There is a growing consensus that rapid price inflation is weakening the value proposition of luxury goods, leading to a collapse in demand. And leaders are beginning to take action.
This week, British handbag brand Mulberry, a long-time champion of “accessible luxury”, suggested it’s no longer accessible enough. Amid falling sales and mounting losses, new CEO Andrea Baldo is aiming to bring most bags below the £1,100 ($1,375) threshold for the flagship Bayswater style. The company said it would restructure its merchandising. New designs have been getting more expensive in recent years, following top luxury brands.
“We were asking a little too much of our customers,” Bardo told Bloomberg. In the future, the company plans to focus on providing “market value in luxury spaces.”
Capri Holdings, the struggling American accessible luxury goods giant Michael Kors, struck a similar tone during a call with investors earlier this month. Chairman John Idle said the brand had “tried to raise prices on accessories, footwear and ready-to-wear too quickly over the past two years”. “At the same time, we have significantly reduced our signature products and inventory levels, while injecting an excess of fashion for our core consumers.As a result, we have had to promote more deeply to drive sales.” ”Italian stablemate Versace will also lower its average price. “This quarter, we will be introducing a wider range of price ranges targeting the aspirational luxury consumer,” Idol added.
The comments follow Burberry’s move this summer to appoint a CEO with a more approachable, American luxury mindset, former Coach chief executive Joshua Shulman. While Schulman continues to dispel the notion that Burberry will be relegated to more accessible luxury, he believes Burberry has gone too far in its efforts to re-establish itself as a top luxury brand, especially in its unreliable leather products. said. “In terms of pricing, over the last few years we have focused more on the top of the pyramid, particularly leather products,” he told investors in a Nov. 14 strategy update.
Over the past two years, Burberry’s former management initially defended price hikes to keep up with the Joneses, before struggling to recalibrate merchandising quickly enough to stem the decline in sales, and in France and elsewhere. The company has been working on this project as part of its upscale strategy, using Italian luxury brands as a benchmark. From now on, most bags will cost less than 2,000 euros. “This is where we’ve had great success in the past and where we were about 18 to 24 months ago,” Schulman said.
Burberry, Michael Kors and Mulberry’s comments are not surprising, as the idea that prices are simply too high is entrenched in the fashion world. Industry insiders increasingly believe that one reason for the industry’s slump is a pricing equation that is disconnected from reality.
More accessible luxury brands like Mulberry, Michael Kors and Burberry can afford to tackle the situation head-on, as recent comments from their chief executives demonstrate.
For pure luxury brands currently hurting, such as Kering, LVMH and Richemont, the path forward is less clear. Luxury means expensive. It’s understandable that it feels impossible for all but the most affluent consumers.
But even wealthy people don’t want to be given a ride. And the data supports the idea that brands have been pushing prices up too much, too fast. Over the past 50 years, brands have historically raised prices by 5-7% each year, which is already more than twice the rate of inflation. Since the pandemic, most brands have raised prices even faster, by double-digit percentages annually, according to a Nov. 21 report from Bernstein.
“Near-equivalent price inflation has been abnormal in the years following the COVID-19 pandemic…Price inflation, especially for soft luxury, has been well above long-term averages and well above double digits. “Brands like Chanel led this expansion, but most have followed suit,” analyst Luca Sorca said in a report.
“Rising prices have driven aspiring middle-class consumers away from core products from top brands,” he added. “This is especially true for handbags, where it has become virtually impossible to find a regular-sized product from a reputable brand for less than $3,000.”
This dramatic increase is a sign of complacency in the industry, as if the post-pandemic boom will last forever, and that companies are willing to sell their products at higher prices just because others are doing so. It’s also the result of an overreliance on benchmarks that executives believe can be achieved.
Hermès’ continued performance, which has increased prices by around 20% since the pandemic compared to an industry average of nearly 40%, is firmly linked to a more favorable and stable impression of value for money offered by the French brand.
What can top-flight players do next? Cutting prices isn’t an option (at least publicly), but reinstating the end-of-season discounts that took years to phase out. Brands hate it. Even talking about the concept of value for money feels antithetical to brands that have established themselves as the best of the best.
In an October conference call with investors, LVMH dismissed the idea that prices should be adjusted to address the current economic slowdown. “The current situation is more demand-driven than offer-driven,” Guiony said. “I think it would be a mistake to address a short-term problem, for example by introducing a new product that is very affordable, where aspiring customers are less present than before.”
Still, analysts expect most luxury brands to make efforts to strengthen their more affordable propositions. In September, Gucci launched a new line of monogram canvas bags called Emblem that cost about $2,000, followed by a $4,000 Blondie bag, and also dropped the price of a $1,250 chain wallet.
