The luxury market needs a roll-back and a reset

Big brands are busy spending 2024 rolling back. *taps back pocket. The post pandemic demand and high inflation saw a boom not just in sales but also prices. According to data from Edited, a company which helps retailers leverage data insights and analytics to grow profits and achieve their company objectives, between 2019 and 2022, luxury prices increased by as much as 25%.

But, as higher tier luxury brands disappeared into the stratosphere with their prices, many global consumers have started to balk at the number of digits on the swing tags. The latest US credit card data from Barclays, released in mid-December 2023, showed that spending on luxury goods remained negative in November, down 15% year-on-year after a decline of 14% in October.

Handbags, the cash-cows of the majority of premium luxury brands, have seen price hike after price hike. The Chanel 2.55, the barometer of the industry, now sees some styles costing almost three times what they did before the pandemic. In the previous decade, the Chanel Classic Flap once sat around the £3,000 price point. Today, a medium size quilted bag costs over £8,500.

The Iconic Chanel 2:55 is currently part of the Gabrielle Chanel: Fashion Manifesto exhibition at the V&A

Meanwhile at Burberry, which last week issued a profit warning, the average selling price of a handbag is now around £1,700 versus the £900 it was before the arrival of new creative director Daniel Lee and new CEO Jonathan Akeroyd. This average has been pulled up by the new Knight bag, which retails for almost £2,500 and was first seen in Lee's debut AW23 collection (main image). To be fair to Burberry its bags now are far better products that those it used to sell (unlike Chanel and Louis Vuitton for example, it is not just hiking the price of existing styles), however Lee and Akeroyd's attempts to move the brand (and its prices) upmarket now seem ill timed.

Luxury sales have slowed, particularly in China, which has been a banker market for global luxury brands. Demand for personal luxury products slowed to 8% according to Bain, after three consecutive years of 20% sales growth on average. Lower consumer confidence and price increases are thought to be behind this shift.

Analysts are now suggesting that in response luxury brands are going to have to start to do more entry level products, as they have pushed pieces and consumers too far on prices.

Evidence of this is perhaps starting to be seen in the latest collections to drop. Luxury brands are basing new, cheaper products around iconic products while saving costs using less expensive materials and less labour intensive designs. This satisfies a customer who has been frozen out by recent price hikes and who is still looking for something timeless that is seen as an investment.

These new products are coming in at price points seen many years ago. For example, Dior Cruise 24 has just dropped a calfskin macrocannage medium sized Book Tote priced at £3,300, which looks like a more simplistic and less engineered version of the medium Lady Dior in cannage lambskin for £5,300. It has also released a simpler version of the iconic Saddle bag. The goatskin ‘Saddle Shoulder Bag’ is priced at £1,850, while a ‘proper’ grained calfskin Saddle bag is £3,450.

While these aren’t exactly ‘entry prices’, it illustrates a new tier of products that are priced at what typical Dior bags were a few years ago before pricing became more extreme.

Luxury brands, it seems, have realised they have pushed it too far and need to backtrack and offer pre-inflationary priced products if they are to drive an increase in sales in 2024.

It will be interesting to see the price rises this year and whether they are anything like recent years. Last year, Chanel raised its ‘Classics’ by 16%, while the Coco Handle, Chanel 19, and the Pearl Crush were all given a 14% increase. It is doubtful any price increases, this year, will be in double figures, especially with inflation falling and the softening of the market.

Another reason for this new tier of products could be to also counteract the growth and take on the resale market. The global luxury resale market is estimated to have reached over $39 billion in 2023 and the luxury brands, having sat back and watched, now want their slice.

The new price points potentially brings people back those who had gone off to the resale market. Are you going to buy a second hand Lady Dior for £4.5k without the first-hand provenance or buy the brand new Book Tote that looks a lot like it for £3.5k directly from the brand?

Opinions will vary, but it’s a consideration and something some luxury brands will want to tap into when looking at a market that is tighter and more competitive for luxury consumers.

Luxury brands have always tried to push prices and when demand is high they are in the driving seat. The slowdown has been a wake up call and they need to stop and fill the gap between them and the customer.

Main image: Burberry AW23.