I tried posting this in a Chanel group on FB that I’m a member of, but sadly it got deleted within 15 minutes and just as soon as comments started getting good. I’m not sure if this post is in violation of any TPF rules, but I certainly hope not as I am hoping to have an intelligent conversation around the price hikes we’ve been seeing across all the fashion houses and multiple industries outside of luxury/fashion in general. Plus all this sheltering in place and being off from work all week due to feeling under the weather gave me some time to actually think about some of this stuff so here goes...
After a bit of research today, here is my take on these price hikes: the pandemic is of course playing a huge role in this but what I wasn’t expecting to discover was how much influence China is having on the price increases. It’s not a secret that Chanel prices are different in various countries but they are typically most expensive in China, sometimes by as much as 30-40%! This is true of all luxury brands’ pricing strategies across the board - not just Chanel’s. Despite these luxury goods being the most expensive in China, the Chinese market makes up one-third of these fashion houses’ revenues each year.
Let me say that again: China accounts for roughly 33-35% of total revenue worldwide for all luxury brands. One country vs. the rest of the world - that’s a lot of buying power for a single country!
In addition to the statement above, also consider the fact that before the pandemic, LOTS of Chinese citizens were traveling to other parts of the world to make luxury purchases at cheaper prices. The volume of revenues from these purchases (Chinese travelers buying outside of their home country) is NOT included in the one-third of global revenues attributed to the Chinese market. That means that China actually contributes more than 1/3 of global revenues, likely significantly more.
As we all know, the pandemic has negatively impacted the global economy, supply chains, COGS (cost of goods sold), and international travel. This has had a domino effect on all businesses, putting most in a position of deciding between only 2 options:
Due to the disparity in prices that already existed amongst countries/markets pre-COVID, many fashion houses have been able to essentially predict that they can, in fact, “get away” with these price hikes because again - despite their products being the most expensive in China, the Chinese market, geographically, still made up one-third of their total global revenues. So even if they didn’t raise prices in China but raised them everywhere else, the amount of customers they lost due to price increases would likely be a “wash” because they’d still be earning the same amount of revenue, just with less customers. But it’s actually not a “wash” for them if the fashion houses can get away with this because many of them also raise prices to ensure that they maintain a certain level of exclusivity or rarity. Thus, the impact of these price hikes ends up being a net POSITIVE effect on the brands’ perceived value. Keep in mind that value does not equate to price or cost; this is most obvious in the second-hand retail market where certain brands and their products are able to retain or even increase their value irrespective of its age or use.
Conclusion/TLDR:
Closing the gap in prices of luxury products between China and the rest of the world, while in the long-term might not be something that many companies would want to “give up”, in the short-term it does give companies a way to continue operations and production with a certain level of confidence that they’ll still be able to maintain similar revenues for relatively low risk. With the halt of international travel, price increases also forces most everyone to make their purchases in their respective home countries. Where this is the biggest advantage for companies is in none other than China where its residents are already used to buying at the highest prices and can’t travel outside the country to make luxury purchases elsewhere. The bottom line, in my opinion (based on only cursory research), is that these price hikes will continue so long as China’s consumer market continues to buy luxury products despite price hikes. With the Chinese market making up a third of the luxury industry’s revenues, as long as price hikes don’t result in revenue losses overall, losing customers in other countries is counterintuitively desired because luxury brands by design want to prevent their products from becoming overly distributed to avoid diluting the exclusivity of their brand.
What we can do about it:
This may seem like a lost cause, but 2/3 is still greater than 1/3. If the rest of us can (and actually do) band together and boycott Chanel, LVMH, Kering, and other fashion houses, we actually do have enough power to influence price setting. Louis Vuitton and Gucci have lowered prices on evergreen products in certain countries in the past as a result of economic factors, so it’s not outrageous to think that a boycott could actually work. A boycott by the consumers that constitute two-thirds of their revenues absolutely would send a message to the fashion houses that they’d better stop with the price hikes unless they want to start imagining life with only a third of their current revenues. Trust and believe that those prices will start to come back down REAL QUICK. The REAL question is: Can we get everyone who isn’t geographically inside China to boycott luxury products during the pandemic (and honestly beyond because this is getting ridiculous)? I genuinely would love to hear others’ thoughts on this because if we really could get enough traction to do this, we could actually make this a real initiative. An initiative that thanks to the pandemic, gave rise to a protest in its own right in response to the realization and against the revelation of a shamefully unhealthy over-reliance upon a single country, China, in yet another industry where it “hurts” our own economy. Side note: I put quotation marks around the word hurts because I do realize that this is a first world problem during a global pandemic and other natural disasters, but hey, we’re still allowed to have feelings about this one way or the other. PS. This post is not meant to shame China or its people in any way, but rather the decisions made by company executives of all types and from all countries to rely too heavily upon one country for anything at all, whether it be their total revenues, outsourced labor, or cheap raw materials, etc.
