This story is part of Glossy’s week-long look at the state of luxury, exploring what consumers and brands are deeming worthy of investment in 2024. To see all the stories in the series, click here.
The last year has been a tough one for the luxury industry. On August 26, Lanvin Group posted a 20% decline in revenue, joining the long procession of luxury companies, including Burberry, Kering and even the mighty LVMH, reporting slipping sales.
In response to this decline, luxury brands are increasingly increasing their prices to get more value out of their most valuable customers: the hyper-affluent, high-frequency buyers whose wealth insulates them from the vicissitudes of the economy. These customers tend to continue buying from luxury brands regardless of how high the prices get. Chanel, one of the industry’s most notorious price increasers, doubled the price of some of its already-expensive products since 2016. Its classic flap bag now costs over $10,000 at retail and yet Chanel’s revenue swelled to over $20 billion this year, in defiance of the overall slowdown. Other luxury brands and retailers like Zegna and MyTheresa have also signaled an intention to focus on their higher-net-worth customers.
But what is the limit on prices the industry can maintain? Luxury has always been about exclusivity, and high prices have always been a part of that. But in previous decades, it was feasible for someone of modest means to save up and one day purchase a Chanel bag or a Rolex. They may not buy as frequently as the ultra-wealthy, but aspirational customers are a significant part of luxury brands’ customer base. As prices increase, those customers are being left behind.
“I firmly believe luxury prices will continue to rise, and rather than hitting a plateau, we may see a deliberate strategy of perpetual escalation,” said Keith Fraley, a professor of fashion business at the Fashion Institute of Technology. “Luxury brands have mastered the art of using price as a barrier to entry, reinforcing their exclusivity. This could lead to an increasingly elitist market where only the ultra-wealthy can participate, potentially alienating even wealthy consumers who may begin to question the value proposition as prices soar disproportionately.”
Fraley said that the strategy of perpetual escalation is a potentially shortsighted one that “risks long-term brand dilution.” A customer who isn’t wealthy enough to afford the most expensive brand today may be able to in the future. But without any sort of relationship with that brand built up through introductory products, they may not have any desire to buy from that brand once they can afford it.
This mindset was shared by Alexa Cahill, the global brand president of luxury lingerie brand Kiki de Montparnasse as of March.
“When I was pricing our ready-to-wear, we come in at a bit lower than brands like Khaite and The Row, but we were right in line with Jacquemus,” she said. “Something that Kiki used to do, and that I’d like to bring back, is offer different products to different retailers, giving partners like Shopbop access to our more entry-level products. It’s a way to introduce Kiki to an aspiring customer, and it helps wipe out some of the low-cost competition from China.” Kiki’s prices range from $98 for a bra to $30,000 for a chaise lounge. The lower-priced products give customers who may turn to cheap dupes from places like Shein a better alternative.
“It is essential to keep aspirational or entry-level customers in mind when selling luxury products,” said Olivia Landau, founder and CEO of the luxury jewelry brand The Clear Cut. “Many entry-level customers may have higher spending customers in their network who they can act as ambassadors for.”
The Clear Cut sells a mini diamond stud earring for just $115, while its most expensive product is an $18,000 tennis necklace. Beyond jewelry, it offers even lower barriers to entry in the form of $15 tote bags.
Without these lower-price entry points to luxury brands, customers may turn to one of two places to get their luxury fix. On the brighter side, luxury resale offers a pressure release valve for the rising luxury price situation, although rising prices in the primary market do filter down to the resale market, with some secondhand Birkin bags doubling in value over the last five years. On the more negative side, cheap dupes of luxury products along with outright counterfeits are common alternatives. The presence of the latter, while a thorn in the side of many luxury brands, also allows them to continue raising their prices, according to Quynh Mai, founder and CEO of Qulture, a creative agency that has worked with brands like Marc Jacobs and Prada.
“Luxury brands increasing their prices is actually the right move for them right now because the democratization of luxury brands and the proliferation of dupe culture has eroded the exclusivity of some of the specialness of luxury brands,” Mai said. “The truly rich consumer who can buy five or 10 pieces from a brand, as opposed to just one, is not that price-conscious. Luxury brands that are moving into accessories, fragrance and makeup to satiate the aspirational customer and leaving handbags, shoes and clothes for the truly the rich are doing the right thing.”
Mai’s assertion that fragrance is currently a saving grace for luxury brands is backed up by data from Circana, which found in May that luxury fragrance sales were up 13% year-over-year. Usually selling for lower prices, fragrance offers an entry point to luxury brands for many Gen-Z customers. Those customers are the most likely to be buying dupes, so luring them into legit luxury brands with fragrance is a good move, Mai said.
“Additionally, young customers — although they love their brands — have no problem buying dupes, and they’ll find a way to buy the brand through dupe culture anyway,” she said. “I believe the struggle for luxury brands in the next couple of years will be staying cool and culturally relevant so that even the young people who can’t buy them still want them.”
