Chanel Is Aiming for Hermes Status With Handbag Price Hikes
(Bloomberg) -- Chanel has raised global prices on some of its classic handbags by almost two-thirds since the end of 2019.
A spokeswoman said the hikes are in response to unspecified exchange-rate fluctuations, changes in production costs and to ensure its handbags cost roughly the same around the world. But luxury-sector executives and analysts say the magnitude of the increases signals an aggressive corporate strategy: asserting control over one of the brand’s most popular products while taking aim at higher-end rivals.
Since November 2019, the price of Chanel’s small classic flap bag in the U.S. has gone up by 60% to $8,200, according to data compiled by Jefferies Group analyst Kathryn Parker. The large version of the handbag known as the 2.55 now costs $9,500 in the U.S. following Chanel’s latest price hike, the brand’s fourth in two years. It cost $7,400 in June, according to Parker.
Charles Gorra, chief executive officer of Rebag, which sells pre-owned luxury purses, says the push could be aimed at making Chanel’s products more exclusive, to gain ground on the most iconic handbags of all: the Birkin and Kelly bags by rival luxury house Hermes.
A medium-sized Chanel flag bag in France now costs 7,800 euros ($8,800), 100 euros less than a Birkin 30 in Togo calfskin by Hermes.
Chanel is striving “to be part of the Hermes world and less of the Vuitton and Gucci world,” Gorra said. “They are trying to go upscale.”
Ubiquity Versus Exclusivity
In addition to making its products more expensive, Chanel is cracking down on the number of handbags customers can purchase at one time, though the limits don’t appear to be consistent.
In Paris, a Chanel sales assistant told a Bloomberg News reporter that a customer is only allowed to buy one bag at a time, and must wait two months before buying another one, which can’t have the same features. In New York, there were monthly limits on the purchases of certain classic styles, while reporters in Hong Kong and Shanghai were told there were no restrictions.
Chanel could be hoping that this scarcity will make it “an even more desirable brand,” said Ines Ennaji, a business development manager at Paris-based Luxurynsight, which provides industry data. “By increasing desirability, they’ll have a reason to justify their price increases.”
Chanel’s purchasing limits and price increases are “like telling consumers, if you can purchase a handbag, you belong to the club,” Gachoucha Kretz, associate marketing professor at business school HEC Paris, said. “Its iconic bags are best sellers.”
But there are initial signs that Chanel’s changes are irking some shoppers, while enticing others to buy now to avoid future hikes.
“I have become rather discontented with the brand,” said Ingrid Chua, a Vogue Hong Kong contributor whose Bag Hag Instagram account has almost 60,000 followers. She said the leather on Chanel’s bags has a more plastic feel in recent years because of a heavier coating intended to protect against dirt and scratches.
The price hikes make Carol Gong, who frequently buys luxury products in Hong Kong, less likely to buy Chanel. “If I can get one, I’d rather buy a Lindy bag from Hermes, which is offered at a similar price,” she said.
Erwan Rambourg, HSBC’s global head of consumer and retail research, thinks Chanel’s price increases are about branding rather than competition.
“It’s in reference to what they believe is their brand equity -- and also how nervous they are about this ubiquity,” Rambourg said. He added that the company doesn’t “want everyone to carry the same handbag, because that devalues the handbag itself.”
Yet there are cautionary tales from the high-end sector about the impact of successive price increases, Rambourg notes. Several years ago, IWC Schaffhausen, which is owned by Swiss luxury conglomerate Cie. Financiere Richemont SA, significantly boosted the cost of its watches. Consumers pulled back, forcing IWC to cut prices and launch a more accessible steel version of one of its watches, he said.
Across the fashion world, Chanel is one of the few digital holdouts, with a long-standing policy against selling any handbags or clothes online, though it does sell cosmetics and sunglasses on its website.
When online demand for luxury handbags surged during the pandemic, Chanel missed out on the robust revenue growth that buoyed peers such as Hermes and LVMH’s fashion and leather-goods unit, which includes Louis Vuitton and Dior.
The privately held Chanel, controlled by the billionaire Wertheimer brothers, reported an 18% decline in revenue and a 41% slump in operating profit in 2020, compared with a 6% revenue drop and 15% operating profit decline for Hermes. Earlier this month, Chanel appointed Leena Nair, a Unilever Plc executive, as chief executive officer starting in January.
Parker, the Jefferies analyst, said that Chanel is trying to find ways to compensate for that revenue drop. “Part of where they could close the gap to other brands that had e-commerce is on pricing.”
One consequence of Chanel’s price increases has been to boost the cost of its handbags on the secondary market, said Seth Weisser, chief executive of New York-based luxury reseller What Goes Around Comes Around. Chanel has sued the company for false advertising and trademark infringement, allegations the resale platform denies. Chanel declined to comment on the lawsuit.
Weisser said he’s able to sell Chanel bags that are ten years old or older for more than their original price, in part because many of the styles are discontinued. “Not all Chanel bags are created equal,” he said. Demand depends on the color, model and size. Of the purses that Chanel has made within the past several years, about half of them sell below the primary-market price, Weisser said.
By contrast, resellers can count on Hermes’s most-sought after bags to consistently sell for more than their original price. A rare Birkin sold for 112,000 euros ($126,550) on resale platform Vestiaire Collective last month; its retail price was 18,500 euros. The most expensive Chanel bags have sold for as much as 30,000 euros, a spokesman for the platform said.
“Chanel is probably keen to bring the 2.55 and Timeless models on a par with the Birkin and the Kelly of Hermes,” said Bertrand Peyrat, chief supply officer at Vestiaire Collective, referring to the flap bag. “But the secondary market evaluation for Chanel is not there yet.”
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