The luxury sector has always given a lot to talk about, especially for its controversial decisions, but when it comes to their products and their prices, brands have been quite pointed out, especially after the multiple global financial crises that have been experienced.
The image of luxury brands is one of the main reasons why their prices are so high, but shouldn’t there be some limit to their price increases? It seems that the big brands are not thinking of implementing limits for the time being, but this is due to three main reasons that we will show you below. Pay attention!
- When do luxury brands increase their prices?
- Global Inflation
- Increase in production costs
- Currency fluctuation
When do luxury brands increase their prices?
Before knowing the reasons why luxury houses increase their prices, it is important to understand when they do it, and although each brand is considered autonomous within the luxury sector, the truth is that all of them are guided by each other to make decisions and match their competitors.
Like any type of market, the luxury market is always in constant competition, and, naturally, its brands do the same, since for each one it is important to position itself above the others, becoming the most exclusive and the best perceived.
This is why luxury brands always stay away from discounts, as they consider that they could damage their image and give a false impression that their products are low cost. Do you want to know more about why brands don’t discount? Click here.
In this sense, most luxury brands review their progress at the end of each year, based not only on profits made but also on losses, production costs, the situation of their competitors, and the global economic outlook. At the end of the analysis, luxury houses decide whether it is necessary to implement an increase in their products for the next year and it is no surprise that they always decide to do so, as it should be noted that luxury increases are nothing new.
Thus, luxury houses reveal their increases for next year, and according to the words of their competitors, they adjust their increases or modify the date when they will start to be implemented. Major luxury houses such as Chanel, Louis Vuitton, Hermès, and Dior, increase their products during the first two months of the year by approximately 5% to 10%.
Of course, the increase in the price of their products does not apply to all of their merchandise but to those accessories that are most in demand, such as the acclaimed luxury handbags. This means that most of the minor products do not increase much in a short period but over the years.
One of the first reasons why luxury brands decide to increase their products is the global economic situation, and after different crises such as the arrival of the pandemic in 2019; and the war between Ukraine and Russia, the financial situation in the world has not been in its best moments and an economic recession may be approaching globally.
And while the luxury sector did not decline too much during past global crises, they must prevent a major loss. Fortunately for the luxury market, the COVID-19 pandemic crisis resulted in an increase in value in the luxury resale market, which consequently increased the perceived value of some products, such as the Hermès Birkin bag and the Chanel Flap Bag.
For this reason, luxury houses are not only taking advantage of the fact that the value of their sector increased due to the resale market but are also trying to avoid a loss in the coming months of recession by increasing some of their most exclusive products.
Increase in production costs
As a result of global inflation, production costs don’t take a back seat, but on the contrary, they become very relevant, since the higher the inflation, the more difficult it will be to obtain the materials and labor for the manufacture of products.
This especially affects high-luxury brands, which strive to have very high-quality materials, and that part of their fame and exclusivity comes from the quality of their products. For this reason, they decide to increase the prices of some items that are more difficult to manufacture or whose materials are more exotic or special.
In addition to production, the cost of moving and distributing products, which tends to increase due to global inflation and the closure of certain commercial routes, must be taken into account. These are elements that each luxury brand must pay attention to to meet the needs of consumers and offer them the best quality product in each of its branches.
In the ups and downs of the world economy, there is a phenomenon that also affects the price increase of luxury houses, and that is the fluctuation of the value of currencies. The recent decline of the euro against the dollar has affected the global economy and when it comes to the big luxury brands, which are almost all based in Europe, everything becomes more complicated.
Currency fluctuation means that luxury brands must adjust their prices in the different regions of the world where they operate, both in their branches and through their official websites, as there must be a balance between prices in dollars and euros so that not too much money is lost on sales of products in euros.
In this way, luxury brands compensate for the situation by increasing the price of their products in general to perceive a higher profit on sales made through any of their channels.
What do you think about the price increase of luxury goods?
Now that you’ve had a closer look at the reasons for these increases, you can understand how much value luxury products retain and why it’s important to invest in them at the right time.
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