The rapid pace of designer changes in recent months means luxury brands are also betting on creative stimulation to sustain demand until the economic slowdown ends and customers get used to higher prices. This suggests that New creative directors at Fendi and Chanel (yet to be announced) and Givenchy and Tom Ford (both set to debut in February) will introduce innovative products (some of which may be more affordable). They have the potential to not only introduce but also tell new stories to retain fashion audiences. I’m here.
“What can we do in this situation? First and foremost, we will focus on product innovation. We know this is not the easiest growth driver to model, but it is the most impactful.” It’s one of the most powerful things,” said LVMH’s Guiony. “We have the skillset to harness the creativity of our talent pool and translate it into commercial success.”
News summary
fashion, business, economy
Mytheresa reports earnings growth for the latest quarter. The German e-tailer’s sales rose 8% to 202 million euros ($214 million) in the first quarter of its fiscal year, which ended in September. The company made an adjusted net profit of 5 million euros in the quarter, up from a loss of 3 million euros in the same period last year.
Mulberry is betting on falling handbag prices. Mulberry Group aims to sell most of its luxury handbags for less than £1,095 ($1,383) in a bid to widen the appeal of its struggling brand and boost sales. “We were asking a little too much of our customers,” CEO Andrea Baldo said.
LVMH’s Antoine Arnault has revealed his plans for the Paris Football Club. The Arnault family has invested through their holding company Agache and will own 52% of the club after the completion of the upcoming deal, which will rise to 80% in three years.
JD Sports shares fell 14% following the profit warning. Sales at JD Sports took a hit in October due to mild weather and discounts from rivals. The gloomy news caused investors to sell, and the stock price fell 14%.
PDD, the owner of TEM, has seen a sharp slowdown in sales due to the slump in the Chinese market. PDD, which competes with Alibaba Group Holding Ltd., said its team is struggling to catch up with unspecified rivals due to a lack of expertise. The stock price plummeted after warnings that the company’s profitability would decline over time due to increased competition in China.
Frasers have called for the sacking of Boohoo manager Mahmoud Kamani. In an open letter, the group accused Kamani of presiding over “years of stock market collapse and value destruction.” Frasers has repeatedly called for seats on the board, seeking the seats of founder Mike Ashley and turnaround expert Mike Lennon.
Kiko Kostadinov opens first U.S. store in Los Angeles The 1,500-square-foot space is the brand’s second permanent store in the world, which opened in Tokyo’s Harajuku in March, and will open in the Melrose Hill Gallery District.
UK creative industry unions are sounding the alarm over jobs in the fashion sector. Almost 80% of creatives working in the UK fashion industry feel pressured to work for free. Just 14 per cent of people say they get paid on time for their work, according to new research by Bectu and Fashion UK.
beauty business
Elf Beauty stock falls after reports of short sellers. Carson Block, CEO of Maddy Walters Capital, suspects that Elf Beauty has inflated its earnings in recent quarters. Block suggested that the rise in beauty companies’ inventories may be due to weak sales.
Novo Nordisk will launch Wegovy in China at a price far below that of the US. The first prescriptions for the drug are expected to be issued in Shanghai this week. Wegovy is also listed as available for pre-order on several e-commerce platforms where patients can register for a clinical visit to assess their eligibility.
Clean Skin Club raises $32 million. The funding round was led by US-based growth equity fund Asto Consumer Partners. The brand, known for its disposable face towels, plans to use the investment to continue its retail expansion, hire top talent in the beauty industry and develop new technology.
people
Kering appoints new CEOs for Saint Laurent and Balenciaga. The company is once again revamping its executive ranks amid declining sales. Balenciaga’s Cedric Charvitt will take charge of Saint Laurent, with Gianfranco Gianngeli taking charge of the vacant post.
The CEO of Reliance Brands Limited is likely to resign. Darshan Mehta is expected to step down as the company’s president and chief executive officer, the Times of India reported. Mr. Mehta will move to an advisory role with the ultimate parent company, Reliance Industries Limited (RIL).
Ordinary CEO Nicola Kilner is resigning. Kilner, co-founder of the brand and longtime chief executive of The Ordinary’s parent company Deciem, will step down from his role at the end of the year. Jesper Rasmussen, general manager of the company, will be promoted to global brand president.
media and technology
Harper’s Bazaar debuts new podcast, “The Good Buy.” The magazine’s editor-in-chief Leah Chernikov and executive director of digital Lynette Nylander will host the show, which will feature a different guest each week. The series will begin with the premiere episode on November 22, featuring actor Tracee Ellis Ross, founder of hair care brand Pattern.
Edited by Yola Mzizi.
