Any information on 2015 price increase?

[Bostonjetset]

Thank you all for this fascinating and enlightening discussion. I am with Bostonjetset, this has been a most fruitful way to pass the afternoon during a snow storm.

I have to agree with MrsOwen3, again.
There may be some differences of opinion over the definition of the aspirational consumer, but there is no doubt that the "average" luxury accessory consumer has changed over the past two decades.

We are talking about growth. While not the only driver, a significant driver of growth for Hermes and others in the Luxury accessories and luxury auto categories has been the aspirational consumer.

The HNW consumer is clearly important, but the "average" consumer has changed. Twenty years ago, the only consumer in the luxury market, by and large, was the HNW consumer.
But today, the average buyer of a 10k Birkin is not also purchasing a 100k pair of 18th century side chairs...
What percent of H customers today will spend as much on a lamp as a birkin? I bet not many.
Not many will even spend that on a chair, or even a painting.

The average H consumer will spend more for a bag than a chair or a painting - this makes artists and antiques dealers very sad.

All one has to do is look at other sectors that are geared toward HNW individuals, like antiques, art,, etc.
while the investor grade art market has risen exponentially, the mid-level market has seen only modest growth. Same goes for Antique furniture, fine rugs, high end fabrics, lighting and finishes for the home, high end door hinges, etc. Who is purchasing these things, and why aren't these sectors growing at the rate of Luxury accessories and automobiles?

These sectors are still driven by the HNW consumer, with very little involvement from aspirational consumers, but these sectors are not keeping pace with the luxury accessories and luxury auto sectors. That extra growth in luxury accessories is coming from aspirational buyers.

Clearly, tastes have changed, and not all HNW consumers are focused on quality across the board, so there are plenty of HNW consumers with luxury cars and handbags, and relatively lower quality furniture, but changing tastes alone do not explain the growth in the luxury accessories and auto sectors over growth in other HNW focused sectors.

Many studies have been done on this. The future HNW consumer, by and large, is today's aspirational consumer. Everyone has to start somewhere, and luxury goods like handbags and cars are a great starting point. One does not have to have a masters degree in leather or an engineer's background to know that brands like Hermes and Mercedes produce quality products. However one DOES need a significant education to ascertain the merits of an American Impressionist painting, appreciate the nuances of a Cabriole leg, or reflect on the quality of abrash in a Serapi rug. One either needs considerable knowledge, or a consultant with knowledge, to be a consumer in these categories.
Usually, the latter: HNW consumers pay others to know which Chippendale chair to purchase.

And the consultant who helps the HNW individual find the right chair? Well, she's the girl with the Master's in Art History and a concentration in 18c furniture, who will save her funds for a Kelly.
And she is an aspirational buyer who just might become a HNW consumer in the future.

Bottom line, Hermes, Chanel, and the others, do not want to return to a time before the advent of the aspirational consumer. They have expanded stores and ramped up production beyond a level that could be supported by HNW consumers alone.

VERY well said, Monceau!!

 

[**Chanel**]

I have nothing more to add (we don't have a blanket price increase in £ here due to already high prices compared to €) but I love the informed debate here! Very interesting read! Keep them coming ladies!

+1 .

 

[etoupebirkin]

While I agree with what everyone is saying here. I think many people will grumble and groan, but they will buy the bag if offered one in a style and color they want.

I'm not going to take a vacation, fly to Paris and hope to get a red 30cm birkin. If I want to get a red birkin, and it's offered to me in my home store, I'm going to get it from my home store.

I might ease up on scarves and other purchases though.

 

[MYH]

I have to agree with MrsOwen3, again.
There may be some differences of opinion over the definition of the aspirational consumer, but there is no doubt that the "average" luxury accessory consumer has changed over the past two decades.

We are talking about growth. While not the only driver, a significant driver of growth for Hermes and others in the Luxury accessories and luxury auto categories has been the aspirational consumer.

