As prices soar, sales growth for luxury items slows.
PARIS – Kim Kardashian might as well be naughty this Christmas, because even if she’s nice her fiancé is unlikely to shell out for a Louis Vuitton handbag.
Rapper Kanye West, who gave reality TV star Kardashian a diamond ring worth millions to celebrate their engagement, told a U.S. radio show recently that Vuitton’s prices are “just too extreme.” The criticism by West, who has collaborated with the Paris-based label on products including a range of $1,000 sneakers, is a signal that some luxury companies may be charging too much, turning off even the wealthiest clients.
Luxury prices are soaring as brands attempt to move upmarket amid slowing sales. The shift upscale, which often includes using more expensive materials, is designed to restore a veneer of exclusivity after years of churning out logoed handbags that were snapped up by shoppers the world over.
The strategy is a response to customers, many in Asia, who are abandoning logos in favor of designs they perceive as more luxurious. Problem is, only a handful of brands can pull it off, according to Rahul Sharma, managing director of Neev Capital, who follows the luxury industry.
Just because it’s Dior or Chanel
“There are people who will pay up just because it is Hermes or Dior or Chanel,” said Sharma. “It’s a lot harder for Gucci and Vuitton” to charge more given their reliance on mass-market consumers.
Organic revenue growth at LVMH’s fashion and leather-goods division, where Vuitton is the biggest brand, slowed to 3 percent in the third quarter, while Kering SA reported the weakest growth in four years at its Gucci brand in that period.
LVMH shares fell 1.1 percent in Paris trading Monday, while Kering’s advanced 0.7 percent.
The average price of Vuitton leather bags without logos rose 13 percent in the first nine months of 2013 as it introduced the $3,850 W and $5,350 Capucine lines, Exane BNP Paribas estimates. That’s nearly double the annual rate at which Vuitton, LVMH’s biggest brand, boosted prices for its logoed canvas travel bags over the past decade.
The more elite brands are also getting pricier. Chanel’s Jumbo Flap bag, which was $2,650 in 2010, currently sells for $4,900, while the price of a medium Lady Dior handbag more than doubled, to nearly $4,000, in the period.
In order to continue raising prices, brands need to ensure an improved product, according to Laurence-Anne Parent, senior partner at Advancy, a business consulting firm in Paris. “Long-term, you can’t fool the customer. At some point there is going to be a discrepancy between the product and the price.”