At a time when all the main global companies are at a crossroads, the $1.62 trillion luxury goods market was rocked by the resignation of Chanel’s chief designer earlier this week.

The strategy used by the world’s most prestigious fashion brands, such as the privately held Chanel and the LVMH-owned Dior and Louis Vuitton, has been to dramatically raise retail prices while aggressively promoting new designs from its well-known designers.

Since 2019, major luxury brands have raised the average price of their products by 33%. According to RBC estimates, it was responsible for half of the organic sales increase in the sector during the previous two years.

The corporations’ primary tactics are being challenged by pickier buyers as the cost of living rises globally.

Chanel, the second-biggest luxury brand after Louis Vuitton, recorded a 16% increase in sales to about $20 billion in 2018, which is double the amount of money made ten years earlier. Over half of the increase was due to price increases.

Chanel’s designer Virginie Viard, who succeeded Karl Lagerfeld following his death in 2019, left her imprint at the fashion house with lighthearted, Eighties-inspired interpretations of the brand’s iconic tweed suits. The announcement of Viard’s retirement on Thursday sparked conjecture regarding her replacement.

Chanel has increased prices significantly since the epidemic, as with many other luxury brands; the traditional flap bag now costs almost twice as much at over 10,000 euros ($10,800).

Although better-than-expected jobs numbers indicated a solid economy, concerns that the Federal Reserve would delay rate cuts led to a modest decline in Wall Street’s major indexes on Friday.

Chanel issued a warning earlier this month about the more difficult climate it was entering and how much it would have to defend its exorbitant prices.

“I believe that the entire sector drove prices excessively,” Erwan Rambourg, an analyst at HSBC, stated.

Monika Arora, the creator of the fashion website PurseBop.com, said, “Even ardent Chanel supporters bemoan the brand’s multi-year spike in bag prices.”

Investors in Chanel’s publicly traded competitors are likewise curious as to whether the industry’s sharp price increases indicate a dearth of novel concepts.

“Investors worry that the price increases may have priced out or alienated consumers and that brands will have limited growth levers in the short term,” said Carole Madjo, head of European luxury goods research at Barclays.

Only recently have luxury CEOs started to admit that the recession has drastically reduced the number of consumers who can purchase designer clothes, wallets, shoes, belts, and bags.

In April, Jean-Jacques Guiony, the Chief Financial Officer of LVMH, stated that the “aspirational customer” who does not own enormous wealth “has to adjust to that new normal; it’s not going to take 5 minutes.”

“There ought to be a rationale for price hikes,” LVMH Chairman and CEO Bernard Arnault said analysts in January. “The product must justify this.”

Additional price increases could be difficult to defend.

Price reductions for the Loulou compact bag and Classic Cassandre chain wallet were made by Kering-owned competitor brand Saint Laurent, which is owned by Chanel. Barclays analysts noted that the prior price increases may have been overly aggressive.

Kering-owned rival Gucci is adding more very expensive items to its collections. However, it also aims to attract less well-off but aspirational customers with practical goods like $200 ankle socks with clean stripes.

According to Rambourg, larger firms need to appeal to both the tenacious ultra-wealthy consumers and younger, more aspirational ones. “When you sell more than 10 billion euros ($10.80 billion) of products a year, it’s not an either/or.”

(Adapted from Reuters.com)