The HNW consumer is clearly important, but the "average" consumer has changed. Twenty years ago, the only consumer in the luxury market, by and large, was the HNW consumer.
But today, the average buyer of a 10k Birkin is not also purchasing a 100k pair of 18th century side chairs...
What percent of H customers today will spend as much on a lamp as a birkin? I bet not many.
Not many will even spend that on a chair, or even a painting.

The average H consumer will spend more for a bag than a chair or a painting - this makes artists and antiques dealers very sad.

All one has to do is look at other sectors that are geared toward HNW individuals, like antiques, art,, etc.
while the investor grade art market has risen exponentially, the mid-level market has seen only modest growth. Same goes for Antique furniture, fine rugs, high end fabrics, lighting and finishes for the home, high end door hinges, etc. Who is purchasing these things, and why aren't these sectors growing at the rate of Luxury accessories and automobiles?

These sectors are still driven by the HNW consumer, with very little involvement from aspirational consumers, but these sectors are not keeping pace with the luxury accessories and luxury auto sectors. That extra growth in luxury accessories is coming from aspirational buyers.

Clearly, tastes have changed, and not all HNW consumers are focused on quality across the board, so there are plenty of HNW consumers with luxury cars and handbags, and relatively lower quality furniture, but changing tastes alone do not explain the growth in the luxury accessories and auto sectors over growth in other HNW focused sectors.

Many studies have been done on this. The future HNW consumer, by and large, is today's aspirational consumer. Everyone has to start somewhere, and luxury goods like handbags and cars are a great starting point. One does not have to have a masters degree in leather or an engineer's background to know that brands like Hermes and Mercedes produce quality products. However one DOES need a significant education to ascertain the merits of an American Impressionist painting, appreciate the nuances of a Cabriole leg, or reflect on the quality of abrash in a Serapi rug. One either needs considerable knowledge, or a consultant with knowledge, to be a consumer in these categories.
Usually, the latter: HNW consumers pay others to know which Chippendale chair to purchase.

And the consultant who helps the HNW individual find the right chair? Well, she's the girl with the Master's in Art History and a concentration in 18c furniture, who will save her funds for a Kelly.
And she is an aspirational buyer who just might become a HNW consumer in the future.

Bottom line, Hermes, Chanel, and the others, do not want to return to a time before the advent of the aspirational consumer. They have expanded stores and ramped up production beyond a level that could be supported by HNW consumers alone.

very convincing analysis

 

[ochie]

My SA told me the increase is more than 10% like 12% or 15%.

 

[Monceau]

My SA told me the increase is more than 10% like 12% or 15%.

In the US?
Wow, that would be bad news...

Looks like we have a couple of different discussions going on here, both interesting:

- who is the average consumer for luxury accessories?

-As Hermes moves farther away from purchasing parity among markets, how will that impact spending patterns?

MYH brought up an excellent point about arbitrage. From a theoretical standpoint (rather than a consumer standpoint) it will be most interesting to see how resellers game the system of expanded international price discrepancy.

Any TPFers looking for an Economic dissertation subject?

 

[MYH]

In the US?
Wow, that would be bad news...

Looks like we have a couple of different discussions going on here, both interesting:

- who is the average consumer for luxury accessories?

-As Hermes moves farther away from purchasing parity among markets, how will that impact spending patterns?

MYH brought up an excellent point about arbitrage. From a theoretical standpoint (rather than a consumer standpoint) it will be most interesting to see how resellers game the system of expanded international price discrepancy.

Any TPFers looking for an Economic dissertation subject?

