Behind LV joining the army of group price increases: luxury goods price increases, intended to "hunt" China?

Text/Li Dan

For luxury goods, price increases require timing and reason, such as Louis Vuitton (LV) who recently announced price increases again.

According to reports, a spokesperson for luxury group LVMH in China said not long ago that from February 16, LV brand products including leather goods, accessories and perfumes will usher in different degrees of price increases. Judging from the official quotation, in this round of price increases, some classic models have increased by 20%.

It can be said that it takes courage to play price increases alone, and it is a clever job to share risks and share prices. In fact, as soon as the Year of the Tiger began, Rolex took the lead in announcing price increases ranging from 4% to 11%. Subsequently, Hermès completed the price increase, and the accessories based on silk scarves rose by about 10%. Immediately after, Dior, Chanel, and Celine followed. The reason for the price increase is nothing more than the increase in the price of raw materials, the rise in labor costs, and the rise in transportation costs...

Image source: Visual China

From the "one (two) rises a year" to today's several price increases a year, who has given the courage to increase the price of luxury goods endlessly? To what extent is the price increase for luxury goods aimed at the Chinese market, and is there a ceiling?

Price increase, "engraved into the bone" attribute

In the traditional perception, the price of the product is inversely proportional to the sales volume, that is, the higher the price, the lower the sales volume. However, as a product based on spiritual consumption, the existence of luxury goods clearly violates this law.

According to Zhou Ting, a luxury goods expert and president of the VIP Research Institute, the price increase of luxury goods has nothing to do with the so-called "imbalance between supply and demand". Zhou Ting has conducted in-depth analysis of the marketing strategy of luxury brands, in her view, with the production capacity and process technology of modern society, there is no production limitation. That is to say, the so-called "scarce things are expensive" and "imbalance between supply and demand" are only the result of the brand's subjective control of supply, "the purpose is to make price increases popular".

The luxury industry has always had the practice of price increases, and if there are no special circumstances, the price will rise once or twice a year, each time floating 5 to 10 percentage points.

According to the official, the reason for the price increase is nothing more than the rise in the cost of raw materials, labor, transportation, etc., but in Zhou Ting's view, these are only superficial reasons, "the real reason is that this (price increase) is a way for them to hunger marketing, that is, through the price increase to highlight the value preservation and appreciation effect of luxury goods, so that consumers flock to it."

As former LV CEO Vincent Bastien argues in his book Luxury Management, luxury is a "earned" item, and the greater the resistance (whether tangible or intangible), the stronger the desire people want to get. However, the engraved attribute of price increases has really been strengthened during the epidemic, and the word "price increase" seems to have become the consensus of consumers.

Li Jincan, chief analyst of the consumer goods industry at the Toubao (Shanghai) Research Institute, told the author that under normal circumstances, luxury brands will choose to raise prices when the number of people who can afford the hot-selling series of products reaches a certain threshold, and the price increase is determined by the spending power of the target customer group.

"Obviously, this initiative aims to better ensure that the brand consumer group is a minority at the top of the pyramid, thereby maintaining the scarcity of the brand." In Li Jincan's view, the scarcity of brands brought about by regular price increases can well stimulate the desire to buy from the target consumer group, and can also make consumers who have purchased psychological satisfaction.

At the same time, some executives and analysts in the luxury industry have pointed out that brands can also raise prices as a marketing tool, that is, by targeting high-end competitors to raise their own prices. For example, Chanel's medium flap bag sold for $8,800 after the price increase, which is only about $100 less than Hermès' platinum bag. In the words of the CEO of a second-hand luxury handbag e-commerce, Chanel is aiming at Hermès' head position in the high-end handbag category by raising prices.

Regardless of the several times and reasons for the price increase of a number of luxury goods, the obvious result is that the sales situation of some brands has begun to improve, and the performance of the capital market is also good.

Not long ago, LVMH Group released the third quarter of 2021 financial report, the data shows that the group in the Asian and Us markets have maintained double-digit growth; similarly, as of the third quarter of 2021 financial report, Cartier parent company Richemont Group revenue increased by 35% year-on-year, far exceeding the market's general expectations; Prada Group's preliminary performance data in 2021 shows that the group's sales in 2021 increased by 41% year-on-year...

As Zhou Ting said, for luxury goods, price increases are one of the most effective ways to impact performance.

"Hunting" China, where is the ceiling?

"In the future, luxury goods will increase in price year-on-year around the world. On the one hand, to avoid excessively low overseas prices, China's luxury consumption continues to flow out, affecting the operation of various stores in China; on the other hand, taking into account the spending power of Chinese consumers at home and abroad, brands can increase profits under the global price increase strategy. As early as 2013, Zhou Ting pointed out that "global price increases" will become a common operation for luxury goods, of course, this is to make Chinese pay globally.

