A spokeswoman from the brand stated, “Like all major luxury brands, we regularly adjust our prices to take into account changes in our production costs and raw material prices, as well as exchange rate fluctuations. The price of a Chanel bag reflects not only a sense of exclusivity but also our values.”
But most industry experts believe Chanel’s price tinkering is all part of a strategy to boost the brand’s status amongst its competitors, namely Hermès and a handful of LVMH-owned subsidiaries. Rumours of another price hike, to leverage higher demand in the run up to Christmas, began circulating around November.
Chanel is on track to be one of the most profitable brands within the pandemic-challenged luxury sector. In 2020, the brand’s profits had dropped by 17.6 per cent but its core profit margin stood at around 20 per cent. Last June, the brand expected its revenues to increase by double digits this year, compared with pre-pandemic levels in 2019.
In addition to price adjustments, the brand has also introduced a new quota system that limits the number of purchases per customer in specific regions. For signature items such as the classic flap bag and the Coco handle, cach customer will be allowed to purchase only one of each model per year. A similar policy has been placed on small leather goods – consumers are now limited to no more than two of the same product a year.
By having more control over distribution, Chanel hopes to improve brand equity and upscale within the luxury sector. With its average prices now higher than Louis Vuitton’s or Gucci’s, the brand will now compete with the upper echelon of luxury brands, like Hermès.
Note that with the brand’s latest hike, the price of a medium-sized Chanel flap bag in France is now €7,800 (A$12,340), only 100 euros below the cost of a Birkin 30 in Togo calfskin.
The Asian market goes into a frenzy
As word got around about the price hikes, Asian customers stormed the brand’s boutiques to buy key products before restrictions on purchases hit.
In Seoul, South Korea, customers camped out and queued outside boutiques for hours – some starting as early as 5am. The practice locally known as ‘open run’ means to sprint into the store as soon as it opens, for better chances of purchasing exclusive products.
“The current price tag is going to be the cheapest you’ll ever see because the brand continues to jack up prices,” Cho Eunbit, a Chanel enthusiast from Seoul, said. “People seem to desire Chanel even more because even if they can afford it, it’s incredibly difficult to get the exact item you want.”
Open runs began with the last price hike the French brand imposed only in South Korea. The trend has since expanded to when other designers have imposed similar product limitations.
Mirroring the ultra-hyped streetwear industry, a considerable number of people in the queue for Chanel are resellers, hoping to make a profit off new, untouched products. One local reseller said she began doing open runs after making nearly US$250 in profit from just one Chanel handbag; this led her to resell Chanel products as a side gig for a year.
Despite the constant price hikes and low stock, Chanel’s foothold in the local Asian market remains strong. For many, the brand’s products are considered a good future investment. “I should’ve purchased a Chanel bag a few years ago, rather than investing my money in stocks,” one local customer said. “I would’ve made a lot more money with the bag.”
In a statement, Chanel finance chief Philippe Blondiaux said about 80 per cent of its business is done locally, rather than relying heavily on tourist shopping, even in countries like China and the US.
“We don’t see this changing in a dramatic way in 2022, the repatriation [of spending] that we have seen in 2020 and 2021 is here to stay, at least for an extended period of time,” Blondiaux continued.A thriving secondhand marketChanel’s new pricing strategy does not come without consequences. With the brand’s signature products rarer and more expensive than ever, some customers are opting to buy via resale.
Despite the French company’s disdain of the secondhand market, luxury resale websites like The RealReal and Vestiaire Collective have become valid competitors. Not only are they more affordable, customers have much easier access to the brand via the resale market.
But Chanel has already come up with a plan to mitigate this. Since the last price hike, the brand said it would be installing NFC-enabled chips on its bags’ authenticity cards. These chips incorporate blockchain technology that enables a bag’s origins to be traced and authenticated easily, the bag’s original buyer to be tracked, presumably to prevent resellers.
Bertrand Peyrat, chief supply officer at Vestiaire Collective said, “Chanel is probably keen to bring the 2.55 and Timeless models on a par with the Birkin and the Kelly of Hermès, but the secondary market evaluation for Chanel is not there yet.”
Will Chanel’s constant price hikes deter customers?
Although open runs have proved some customers’ willingness to pay a premium for Chanel products, many still argue the brand has yet to achieve the social currency of Hermès.
In China, the price of a Chanel small classic flap bag is US$8,250, exceeding the Hermès Kelly 20cm, which typically begins at US$8,000 for Togo leather. In response, dismayed long-time customers and netizens began trending #ChanelIncreasesPrice on Chinese social platform Weibo, garnering more than 100 million views. In the comments, some users said they would be more willing to purchase a more iconic Kelly bag, given the same cost.
Cautionary tales from watch brands like IWC Schaffhausen have shown successive price increases can hurt demand rather than help it. When the Swiss luxury watch brand raised its prices several years ago, customers pulled back, which forced the brand to offer more accessible models and eventually lower prices.
But overall, the wider trend within the luxury industry seems to be more aligned with Chanel’s move. In the last 18 months, Louis Vuitton also began increasing prices and Hermès raised its prices slightly last year.
In the face of the neverending pandemic, brands will need to tread price increases lightly. Unless they are able to justify these hikes, irked customers may feel these bags are no longer worth the cost.