+1 on the econ dissertation. I was thinking that this would have been a fascinating case study in B school

 

[Mindi B]

At the risk of sparking an unpleasant side debate, I think "aspirational" buyer is--in some cases, not all--potentially a more pc way of saying "nouveau riche" buyer. (And may I hasten to add that while I am not exactly "riche," I am decidedly "nouveau," so I see nothing inherently negative in having recently-acquired wealth.) The global shifts in wealth distribution and the increasing visibility and resulting power of the (nouveau) celebrity client (yes, Kardashians, I am talking about the likes of you) have introduced a new buying element to an arena that was traditionally populated exclusively by genuinely old (read: inherited) money--those people also buying Chippendale chairs, to whom Monceau made reference. There is, I think, natural attrition of the old-moneyed crowd as the great families of the past lose members and prominence, and a burgeoning group of newly wealthy, self-made millionaires arise, exploring afresh what their wealth can obtain. It is the latter to whom luxury houses must look for clients if they wish to maintain their relevance into the future. Something of this pattern can be seen in the astonishing power of the young fashion bloggers, who are now increasingly courted even by classic houses like Chanel.

I am basically thinking aloud here, and again, I am NOT in favor of the indiscriminate positively- and negatively-charged meanings often assigned to the concepts of old versus new money. Quality is as quality does; graciousness and and income are not directly correlated.

 

[Bostonjetset]

At the risk of sparking an unpleasant side debate, I think "aspirational" buyer is--in some cases, not all--potentially a more pc way of saying "nouveau riche" buyer. (And may I hasten to add that while I am not exactly "riche," I am decidedly "nouveau," so I see nothing inherently negative in having recently-acquired wealth.) The global shifts in wealth distribution and the increasing visibility and resulting power of the (nouveau) celebrity client (yes, Kardashians, I am talking about the likes of you) have introduced a new buying element to an arena that was traditionally populated exclusively by genuinely old (read: inherited) money--those people also buying Chippendale chairs, to whom Monceau made reference. There is, I think, natural attrition of the old-moneyed crowd as the great families of the past lose members and prominence, and a burgeoning group of newly wealthy, self-made millionaires arise, exploring afresh what their wealth can obtain. It is the latter to whom luxury houses must look for clients if they wish to maintain their relevance into the future. Something of this pattern can be seen in the astonishing power of the young fashion bloggers, who are now increasingly courted even by classic houses like Chanel.

I am basically thinking aloud here, and again, I am NOT in favor of the indiscriminate positively- and negatively-charged meanings often assigned to the concepts of old versus new money. Quality is as quality does; graciousness and and income are not directly correlated.

I was waiting for someone to say the vulgar K-word!!

I, politely, must disagree with your definition of "aspirational" though. Whilst Kim K. is grossly nouveau riche, she is still "riche" and thus I would not consider her an aspirational buyer. I think most of us on here [at least in my mind] were referring to the middle-class professional who can afford to spend a lot of money on something, sometimes. He or she may be able to get a B or K or several H silks as a treat because he/she has been somewhat successful in life but would not {usually} make it a priority of their spending. These customers "aspire" to owning a luxury product because of what it portrays [along with perhaps an appreciation of the history/craftsmanship]. An increase of $1K can certainly make a difference to this kind of customer and whilst H will still have others lining up, we all wonder what the tipping point will be in regards to price.

I adore H and will still likely buy their products however I will think much harder about each purchase as the prices keep grossly outpacing inflation. For one example, I alternate between an LV wallet and a Bottega wallet, both of which are wonderfully made. I had considered an H wallet when I bought my LV but went with the LV because it was almost half the price for the same size and similar style. I wonder when H prices will start to drive people to other brands that are still well-made, heritage brands. Unfortunately for scarf lovers though, NOTHING compares to H silks! Let's all just pray a gavroche isn't $500 by the end of the decade!

 

[Monceau]

At the risk of sparking an unpleasant side debate, I think "aspirational" buyer is--in some cases, not all--potentially a more pc way of saying "nouveau riche" buyer. (And may I hasten to add that while I am not exactly "riche," I am decidedly "nouveau," so I see nothing inherently negative in having recently-acquired wealth.) The global shifts in wealth distribution and the increasing visibility and resulting power of the (nouveau) celebrity client (yes, Kardashians, I am talking about the likes of you) have introduced a new buying element to an arena that was traditionally populated exclusively by genuinely old (read: inherited) money--those people also buying Chippendale chairs, to whom Monceau made reference. There is, I think, natural attrition of the old-moneyed crowd as the great families of the past lose members and prominence, and a burgeoning group of newly wealthy, self-made millionaires arise, exploring afresh what their wealth can obtain. It is the latter to whom luxury houses must look for clients if they wish to maintain their relevance into the future. Something of this pattern can be seen in the astonishing power of the young fashion bloggers, who are now increasingly courted even by classic houses like Chanel.