In recent years, lv, Dior and other luxury goods price increase reports, the four words "global" seem to be listed. But in Zhou Ting's view, despite the word "global", in fact, the price increase of luxury goods is still using the dividends of Chinese and Chinese consumers, coupled with price increases, in order to make up for the company's previous financial losses, "is a very unsophisticated money-grabbing strategy."

"Emerging markets, represented by China, are still the most likely stages for luxury goods to make huge profits, and they take advantage of Chinese immature consumption state to occupy this broad-based market, making it the core of their global strategic marketing." Zhou Ting said.

Fashion expert Zhang Peiying also believes that the global price increase of a number of luxury goods is largely aimed at the Chinese market. "As the United States continues to print money, the purchasing power of its citizens will naturally decline, and it is natural for prices to rise." But China is different, China is relying on the middle class to support the price increase. ”

If price increases are the norm, the next question is, where is the ceiling for luxury price increases?

Zhou Ting told the author that for consumable luxury goods, the "upper limit of price increases" is a matter of principle: unlimited price increases will explode. The so-called "rising and exploding", that is, the rising price breaks through the psychological bottom line that consumers can afford, resulting in the product itself being resisted by the core consumers of luxury goods.

In fact, in Zhou Ting's view, since the outbreak of the epidemic, international luxury brands in China have consumed the dividends of this part of consumers who often went abroad to buy luxury goods. At the same time, with the rapid development of cross-border e-commerce, more and more high-end niche brands, customized brands and designer brands have entered China, and the space available to consumers is increasing.

"In the next three years, for luxury brands, it may be more to maintain financial reports by pulling new spending power on luxury goods, which is a very difficult thing for international brand companies." Zhou Ting explained that in the past 20 years, due to the serious outflow of consumption, luxury brands have not actually cultivated Deep Into China. This has led to a serious shortage of brand coverage and customer coverage in China, making it difficult to maintain the continued growth of financial reports.

In other words, stories such as "scarce raw materials and scarce craftsmanship" can work in the short term, but it is difficult to fundamentally maintain the infinite rise in luxury prices.

Luxury freaks: money management and making quick money

In recent years, the concept of "luxury wealth management" has often appeared in the same frame as the price increase of luxury goods.

Not long ago, the "Ten "Wealth Management Packages in 2021", which was recently reviewed by Koala Hai, showed that CELINE ROMY's armpit bag, which had the highest price increase in 2021, rose by as much as 95% compared with the price at the beginning of the year, significantly outperforming the fund and the stock market. For a time, the discussion of "buying funds is consumption, buying luxury goods is financial management" has been endless.

Zhou Ting said frankly that the so-called "luxury value preservation and appreciation" is actually a marketing gimmick. In fact, only a few brands of a few products have certain value preservation or value-added attributes, but most of these products are in a state of limited circulation or even impossible circulation in the market. Most of the remaining consumable products are mostly valued at a 1 to 30% discount on the secondary market, even if it is 90% new and brand new products.

Li Jincan also told the author that the symbolic value of luxury goods itself is much higher than the actual value, and its symbolic value is often affected by various factors such as brand culture, socio-economic and political factors, and even the image of the spokesperson. In addition, since the main target customers of luxury brands are the people at the top of the consumer pyramid, brands will continue to introduce products that can better distinguish between consumer circles, and when the symbolic value of the past weakens, the value of the luxury goods will also decline.

If the so-called "luxury wealth management" reflects the value and realization thinking, then "the mainland has never had a luxury brand that is comparable to the international" is rooted in the thinking of making quick money.

Not long ago, the "first share of women's shoes" announced on Saturday that it will spin off the footwear business and add a new layout of the meta-universe and digital virtual people. In Zhang Peiying's view, this is a typical behavior of "being kidnapped by capital and pursuing immediate interests". To a certain extent, Saturday's development trajectory also reflects the hard wounds of mainland brands, that is, the one-sided pursuit of trends and flows, and the lack of hematopoietic and self-repair capabilities.

Similarly, Shanghai Beach, once known as "China's first modern luxury brand", positioned its customers as a high-end consumer group. But then, just after making a name for itself in the circle, the brand went through several changes of hands, first to Richemont and later to China Yunyue Investment Fund.

"It is a pity that there has been no luxury brand in China that can compete with international brands. The fundamental reason is that many people are 'looking at money', kidnapped by capital and traffic, and either can't make a brand, or can't maintain the tone of the brand. Zhou Ting sighed.

(Editor: Chen Yuqi Proofreader: Yan Jingning)