How Luxury Brands Can Navigate — Gingerly — Around Overblown Prices

European luxury brands may have painted themselves into a corner by dramatically raising prices in recent years, spooking aspirational customers — and testing the resolve of devoted clients.

“In a sobered-up demand environment, price increases — and higher gross margins — are a concern for all clients. For those who have been priced out for sure, but also for those who, while still able to afford, may feel they are now being taken for a ride,” said Luca Solca, luxury analyst at Bernstein, which has calculated the eye-watering inflation of recent years.

According to its tabulations on select like-for-like products, between 2020 and 2023, when consumers gorged on luxury goods in a post-pandemic spending spree, prices increased 66 percent at Dior, 59 percent at Chanel, 54 percent at Moncler, 43 percent at Prada, 31 percent at Louis Vuitton, 25 percent at Saint Laurent, 21 percent at Gucci, 20 percent at Hermès and 18 percent at Burberry.

HSBC analyst Erwin Rambourg calls it “greedflation” — and a big sector headwind that cannot be fixed rapidly.

“With very few exceptions, most brands have indeed increased prices too much and too quickly,” he wrote in a recent report. “Many would benefit from rebuilding a stepping stone for the aspirational consumer to come back, after that consumer recently got priced out.”

To be sure, rolling prices back on iconic leather goods is a definite no-no, according to Jean Revis, cofounder of Paris-based luxury consultancy MAD.

“If you bought a handbag for 5,000 euros and six months later the exact same bag is at 4,000 euros, you would never return to the brand,” he said in an interview.

Yet there are still some levers brands can pull.

While skirting mention of specific brand names, Revis said some jewelry houses are proposing new products with more approachable prices within an existing iconic range.

“New entry-price products must still have the same quality, but they might use less of the expensive materials and therefore carry a cheaper price,” he said.

In future, brands with iconic leather handbag models might consider introducing them in canvas, or in smaller versions, he suggested.

Another route would be to increase the perceived value of existing bags by adding more functional details — a pocket, a zipper or reversibility, for example.

“Something that makes the bag feel more sophisticated for the same price,” Revis explained. “The perceived value for the client is important. What would be a trap would be to reduce the quality and no brand can afford to do that.”

Beauty products, and the vast gifting category, which can range from enamel bracelets and bag charms to home wares, also offer brands new avenues to build a wider offering of entry-price products.

“Brands are having a hard time with aspirational customers. Currently in most of the countries, the majority of the business is done by trying to upgrade the current clients and push them to become even better clients of the brand,” Revis said. “But healthy growth for a luxury brand is always a mix of both. You need to continuously recruit and you need to continuously grow your existing clientele. So I think you cannot say ‘no’ to aspirational clients. You need to find a way to seduce them.”

In his view, “fashion always has the power of creativity to attract aspirational clients,” and offers the possibility of more flexible pricing as many styles are seasonal and not easily comparable. “Creativity needs to be part of the equation. It cannot be just the price.”

Solca agreed, urging brands to introduce new styles with lower entry tickets; “beef up the content of all products that have gone up in price,” and ramp up “innovation to excite consumers to buy, no matter the price.”

According to Revis, training sales associates well about the sustainable features of products could be another route to enticing young, aspirational customers to get on board with luxury brands, which exalt their durability, noble materials and European production as signposts of quality consumption.

During recent retail assessments of luxury stores around the world, MAD found most associates poorly equipped to answer specific questions about compliance, production footprints and traceability, for example.

“I’m not saying that the brand needs to become active advocates, but I’m surprised that the staff is not trained to at least answer questions when they are asked,” he said.

In his view, the reticence to communicate stems from the luxury industry’s historic focus on perfection in design, quality, finishing and store experience, whereas sustainability is an imperfect, perennial work-in-progress.

“It’s two mindsets that are very different,” he said. “In general, the staff is really uncomfortable when this topic comes up.”