As Tariffs and Inflation Take a Toll, High-End Companies Struggle to Maintain Sales

Luxury brands that raised prices aggressively during the pandemic are now facing disappointing sales numbers, a trend that may be attributed to their handling of prices. Companies like Christian Dior and Chanel, which saw significant price increases, have reported declines in sales, while others like Hermès and Richemont, which took a more restrained approach, continue to show healthy growth.

According to Bernstein analysis, luxury companies raised prices by an average of 36% between 2020 and 2023, roughly double the rate of overall U.S. inflation at the time. Dior and Chanel went even further, hiking prices by 51% and 59% respectively. The Classic Flap handbag from Chanel, for example, has become a poster child for “greedflation” in the luxury industry, with its price increasing from $5,800 in 2019 to $10,800 today.

In contrast, Hermès and Richemont have taken a more cautious approach, passing on rising input costs to customers without using price hikes to juice growth. Hermès has already passed on the full impact of tariffs to its American customers, while Richemont has not announced any price increases yet. The company’s Chairman, Johann Rupert, attributed their success to not being “greedy” during the pandemic.

Luxury brands face a delicate balance between maintaining their image and cutting prices to remain competitive. They spend billions of dollars on advertising to convince shoppers to pay steep markups on their goods, and cutting prices would be seen as an admission that their products are not as desirable as thought.

As the market continues to evolve, luxury brands may be forced to rethink their pricing strategies to remain competitive. Some may choose to design new lower-priced products to boost sales, while others may sit on their hands until inflation and income growth make their goods seem more affordable.

The impact of tariffs on luxury brands is also a concern. While Hermès has already passed on the full impact of tariffs to its American customers, others like Chanel may be forced to swallow the cost of tariffs. This could further exacerbate the decline in sales, as consumers become increasingly price-sensitive.

Ultimately, the luxury market is facing a perfect storm of challenges, including tariffs, inflation, and changing consumer behavior. As the market continues to evolve, luxury brands will need to be agile and adaptable to remain competitive. Those that are able to strike the right balance between price and image will be the ones that thrive in the long term.

In related news, other luxury brands are also feeling the pinch of price hikes. LVMH, the world’s largest luxury company, has reported a decline in sales, while Gucci owner Kering has also seen weak sales. Meanwhile, Hermès is set to raise prices in the U.S. to mitigate the impact of tariffs, and Ralph Lauren is also planning to raise prices as luxury shoppers continue to spend.

The luxury market is a complex and rapidly evolving space, and only time will tell how these challenges will play out. One thing is certain, however: luxury brands will need to be creative and innovative to remain competitive in the years to come.