Buying up again as prices rise, but is it a false start?... Luxury 'Open Run' from the New Year's Dawn

[False Economy] ① The Vicious Cycle of Open Runs
Price Increases in Prada, Chanel, Tiffany, and More
Long Lines in Front of Department Stores and the Resurgence of the Resale Market

Editor's NoteMany thought it was a smart economic activity to gain something better, but it often turned out to be a misstep. When consumers are deceived by corporate marketing or blinded by momentary gains and make wrong decisions, the ones who ultimately suffer are the consumers. We aim to revisit economic activities where people have made mistakes by misjudging everyday situations and ended up on the wrong foot.

From the very beginning of the new year, luxury brands have been announcing consecutive price hikes, causing the previously subdued ‘open-run’ phenomenon to stir again. The so-called phrase, ‘Today is the cheapest day to buy a Chanel bag,’ triggers consumers’ impatience and stirs up buying sentiment. Luxury brands’ marketing strategy of releasing products in small quantities while continuously raising prices stimulates not only genuine buyers but also those who purchase products to resell them in the secondhand market for profit. This is why people are lining up even before luxury stores open at the start of the year. However, the more consumers fall for the luxury brands’ marketing strategies that induce open-run behavior, the more the vicious cycle of increased luxury demand, price hikes, and open-run continues. In the end, only consumers end up paying more for the same products and suffer the consequences.

When the collaboration 'MoonSwatch' between Swatch and Omega was released in 2022, causing a sensation, buyers were waiting in line for an open run in front of the Swatch store in Myeongdong, Jung-gu, Seoul. Photo by Jinhyung Kang aymsdream@

In 2021, when it became known that Chanel was raising prices in the United States, citizens were waiting for the opening of a luxury store in front of a large department store's luxury hall in Seoul. Photo by Jinhyung Kang aymsdream@

◆ Luxury Brands Announce Consecutive Price Increases Starting January

Chanel is known to raise prices on some jewelry and watches by more than 4-5% starting from the 9th of this month. Delvaux and Buccellati are also expected to increase prices around the 8th. Tiffany & Co. will raise prices by around 5% starting the 11th, and Fendi is likely to increase prices on some products from the 12th. Earlier, Prada raised domestic prices by about 5-10% on the 3rd, and Herm?s increased prices on some footwear by up to 43.7% on the 1st. The luxury industry’s price hike trend has already begun at the start of the year.

The ongoing price hikes by overseas luxury brands at the start of the year are linked to increased department store sales, creating a welcoming atmosphere in the domestic distribution industry. Shinsegae Gangnam Store achieved annual sales of 3 trillion KRW last year, the first single department store to do so. This was thanks to holding many luxury brands known as the ‘EruSha’ (Herm?s, Louis Vuitton, Chanel), with VIP customers accounting for nearly half (49.9%) of sales. VIPs are customers who spend over 30 million KRW annually.

Shinsegae Department Store has been increasing the number of luxury brands in response to the growing domestic demand for luxury goods. While there were 58 luxury brands (brands with annual sales over 100 million KRW) in 2010, this number doubled to 126 this year.

◆ Luxury Price Hikes Lead to Open-Run... Stimulating Consumer Psychology

As news of domino-like price hikes among major luxury brands spreads, signs of the previously quiet luxury open-run phenomenon reemerging have been detected. The luxury open-run competition has long turned into a ‘war without gunfire’ among hopeful buyers, with line-standing and purchasing agent part-time jobs flourishing. These jobs have grown in scale as job seekers and unemployed people, affected by the post-COVID-19 employment slump, easily access them.

As domestic demand for luxury goods grows, the resale market has also expanded. Resale refers to buying limited-edition products and reselling them shortly after at much higher prices to realize profits. Profitability largely depends on the product’s condition, rarity, and timing of sale. The demand has grown so much that specialized resale companies and dedicated trading platforms have emerged.

While sellers and department stores have implemented measures such as online remote line-standing, phone reservation systems, and waiting call systems to curb the luxury open-run phenomenon, the recent price hikes at the start of the year have led the domestic distribution industry to anticipate a possible resurgence of last year’s open-run.

An industry insider said, “When new or rare ‘limited edition’ products are released, consumers start lining up from early morning on the release day. It seems that information about product arrivals circulates among consumers and resellers’ communities even before the products are stocked. Also, when advance notices of price hikes are announced like now, the psychology of needing to buy before prices rise tends to cause open-run phenomena to reoccur.”

◆ Open-Run Losses Ultimately Fall on Consumers

The relay price hikes by luxury companies reflect rising international raw material prices and exchange rate fluctuations. However, the core reason for the price hikes is that demand does not decrease no matter how much prices rise. On the contrary, the more expensive the prices become, the more consumers want to own luxury brands, leading to open-run lines forming even before stores open.

However, amid ongoing economic downturns, repeated price hikes by luxury companies may lead to consumer fatigue and cause side effects. If the perception that the price increases are excessive grows stronger, consumers may close their wallets altogether.

Professor Eunhee Lee of Inha University’s Department of Consumer Studies advised, “If luxury prices continue to rise, the age group that will fall behind will be the MZ generation (Millennials + Generation Z), so from a long-term perspective, it is not a good strategy for the industry that needs to keep young consumers as loyal customers.” She added, “Especially if companies continue to release small quantities of popular product lines while raising prices to induce open-run phenomena, eventually only resellers and luxury companies will profit, while honest consumers caught in the middle will have to pay increasingly larger amounts, creating an unfair situation.”

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