The price bubble has turned into a brands’ impasse. Analysts are wondering about the possible solutions: they rule out continuing raising prices, but also starting with the lowering of said prices. That would be another mistake that would drive customers away.
The impasse of the brands
Luca Solca, analyst at Bernstein, compiled with WWD a sort of ranking of price increases. Between 2020 and 2023 Dior has applied a 66% increase, Chanel +59%, and Moncler +54%. But they aren’t the only ones to have pushed on the accelerator pedal: Prada’s prices have grown 43%, Louis Vuitton’s 31%, Saint Laurent’s 25%, and Gucci’s 21%. Hermès and Burberry, to complete the picture, posted increments of +20% and +18%, respectively. For Solca, brands can correct this in only one way: by introducing new products with lower entry prices. But also by “strengthening the content of products that have had a price increase” and augmenting “innovation, to entice consumers to buy, regardless of price”, Solca added.
No mistakes allowed
Analysts talk about expanding supply at the base. Because reducing the prices of iconic leather goods, explains Jean Revis (co-founder of consulting firm MAD), would be a mistake. “Someone who bought a bag for 5,000 euro and six months later finds it at 4,000 euro will never buy from the same brand again”. So, what can brands do? For example, they could launch products at lower price points, because they are either smaller in size or made with cheaper materials. Revis, similarly to Solca, suggests increasing the perceived value of existing bags by adding more functionality, potentially via pockets, zipper, or reversibility. “Something that makes the bag more sophisticated, for the same price”, are his words. “The customer’s perceived value is important. Reducing quality is something no brand can afford”.
The comeback of diffusion lines
The impression, we add, is that analysts are advising the reintroduction (in disguise) of “diffusion lines”. Remember the various D&G, Red Valentino, Marc by Marc Jacobs, Versus Versace (and others)? Secondary brands have long been a vehicle for commercial expansion in the segments of the public (the so-called aspirational) that could not afford the prices of the primary ones. Over the past decade, as the bullish season began, companies gradually divested diffusion lines because they were “diluting the brand” (i.e.: damaging its prestige). That source of revenue, however, is missed: apparently, we need to prepare for its return.
Photo from Shutterstock
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