The epidemic and the soaring inflation have not taken the shine off the luxury brands that range from Louis Vuitton to Gucci and Cartier in the past, as the luxury sector raised prices to make impressive profits.
The global economy started to recover from the pandemic earlier this year, however, the improvement is accompanied by a rise in rates of inflation, with prices for energy and raw materials rising.
But the luxury goods makers could react by raising their prices and appear more appealing to customers.
“Our advantage over other groups and companies is the fact that we have a certain degree of pricing flexibility i.e. we can adapt to price increases,” LVMH chief executive Bernard Arnault told reporters.
UBS analysts have estimated that the most prestigious brands, such as Louis Vuitton, which is owned by the world’s largest company LVMH and has raised their prices by two and a half times more than the rate of inflation in the last 20 years.
In fact, “pricing power remains one of the most important aspects of the luxury products sector,” UBS analysts wrote in an article on the research.
LVMH recorded a record a total of 64 billion euros (72 billion dollars) in sales and 12 billion euros of net profits last year which were both higher than pre-pandemic levels.
It is a French company that also has many different products including perfume, spirits, jewelry, and cosmetics.
“Less vulnerable” to the rising cost of living
Kering — which is wholly owned by Gucci as well as Yves Saint Laurent — has also beaten its pre-Covid earnings to earn a net profit that was 3.2 billion euros, based on the sales amounting to 17.6 billion euros, the company announced on Thursday.
Kering CEO Francois-Henri Pinault admitted that “for each season, we design an entirely new collection, and then we examine all price matrixes.”
Hermes made profits that totaled 2.4 billion euros with sales of nine billion euros.
Hermes Chief Axel Dumas said that his brand, which is in “very high demand” It raises prices every year.
“All items we sell are made with identical margins. We don’t alter the prices we charge. They’re a function of manufacturing costs, not popularity.”
He also argued that the attention to detail that is used to create Hermes bags ensures that Hermes bags are “perhaps less prone to the rise in prices for raw materials and energy than other bags”.
Swiss group Richemont which is the owner of Cartier and manages its fiscal year between April and March announced that it had revenues in the range of 5.6 billion euros for the quarter of the year that’s a rise of 38 percent over the same period in 2019.
“There are limits”
“In certain situations, demand will exceed supply, and this means that consumers will either purchase more and most likely to accept price increases that will also protect the margins,” said analysts at HSBC.
Rolex as an example was largely deterred from raising prices during the past two years.
However, at the beginning of 2022, the government increased prices by over 3.0 percent, on average “and in some models, they went up to twelve percent.”
Chanel “has recently been the subject of media attention for the hefty price increases of its iconic bags in the aftermath of the pandemic, and even more in recent times,” the analysts said.
“While some luxury brands are able to master this double-edged sword but we believe Chanel’s price hikes have opened the door for brands like Louis Vuitton, Hermes, and Gucci to boost prices even more.”
In November, the consultancy company Bain & Company forecast that the market for luxury goods would expand by 6.0-8.0 percent per year and grow up to 360-380 million euros in 2025.
But, Flornoy fund manager Arnaud Cadart warned that a sudden increase in prices can hurt sales.
“There are limitations,” he said. “A bag of 1,000 euros that will cost 1,200 euros later which can reduce the demand.”
