3.52 million KRW, an increase of about 44%. Then last month, the price of the Garden Party 30 size canvas product rose from 3.27 million KRW to 4.04 million KRW, about a 23% increase. Louis Vuitton raised prices again on the 2nd of this month, five months after the February hike: the Carryall PM Monogram increased from the 3.4 million KRW range to the 3.6 million KRW range, and the Pochette M?tis East West Monogram rose from the 3.8 million KRW range to the 4.1 million KRW range.

'Luxury Invincibility' Myth Thanks to COVID-19 Boom

There are three main reasons why this 'bold business' strategy is possible. First, luxury goods, as conspicuous consumption items, benefit from the 'Veblen effect,' where higher prices lead to higher demand. Additionally, the COVID-19 pandemic created a unique situation.

[Image source=Yonhap News]

Following COVID-19 until 2022, a 'revenge consumption' craze significantly increased the number of consumers seeking luxury brands, giving rise to the new term 'Chanel Run' (the trend of rushing to Chanel stores as soon as they open). South Koreans ranked first globally in luxury consumption, with the American investment bank Morgan Stanley analyzing that in 2022, South Koreans spent $325 (about 440,000 KRW) per capita on luxury goods, surpassing the US ($280) and Japan ($210).

The recent rise of younger consumers as a major luxury market segment has also influenced this trend. In the past, luxury brands were considered exclusive to the wealthy, but with the rise of 'flex' culture (showing off wealth), young people have become significant luxury consumers.

Professor Eunhee Lee of Inha University’s Consumer Studies Department said, "When prices rise, the premium effect strengthens, creating differentiation. Consumers may prefer more expensive luxury goods because buying them emphasizes an upper-class image."

Chanel’s Operating Profit Down 34% Last Year…Rolex Down 86%

However, looking at the performance of luxury brands, it is clear that the formula 'the more expensive, the better it sells' is reaching its limits amid overall inflation.

Since the endemic phase, luxury industry performance has peaked and is declining. Chanel Korea’s operating profit dropped 34% last year, and its sales growth rate has slowed annually from 30% in 2022 to 7% in 2023. Christian Dior Couture Korea, the Korean branch of the Dior brand, also saw its sales growth rate fall from 51% in 2022 to 12% in 2023.

Louis Vuitton Korea’s sales revenue decreased by 2.4% last year to 1.6511 trillion KRW. During the same period, operating profit fell about 31% to 286.7 billion KRW, and net profit dropped 43% to 217.7 billion KRW. Rolex Korea’s operating profit shrank 86%, from 32.7 billion KRW in 2022 to 4.6 billion KRW last year.