The pandemic and soaring inflation have done nothing to tarnish off luxury brands, from Louis Vuitton to Gucci and Cartier, as the sector hiked prices up a notch up stellar profits.
the world economy began to recover from the pandemic last year but the rebound was accompanied by rising inflation, with prices for believed materials and soaring energy.
But the luxury good manufacturers can respond by raising their prices and actually look more desirable for their customers.
“Our asset over many other companies and groups is a certain price flexibility, that is to say that we have the means to react to inflation,” LVMH CEO Bernard Arnault told reporters.
UBS analysts estimate that major brands such as Louis Vuitton, which is owned by industry leader LVMH, have raised prices by two and a half times.half times higher than inflation rate over the past 20 years.
Indeed, “the pricing power remains one of the key characteristics of the luxury industry”, write the analysts of UBS in a research Remark.
LVMH pocketed a record €64 billion ($72 billion) in turnover and 12 billion euros in net profit last yearboth exceeding pre-pandemic levels.
The French company also has a wide range of spirits, perfumes, jewelry and cosmetics.
Kering – which owns Gucci and Yves Saint Laurent – also beat its pre-COVID-19 levels to book a net profit of €3.2 billion on Sales of 17.6 billion euros, the group reported on Thusday.
Kering CEO Francois-Henri Pinault acknowledged that “for all new season, we create a new collection and we review all price matrices.”
Hermes in chalk up profits of 2.4 billion euros on Sales of 9 billion euros.
Hermès boss Axel Dumas said his brand, which is experiencing “a very strong demand”, increases its prices once a year.
“All of our products have the same margins. We don’t play with our prices. They are related to manufacturing costs, not desirability.”
He argued that the craftsmanship that goes into making Hermès bags means they are “perhaps less likely to rising energy and raw materials materials price than others. »
Swiss group Richemont, owner of Cartier and runs son business year from April to March, said it booked sales of €5.6 billion in the third quarter alone, an increase of 38% over the corresponding period of 2019.
‘There are limits’
“In some cases demand exceeds supply and that means consumers are going to both trade up and probably agree to pay higher prices, which again will cushion the margin,” HSBC analysts said.
rolex, for example, had largely refrained from raising prices during last two years.
But to start of 2022, it increased prices by more 3.0% on medium” and for some models they went up to 12%. »
Chanel” has also summer in the news for it’s aggressive price hikes of iconic bags during the pandemic and more so recently,” the analysts said.
“While not all luxury brands can pull off this double-sharp sword, we think Chanel’s price actions likely created a good space for likes of Louis Vuitton, Hermès and Gucci to increase their price points further away.”
Back in In November, consultancy Bain & Company predicted the luxury goods sector would grow 6.0-8.0% annually and reach 360-380 billion euros by 2025.
Nevertheless, the Flornoy fund manager Arnaud Cadart warned that too high a price increase could hurt sales.
“There are limits,” he said. “A 1,000 euro bag that costs 1,200 euros the next day, it can slow down down demand.”