European and American luxury brands that significantly raised prices when consumers’ wallets were fullest are now facing the harsh reality of plummeting sales. Dior and Chanel have seen staggering declines, while Hermès and Richemont, which were more restrained in their price increases, continue to enjoy robust growth.
Those brands that aggressively hiked prices during peak consumer spending are now confronting a brutal sales slump. Christian Dior, under the world’s largest luxury group LVMH, experienced a sharp drop in sales in the first three months of this year, underperforming the group’s overall fashion and leather goods division, which saw a 5% year-on-year decline. French independent brand Chanel is also struggling. Despite consistently publishing annual results over the past eight years, data released last week revealed a 4% drop in sales for 2024, with operating profits plunging by nearly a third. In stark contrast, Hermès, the maker of Birkin bags, and Richemont, the parent company of Cartier, have maintained strong growth. Both companies reported a 7% year-on-year increase in sales for the first quarter of this year. These four companies are considered the pinnacle of the luxury industry and are typically insulated from significant economic downturns. However, even for the global 1% elite, excessive price premiums may eventually test consumers’ psychological limits, and brands that engaged in “greedy” price hikes during the pandemic are now facing severe performance challenges. The Aftermath of Pandemic-Era “Greedflation” During the pandemic, fueled by excess consumer savings, demand for luxury goods surged, prompting brands to raise prices aggressively. According to Bernstein’s analysis, luxury brands increased prices by an average of 36% between 2020 and 2023, roughly double the overall U.S. inflation rate during the same period. Dior and Chanel were particularly aggressive, raising prices by 51% and 59%, respectively. Chanel’s Classic Flap bag became a poster child for “greedflation” in the luxury sector. The medium-sized bag, which cost $5,800 in 2019, now retails for $10,800 in the U.S. In comparison, Hermès adopted a more measured approach, raising prices by just 20% over the same period. The conservatively managed company stated that price adjustments were primarily to offset rising input costs rather than to drive growth. Richemont also appears to have followed a cautious pricing strategy.Johann Rupert, the chairman of the company, stated during a recent earnings call: “We were not as ‘greedy’ two or three years ago, and I believe our current performance reflects that.” He noted that Richemont’s brands are gaining market share from competitors perceived by consumers as overpriced.
The long-term impact of pricing strategies: shifts in market share. Pricing is not the sole reason for the declining performance of Chanel or Dior. Chanel is currently in a creative transition, awaiting the debut of its new designer Matthieu Blazy’s first fashion collection. However, the company appears to have recognized its challenges, having halted price increases in the U.S. market since March 2024. Typically, Chanel implements two routine price hikes annually. For luxury brands, lowering prices is not straightforward, as it risks damaging their carefully cultivated brand image. They invest billions annually in advertising to persuade consumers to pay premium prices. Reducing prices would amount to admitting they misjudged the market and that their products are less popular than believed. More likely, these brands will hold steady until inflation and income growth gradually make their products more affordable. Alternatively, they may introduce new lower-priced products to boost sales. Notably, brands that exercised restraint during the pandemic are better positioned to avoid potential tariff impacts in the future, thereby protecting their margins. Hermès has already passed the full cost of tariffs to U.S. consumers. Richemont has not announced any price increases, but demand for its brands in the U.S. seems strong enough to justify them. In contrast, brands like Chanel may be forced to absorb tariff costs themselves. Ultimately, every product has its price, even luxury goods. Brands that overindulged in price hikes are now paying for their past “greed.” Risk Warning and Disclaimer: The market carries risks, and investments should be made cautiously. This article does not constitute personal investment advice nor does it consider individual users’ specific investment objectives, financial situations, or needs. Users should assess whether any opinions, views, or conclusions herein align with their particular circumstances. Investments made based on this information are at the investor’s own risk.
