At the beginning of March, Chanel’s Head of Fashion Bruno Pavlovsky shared a news that will upset the customers of the brand: Chanel was going to increase the price of its classic bags and 2022 Spring / Summer collection, again! From the outside, this practice is quite normal. Luxury fashion brands also apply inflation-related hikes about twice a year, keeping this rate higher than the market average. What is different is the price increase strategy that Chanel has implemented since the beginning of the pandemic. With the latest price hikes, the brand’s classic bags are being sold for approximately 60% more than their prices in 2019. For example, the Medium Classic Flap bag costs $5,800 in 2019 and $8,800 in November 2021.
In fact, Chanel has a transparent pricing strategy. The brand is doing price harmonization and working on region-specific hike rates in order to close the price differences that arise due to the exchange rate variable in different sales regions. Apart from price adjustment, there are other reasons for these dramatic hikes. According to Pavlovsky, Chanel has allocated a large amount of funds to expert opinions and resources to improve the quality of the bags. Expenses have not been spared so that bag production does not deviate from sustainable targets. Another important change is Chanel’s investment in customer satisfaction. Under the “Chanel et moi” program, the warranty of Chanel bags has been extended from 2 to 5 years.
Although the reasons stated are quite understandable, target prices and new sales plans trigger questions in the fashion scene: Is Hermés the rival that Chanel has set for itself?
At the top of the Soft Luxury pyramid are Hermés, Dior and Chanel. While Dior and Chanel have collections with high returns in the field of textile and beauty, Hermés is open to development in these categories. However, looking at the annual income data announced, Chanel has a larger percentage of shrinkage compared to Hermés. The increased demand for online sales during the pandemic has not been met due to Chanel’s strict restrictions. This causes the French fashion giant to fall behind its rivals. For example, in 2020, when the popularity of online shopping peaked, Chanel’s revenue decreased by 18%, while its operating profit decreased by 41%. These figures are 6% and 15% for Hermés. Of course, this decline is due not only to the lack of online sales, but also to the Covid-19 travel restrictions and the decrease in far eastern visitors.
Chanel, at the top of the pyramid but remaining in the background, may have wanted to both close the income gap with price increases and position itself among the mega fashion brands by getting rid of high fashion brands in terms of brand perception. The Chanel Medium Classic Flap bag retails for $8,800, while the classic base Hermés Birkin 30 costs around $8,900. So, the prices of the two iconic bags are now almost equivalent.