I am basically thinking aloud here, and again, I am NOT in favor of the indiscriminate positively- and negatively-charged meanings often assigned to the concepts of old versus new money. Quality is as quality does; graciousness and and income are not directly correlated.

Mindi B, I believe you are correct in your observation that "aspirational" is, in some instances, used in the pejorative, but I believe most of us are referring to the marketing phenomenon of moving up the consumer ladder to the highest rungs in the market, which is a positive development in the world, at least from an economic standpoint.
Old and New should not make a difference: There are plenty of "new money" consumers who are HNW and not aspirational (think Mark Zukerberg or the Kardashian clan) and there are plenty of "old money" consumers who are no longer HNW, or even aspirational.

There are HNW people who do not care about antiques (Kardashian) and those who do not care about luxury goods of any kind (I believe I read that Mr. Zukerberg drives a VW golf)

Likewise, there are the people in the middle who appreciate high end things, whether wine, or handbags, autos or antiques, and will purchase what they can when they can. This is the growing market, but it's growing much faster in certain sectors, like accessories and automobiles.

One of my points was that Hermes and other brands recognized the aspirational market and increased supply to meet demand. Their business strategy today is formed with the aspirational consumer in mind. As you said, the luxury sector must look to this consumer for growth - the consumer with new and growing resources. Settled markets do not provide growth opportunities.

 

[arabesques]

My SA told me the increase is more than 10% like 12% or 15%.

This is closer to what was suggested by my SA at one of the stores. . . 10% was the bottom number.

I hesitate to add anything to the discussion about the increase—the truth is, most of the time, I prefer vintage anyway . . . older box, chamonix, and barenia are powerful seducers. While I hoped to acquire a couple of pretty bags from boutiques this year, it's okay if the price increases and USA/EU disparity discourage me.

I'll remain a customer, I'm sure, but I'm working with a couple of SAs to acquire some pieces I want before the awful moment arrives.

 

[ms piggy]

While I agree with what everyone is saying here. I think many people will grumble and groan, but they will buy the bag if offered one in a style and color they want.

I'm not going to take a vacation, fly to Paris and hope to get a red 30cm birkin. If I want to get a red birkin, and it's offered to me in my home store, I'm going to get it from my home store.

I might ease up on scarves and other purchases though.

Wise thinking, EB. Alas, the truth is stores will almost always keep the new/in/popular colours for their regular customers and this applies to the Paris stores as well. Walk-ins (unless they drop a huge load of spending on buying jewelleries/RTW) will never be offered the more sought after colours. More often than not, they get the basics like brown, black etc. and theses days, almost never the opportunity for an SO.

 

[Monceau]

I was waiting for someone to say the vulgar K-word!!

I, politely, must disagree with your definition of "aspirational" though. Whilst Kim K. is grossly nouveau riche, she is still "riche" and thus I would not consider her an aspirational buyer. I think most of us on here [at least in my mind] were referring to the middle-class professional who can afford to spend a lot of money on something, sometimes. He or she may be able to get a B or K or several H silks as a treat because he/she has been somewhat successful in life but would not {usually} make it a priority of their spending. These customers "aspire" to owning a luxury product because of what it portrays [along with perhaps an appreciation of the history/craftsmanship]. An increase of $1K can certainly make a difference to this kind of customer and whilst H will still have others lining up, we all wonder what the tipping point will be in regards to price.

I adore H and will still likely buy their products however I will think much harder about each purchase as the prices keep grossly outpacing inflation. For one example, I alternate between an LV wallet and a Bottega wallet, both of which are wonderfully made. I had considered an H wallet when I bought my LV but went with the LV because it was almost half the price for the same size and similar style. I wonder when H prices will start to drive people to other brands that are still well-made, heritage brands. Unfortunately for scarf lovers though, NOTHING compares to H silks! Let's all just pray a gavroche isn't $500 by the end of the decade!