After a bit of research today, here is my take on these price hikes: the pandemic is of course playing a huge role in this but what I wasn’t expecting to discover was how much influence China is having on the price increases. It’s not a secret that Chanel prices are different in various countries but they are typically most expensive in China, sometimes by as much as 30-40%! This is true of all luxury brands’ pricing strategies across the board - not just Chanel’s. Despite these luxury goods being the most expensive in China, the Chinese market makes up one-third of these fashion houses’ revenues each year.
Let me say that again: China accounts for roughly 33-35% of total revenue worldwide for all luxury brands. One country vs. the rest of the world - that’s a lot of buying power for a single country!
In addition to the statement above, also consider the fact that before the pandemic, LOTS of Chinese citizens were traveling to other parts of the world to make luxury purchases at cheaper prices. The volume of revenues from these purchases (Chinese travelers buying outside of their home country) is NOT included in the one-third of global revenues attributed to the Chinese market. That means that China actually contributes more than 1/3 of global revenues, likely significantly more.
As we all know, the pandemic has negatively impacted the global economy, supply chains, COGS (cost of goods sold), and international travel. This has had a domino effect on all businesses, putting most in a position of deciding between only 2 options:
- Whether they can and will try to survive until things get better
- Whether they should cut their losses and close now
Due to the disparity in prices that already existed amongst countries/markets pre-COVID, many fashion houses have been able to essentially predict that they can, in fact, “get away” with these price hikes because again - despite their products being the most expensive in China, the Chinese market, geographically, still made up one-third of their total global revenues. So even if they didn’t raise prices in China but raised them everywhere else, the amount of customers they lost due to price increases would likely be a “wash” because they’d still be earning the same amount of revenue, just with less customers. But it’s actually not a “wash” for them if the fashion houses can get away with this because many of them also raise prices to ensure that they maintain a certain level of exclusivity or rarity. Thus, the impact of these price hikes ends up being a net POSITIVE effect on the brands’ perceived value. Keep in mind that value does not equate to price or cost; this is most obvious in the second-hand retail market where certain brands and their products are able to retain or even increase their value irrespective of its age or use.
Conclusion/TLDR:
Closing the gap in prices of luxury products between China and the rest of the world, while in the long-term might not be something that many companies would want to “give up”, in the short-term it does give companies a way to continue operations and production with a certain level of confidence that they’ll still be able to maintain similar revenues for relatively low risk. With the halt of international travel, price increases also forces most everyone to make their purchases in their respective home countries. Where this is the biggest advantage for companies is in none other than China where its residents are already used to buying at the highest prices and can’t travel outside the country to make luxury purchases elsewhere. The bottom line, in my opinion (based on only cursory research), is that these price hikes will continue so long as China’s consumer market continues to buy luxury products despite price hikes. With the Chinese market making up a third of the luxury industry’s revenues, as long as price hikes don’t result in revenue losses overall, losing customers in other countries is counterintuitively desired because luxury brands by design want to prevent their products from becoming overly distributed to avoid diluting the exclusivity of their brand.
What we can do about it:
This may seem like a lost cause, but 2/3 is still greater than 1/3. If the rest of us can (and actually do) band together and boycott Chanel, LVMH, Kering, and other fashion houses, we actually do have enough power to influence price setting. Louis Vuitton and Gucci have lowered prices on evergreen products in certain countries in the past as a result of economic factors, so it’s not outrageous to think that a boycott could actually work. A boycott by the consumers that constitute two-thirds of their revenues absolutely would send a message to the fashion houses that they’d better stop with the price hikes unless they want to start imagining life with only a third of their current revenues. Trust and believe that those prices will start to come back down REAL QUICK. The REAL question is: Can we get everyone who isn’t geographically inside China to boycott luxury products during the pandemic (and honestly beyond because this is getting ridiculous)? I genuinely would love to hear others’ thoughts on this because if we really could get enough traction to do this, we could actually make this a real initiative. An initiative that thanks to the pandemic, gave rise to a protest in its own right in response to the realization and against the revelation of a shamefully unhealthy over-reliance upon a single country, China, in yet another industry where it “hurts” our own economy. Side note: I put quotation marks around the word hurts because I do realize that this is a first world problem during a global pandemic and other natural disasters, but hey, we’re still allowed to have feelings about this one way or the other. PS. This post is not meant to shame China or its people in any way, but rather the decisions made by company executives of all types and from all countries to rely too heavily upon one country for anything at all, whether it be their total revenues, outsourced labor, or cheap raw materials, etc.
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