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According to analyses conducted by experts from Credit Suisse and revealed by Challenge magazine, Louis Vuitton has increased its prices by 8% in its main markets over the past year. According to the journal, most of this increase would have occurred after the first confinement. Chanel and Gucci also took advantage of the health crisis to increase their margins. But what is the cause of such a surge in prices in a time of global pandemic?
The answer to this question can be summed up in two words placed at the heart of the concerns of financial analysts, as well as the general management of companies: pricing power. This expression refers to the practice of increasing prices in times of economic hardening. In other words, it is a matter of improving profits to compensate for the drop-in sales volume. This ability to play on price leverage is nevertheless only reserved for reputable and stable companies whose price increases will not affect customer consumption. Even more so, if the latter do not realize the increase, then the company in question has very good pricing power.
This notion therefore reflects “a favorable balance of power with respect to customers”, in the words of Gérard Moulin, head of European equity management at Amplegest. According to this specialist, pricing power is “a way of freeing oneself from cycles and adapting to changes.” The possibility for some firms to increase prices without losing market share is particularly important in times of economic difficulty.
Therefore, no surprise when luxury brands increase their prices at the time of Covid-19. To exercise pricing power, it is indeed necessary to benefit from a long-term presence on the market, a strong consumer recognition and a specific know-how. These are all assets that luxury brands can now be proud to have at their disposal.
According to Stanislas Coquebert de Neuville, the opportunity to benefit from such advantages lies in “investments in the brand”, which the analyst and manager of Lazare Frères Gestion considers to be “one of the determinants of the ability to set prices.” For example, “a pair of eyeglasses from the same factory with almost identical technical specifications can be sold four times more expensive under a luxury brand than under a less established brand.”
For example, the historic brands of the luxury market have raised their prices several times since the beginning of the global pandemic. In addition to Louis Vuitton, which increased the cost of its products by 8% over the year, Chanel also declared an increase in the price of its pieces in May to offset the increase in the cost of raw materials.
The French brand had nevertheless specified that “the price adjustments only concern Chanel’s iconic handbags, the ‘11.12’ and ‘2.55’, as well as the ‘Boy’, ‘Gabrielle’ and ‘Chanel 19’ bags and certain small leather goods.” On these articles, it was then necessary to count on a range of price increase between 5 and 17%.
Similarly, Louis Vuitton, Tiffany & Co and Bulgari increased their prices on limited editions in South Korea. These increases averaged 5 or 6%, with the most significant increases up to 10%. Despite the waves of criticism in South Korea about this price increase, which was made at the expense of consumers in a time of crisis, further increases are expected before the holiday season.
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According to analyses conducted by experts from Credit Suisse and revealed by Challenge magazine, Louis Vuitton has increased its prices by 8% in its main markets over the past year. According to the journal, most of this increase would have occurred after the first confinement. Chanel and Gucci also took advantage of the health crisis to increase their margins. But what is the cause of such a surge in prices in a time of global pandemic?
The answer to this question can be summed up in two words placed at the heart of the concerns of financial analysts, as well as the general management of companies: pricing power. This expression refers to the practice of increasing prices in times of economic hardening. In other words, it is a matter of improving profits to compensate for the drop-in sales volume. This ability to play on price leverage is nevertheless only reserved for reputable and stable companies whose price increases will not affect customer consumption. Even more so, if the latter do not realize the increase, then the company in question has very good pricing power.
This notion therefore reflects “a favorable balance of power with respect to customers”, in the words of Gérard Moulin, head of European equity management at Amplegest. According to this specialist, pricing power is “a way of freeing oneself from cycles and adapting to changes.” The possibility for some firms to increase prices without losing market share is particularly important in times of economic difficulty.
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According to analyses conducted by experts from Credit Suisse and revealed by Challenge magazine, Louis Vuitton has increased its prices by 8% in its main markets over the past year. According to the journal, most of this increase would have occurred after the first confinement. Chanel and Gucci also took advantage of the health crisis to increase their margins. But what is the cause of such a surge in prices in a time of global pandemic?
The answer to this question can be summed up in two words placed at the heart of the concerns of financial analysts, as well as the general management of companies: pricing power. This expression refers to the practice of increasing prices in times of economic hardening. In other words, it is a matter of improving profits to compensate for the drop-in sales volume. This ability to play on price leverage is nevertheless only reserved for reputable and stable companies whose price increases will not affect customer consumption. Even more so, if the latter do not realize the increase, then the company in question has very good pricing power.
This notion therefore reflects “a favorable balance of power with respect to customers”, in the words of Gérard Moulin, head of European equity management at Amplegest. According to this specialist, pricing power is “a way of freeing oneself from cycles and adapting to changes.” The possibility for some firms to increase prices without losing market share is particularly important in times of economic difficulty.
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