You hit the nail on the head here.
The Kardashians are gluttonous consumers- and rich. Aspirational consumers have rising incomes and discriminating tastes. They try to make careful choices because these are the fruits of their labor.

Price increases mixed with increasing supply do matter to both the aspirational consumer and the bottom line. It's pretty obvious that the cashmere GMs are not flying off the shelves these days, one is seeing more of them at the NY and Paris sales and plenty in the drawers. Is this because some designs were duds, or are prices such that people are buying fewer? Probably a little bit of both.

CDCs are another example. Every boutique I have visited in the last year has had several CDCs at any given time, some may sit for days or longer on the website. Is it just that CDCs are losing their luster to some degree, or did H overestimate the demand at this price point? Again, probably a mix of reasons.

I don't expect Birkins to sit on the shelf due to a 10% increase, but there is a delicate balance when it comes to increasing both price and supply at the same time. 10% increases YoY are not sustainable long term in any market, especially mixed with increasing supply.

Remember that it was only a few years ago that people still thought that real estate could only go up in value, and continue to increase YoY beyond historic averages. Everyone wanted in: flippers became celebrities on TV, developers built tons of spec homes. Homebuyers assumed that their properties would just go up and up, and that they could use home equity vehicles as ATMs. People rushed to buy now because the price would only be higher tomorrow,
This is the classic sign of a bubble: when people assume that prices and returns will forever increase beyond historic norms in a "new normal"

These luxury increases are not a new normal, there is a good possibility this is a bubble. Probably not the end of the bubble, but a bubble nonetheless.

 

[Monceau]

Wise thinking, EB. Alas, the truth is stores will almost always keep the new/in/popular colours for their regular customers and this applies to the Paris stores as well. Walk-ins (unless they drop a huge load of spending on buying jewelleries/RTW) will never be offered the more sought after colours. More often than not, they get the basics like brown, black etc. and theses days, almost never the opportunity for an SO.

Fortunately for me, I prefer basic black and the browns.
Just call me 50 shades of brown!

 

[Bostonjetset]

You hit the nail on the head here.
The Kardashians are gluttonous consumers- and rich. Aspirational consumers have rising incomes and discriminating tastes. They try to make careful choices because these are the fruits of their labor.

Price increases mixed with increasing supply do matter to both the aspirational consumer and the bottom line. It's pretty obvious that the cashmere GMs are not flying off the shelves these days, one is seeing more of them at the NY and Paris sales and plenty in the drawers. Is this because some designs were duds, or are prices such that people are buying fewer? Probably a little bit of both.

CDCs are another example. Every boutique I have visited in the last year has had several CDCs at any given time, some may sit for days or longer on the website. Is it just that CDCs are losing their luster to some degree, or did H overestimate the demand at this price point? Again, probably a mix of reasons.

I don't expect Birkins to sit on the shelf due to a 10% increase, but there is a delicate balance when it comes to increasing both price and supply at the same time. 10% increases YoY are not sustainable long term in any market, especially mixed with increasing supply.

Remember that it was only a few years ago that people still thought that real estate could only go up in value, and continue to increase YoY beyond historic averages. Everyone wanted in: flippers became celebrities on TV, developers built tons of spec homes. Homebuyers assumed that their properties would just go up and up, and that they could use home equity vehicles as ATMs. People rushed to buy now because the price would only be higher tomorrow,
This is the classic sign of a bubble: when people assume that prices and returns will forever increase beyond historic norms in a "new normal"

These luxury increases are not a new normal, there is a good possibility this is a bubble. Probably not the end of the bubble, but a bubble nonetheless.

I never considered the correlation between the real estate bubble and out of control retail price increases but it makes complete sense. Thanks for this post. I think you also hit the proverbial nail on the head, my dear Monceau!