image credit: chanel

Chanel’s chief designer’s early Thursday resignation shook the $1.62 trillion luxury goods market at a time when all major global firms are at a crossroads.
The playbook at leading fashion firms like Chanel and LVMH (LVMH.PA) opens new tab Louis Vuitton and Dior extensively market new styles from their high-profile designers while raising prices.

Most luxury brands have raised prices by 33% since 2019. That accounted for half of the industry’s organic sales increase in the past two years, RBC estimates.
As global living costs rise, buyers are pickier, threatening corporations’ key strategy.
Chanel, the second-largest luxury brand after Louis Vuitton, saw 16% sales growth to nearly $20 billion last year, double the revenue a decade ago.

image credit: chanel

Price increases made well over half of the increase.

After Karl Lagerfeld’s passing in 2019, Virginie Viard made her mark with breezy, Eighties-inspired Chanel tweed outfits. Thursday’s announcement of Viard’s departure sparked conjecture regarding her replacement.
Chanel, like other luxury brands, has boosted costs since the pandemic, with the iconic flap bag now above 10,000 euros ($10,800).
Wall Street’s main indexes fell slightly on Friday after stronger-than-expected job data showed a strong economy but raised concerns that the Federal Reserve may delay interest rate cuts.

Chanel warned this month of a tougher climate and has had to justify its high costs.
“I think the whole sector pushed prices too far,” said HSBC analyst Erwan Rambourg.
“Even die-hard Chanel fans criticize the brand’s multi-year spike in bag prices,” PurseBop.com creator Monika Arora added.
Chanel’s publicly traded rivals’ investors are concerned if the sector’s significant price hikes indicate a lack of innovation.

“Investors worry that price increases may have priced out or alienated consumers and that brands will have limited growth levers in the short term,” said Barclays’ head of European luxury goods research, Carole Madjo.
Luxury executives have just recently realized that the downturn has reduced the number of buyers who can afford luxury belts, bags, shoes, wallets, and clothing.
In April, LVMH CFO Jean-Jacques Guiony said the “aspirational customer” without large riches “has to adjust to that new normal; it’s not going to take 5 minutes.”
“When you have price increases, well, there should be a reason,” LVMH Chairman and CEO Bernard Arnault told analysts in January. “The product must justify this.”
Further price increases may be unjustified.
Barclays analysts noted that Chanel rival Saint Laurent, a Kering-owned label, dropped prices of the Loulou tiny bag and Classic Cassandre chain wallet in a rare move, suggesting that recent price hikes were too excessive.
Gucci, another Kering-owned brand, is adding luxury items. Utility products like $200 ankle socks with crisp stripes are meant to attract less wealthy, aspirational buyers.
Rambourg said larger firms must target younger, aspirational buyers and resilient, ultra-wealthy ones. “When you sell more than 10 billion euros ($10.80 billion) of products a year, it’s not an either/or.”