Rising Hotel and Luxury Goods Prices... Behind Them Lies Income Polarization

by Cho Seongpill

Published 05 Aug.2023 07:30(KST)

On the 1st, Lotte Hotel World reopened its buffet restaurant 'La Seine' after a seven-month renovation, setting the weekday lunch price at 140,000 KRW for adults, and 180,000 KRW for weekday dinners and weekends. This represents an increase of 20,000 KRW and 25,000 KRW respectively compared to before. Although a meal for a family of four adults costs nearly 800,000 KRW, demand remains steady. A Lotte Hotel official said on the 4th, "La Seine is a popular restaurant, and despite the recent price increase, weekend reservation rates have not shown significant differences from before."

In some sectors of the distribution industry, including hotels, pricing strategies considering income polarization are being implemented. This involves increasing the number of expensive products or services and raising their prices further. Some say this phenomenon is due to the ongoing 'Small luxury' trend, where people seek happiness through small indulgences, but behind it lies the reality of income polarization.

La Seine, the buffet restaurant at Lotte Hotel Ulsan, completed its renovation and reopened on the 1st. It has been reborn as a luxurious European-style dining space featuring a harmonious blend of classic and modern elements, highlighted by brass-colored metal arch interiors.
[Photo by Lotte Hotel]

Accelerated Price Increases... Yet They Still Sell

Hotels have become synonymous with small luxury during the COVID-19 pandemic. As people spent more time at home due to the pandemic, various consumers, including the MZ generation (Millennials + Generation Z), targeted the idea of enjoying 'luxury' within restrictions. Hotels, which had struggled due to a decrease in foreign tourists during the pandemic, began to adopt pricing strategies. A representative example is the apple mango bingsu.

Before COVID-19, the apple mango bingsu was priced around 50,000 KRW. However, after the pandemic, demand surged sharply, and prices rose steeply. This year, purchasing one can cost over 120,000 KRW at the highest. Currently, the price of apple mango bingsu sold at luxury hotels generally ranges from 80,000 KRW to 100,000 KRW. Despite the significant price increase, it remains popular enough that customers line up to buy it. A hotel official stated, "Sales volume is over 30% higher compared to the same period last year."

The price increases by luxury brands follow the same pattern. The so-called 'EruSha' (Herm?s, Louis Vuitton, Chanel), the three major global luxury brands, have raised their product prices annually, with the frequency increasing since the pandemic. Louis Vuitton raised prices five times in South Korea alone during the peak of the COVID-19 pandemic in 2021. This year, all these brands have implemented price increases ranging from 5% to 10% domestically. Among them, Chanel is expected to raise prices again as early as this month, following increases in February and May.

A department store in Seoul where Chanel has a store. Chanel implemented price increases in February and May. Another price increase is expected as early as this month.
[Image source=Yonhap News]

The Main Target Is Not the MZ Generation but High-Income Groups

The reason hotels and luxury brands can raise prices annually is because demand follows. There are people who buy and consume despite the high prices. While the MZ generation's 'small luxury' consumers are included in this demand group, they are not the main segment. From a corporate perspective, wealthy and high-income individuals are the major spenders, and pricing strategies are naturally designed to target them.

The income level of high-income groups has increased significantly even amid global inflation following the end of the pandemic. According to Statistics Korea, the average monthly income of the top 20% income quintile households in the first quarter of this year was 11,483,000 KRW, a 6% increase compared to the same period last year. In terms of disposable income, which excludes taxes and pensions from total income, it was 8,869,000 KRW, up 4.7% from a year earlier. In contrast, the lowest quintile had an average monthly income of 1,076,000 KRW and disposable income of 858,000 KRW, increasing only 3.2% and 1.3% respectively compared to the previous year. Simply put, high-income groups have become wealthier, and the gap with low-income groups has widened. This indicates a deepening income polarization.

The pricing strategies of hotels and luxury brands reflect this reality of income polarization. While middle- and low-income groups face tighter budgets amid inflation, the main customers?high-income groups?have increased their 'ammunition,' maintaining their purchasing power, so companies believe demand will not decrease even if prices rise. A hotel official who requested anonymity said, "We are aware of income polarization and are offering products and services mainly targeting high-income groups." Professor Eunhee Lee of Inha University's Department of Consumer Studies also said, "Even though ordinary people struggle due to high prices and economic downturn, high-income groups remain wealthy. Since they have high income and substantial assets, they will continue to lead consumption trends in the future."