More Expensive Luxury Goods... Targeting 'Vanity Demand' That Laughs at the Economic Downturn

Hermes, Chanel Beauty, Delvaux, Rolex Price Increase.
'EruSha' Achieves Record Sales Since COVID-19
Veblen Effect Keeps Demand High Due to Vanity and More

[Asia Economy Reporter Yoon Seul-gi] Despite concerns about an economic downturn due to COVID-19, luxury brands continue their price hikes. Even last year, when the economy was overshadowed by recession fears, the luxury industry enjoyed an unprecedented boom. Attention is focused on whether the Veblen effect, where demand does not decrease despite price increases due to vanity and other factors, will appear again this time.

Luxury brands such as French Hermes and Chanel Beauty, Belgian Delvaux, and Swiss Rolex have successively raised their product prices.

According to the fashion industry on the 6th, Hermes raised prices on bags, clothing, shoes, and watches by up to about 15%. Hermes' usual price increase is around 1.5?2%, but after raising prices by about 4% last year, they actually increased the rate of price hikes.

[Image source=Yonhap News]

Hermes' Lindy 26 bag rose from 10.23 million KRW to 11 million KRW, a 7.5% increase; Garden Party 36 went from 4.98 million KRW to 5.37 million KRW, up 7.8%; and the 'Evelyne' increased from 4.53 million KRW to 4.93 million KRW, an 8.8% rise. The H Hour (Hermes H Watch, Small, Calfskin, Gold) jumped significantly from 3.98 million KRW to 4.56 million KRW, a 14.6% increase.

Delvaux raised prices on some products. The Briand bag, mini size, increased from 8.31 million KRW to 8.76 million KRW, a 5.4% rise.

Rolex raised prices by about 2?6% mainly on popular items such as the Submariner. The Submariner No Date increased from 11.42 million KRW to 11.69 million KRW, a 2.4% rise, and the Submariner Date, combi version, rose from 18.81 million KRW to 20.03 million KRW, a 6% increase.

There is a reason why the luxury industry raises prices despite the economic downturn. The COVID-19 pandemic triggered a surge in consumer sentiment known as 'revenge consumption,' and luxury brands benefit significantly from the Veblen effect, where demand does not decrease due to vanity and other factors despite price increases.

Photo by Yonhap News

During the COVID-19 period, the 'EruSha' (Hermes, Chanel, Louis Vuitton) continuously raised prices citing raw material costs, logistics expenses, and exchange rates, yet their sales exceeded 3 trillion KRW for the first time in 2021. EruSha recorded total sales of 3.2194 trillion KRW in Korea, marking the highest sales ever.

The luxury boom continued overseas as well. LVMH Group's sales in the third quarter of last year increased by 24% compared to the same period last year, reaching 3.14 billion euros (approximately 4.2 trillion KRW).

Regarding this, Jean-Jacques Guiony, LVMH Chief Financial Officer (CFO), stated, "While it cannot be said to be completely unrelated to the economic downturn, based on past experience, the recession in this market did not last very long," and added, "Luxury sales target wealthy individuals who have their own behavioral patterns, so they are not affected by economic conditions or market fluctuations."

Increased liquidity after COVID-19 also appears to have influenced the rise in luxury demand. According to a Credit Suisse report in September last year, asset prices surged during this period, leading to a rapid increase in ultra-high-net-worth individuals (UHNW) with net assets exceeding 50 million USD (approximately 6.35 billion KRW), rising from 218,200 worldwide at the end of 2020 to 264,200 in 2021, an increase of over 40,000.

The emergence of Generation Z, familiar with luxury brands, is also a variable. A report by Bain & Company and the Italian luxury association Altagamma in November last year analyzed that "Generation Z, emerging as the main consumer group, is 3 to 5 years ahead of the millennial generation in luxury consumption age," and predicted that the luxury market growth trend will continue until 2030.

This content was produced with the assistance of AI translation services.