Rising Prices Hit Top Luxury in China

Post by 
Dr. Thomas Piachaud
Published 
December 12, 2022

The rising cost of goods in connection with global supply chains is not something new, but perhaps the China market felt more insulated from the direct effects of this in comparison to European markets.

However, when it comes to top end luxury, most goods are still produced in Europe and thus are not as protected from the increased price of goods across the entirety of the production process. Whether it’s keeping the lights shining in the artisan workshop or having to pay for the energy that helps run the farms that support the raw material production of leather goods.

In response to these increasing prices affecting the bottom line of brands, it what inevitable that a top line increase of price to consumer would follow to ensure the ability to deliver on targets.

We analyzed pricing data using COMPASS, looking into the price changes of the RRP of Luxury bags throughout the year. In the analysis we included top end luxury brands and their products on TMallFlagship stores. We identified dates where brands changed the RRP of more than 10% of their bag assortment, with more than a 5% increase in RRP. Additionally, we focused on a top selling bag and tracked the changes in its price throughout the year.

Check below for the price increases across bag portfolios and top bags on Tmall flagship stores for 2022. We identify portfolio level price increases through a brand changing at least 10% of its portfolio a minimum of 5% average price increase on the listing price on Tmall.

Saint Laurent had two major price changes in 2022, each almost six months apart. Coupled with their big price change in November 2021, a steady pace of price increases can be seen from the brand. Interestingly key SKUs have seen higher price increases than the average.

The Niki mini saw a price increase of 15% during October, whereby it moved into the 20,000RMB bracket for the first time.The timing of this price change is interesting in the fact that it occurred just before 11.11, one potential reason was to set a clear expectation set for consumers to plan for spending more than 20,000RMB on either the mini or medium, Saint Laurent's two hottest selling bags throughout the coming calendar year.

Typically, upon a price change we see a significant drop in sales in the two/three weeks following, however it appears that memories of old prices do not last for long, and a return to normal sales rates gradually returns within a month.

In the case of the Niki mini, the timing allowed for consumers to set the expectation of a 20,600RMB price tag, but using a 24-month interest free payment offer (the first time the 24-month interest free payment had been used for the product) - this led to a spike of over 100 units sold throughout the period.

Prada has been undergoing a wide-ranging series of price changes for its TMall products - with two price changes of over 5% on more than 80% of their products. This strategy had led to an increased selling price of Prada products on the platform, effectively increasing product top line to offset changes in bottom line costs.

Similarly, to Saint Laurent, Prada's top SKU the Re-Edition has undergone a price increase of over 15%, although over two distinct periods rather than the one for the Niki Mini. Interestingly in the run-up to the second price increase in early July, the product was unavailable for a short period due to low inventory on the platform, and since the price change has seen a consistent daily performance comparable to the period before the price increase.

Balenciaga had four identified price changes throughout the year across their bag portfolio – compared to other brands the changes in price were on a more focused segment of their products, however the average price changes were significant. September and October saw the biggest increases, with averages of 10.4% and 14.5% respectively.

This is reflected in the price of the top performing Hourglass bag. Starting at 18,500 RMB and increase up to 21,700 RMB by September, the bag has kept on track with the Saint Laurent Niki Mini, which is now also priced above 20,000 RMB.

While BV increase prices on less occasions than Balenciaga, the two times that they did change prices were significant. Both times averaging over 10% across the products increased in price. The most significant change came recently during November whereby many of their top selling collections saw significant price increases.

While we highlight the Mini-Cassette Belt bag in this analysis, there are many products (especially within the Cassette collection) that saw similar levels of increase. In fact, the changes at a product level saw almost all of the entry level Cassette bags (many prices at 9,500RMB) increase to 14,900RMB throughout the year.

The biggest price increases for Gucci came in June, with most of their bag portfolio seeing over 5% price increases. Interestingly looking at this change as a function of price, we saw that entry level pricing increased proportionally less than the top end products, representing a stretching of the Gucci portfolio – perhaps to upgrade consumers into new price segments.

At a product level we have seen the Marmont Mini gradually surpass the Supermini as the top selling bag for Gucci, and this has happened even considering the 9% price increase throughout the year. This puts the Mini in somewhat of a bag sweet spot when compared to other brands –as we have already seen the Niki Mini and Hourglass have both broke the 20,000RMB barrier, and it may be wise for Gucci to stay under this price segment to continue to reap the rewards of the Marmont Mini’s success.

Valentino are the most recent brand to conduct wide ranging price increases in bags. At the start of December, the brand increased nearly 50% of their bags at an average increase of over 8%, showing the continued trend of price increases in top luxury. In fact, Q3 and Q4 of the year have shown this trend picking up pace.

The Loco chain bag – one of Valentino’s top sellers on Tmall, saw a price increase of slightly less than the average price increase of 6.2%.

CONCLUSION

With little to no certainty of a changing situation regarding the rising cost of production globally, price changes are likely to be a consistent feature. For brands it is important to ensure the staging of price increases does not lead to long term revenue loss, and price sensitivity, especially in products moving from one price break to another (such as a transcending the 20,000RMB barrier) may hinder the performance of some products, but interestingly may also lead to further opportunities in a brands' portfolio.

Sign up for our
Newsletter

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
CONNECT WITH US
THere's More

Post You mIght Also Like

All Posts
LUXURY INSIGHTS
Dec
8
//
2022

The Month in Luxury - A Review of November 2022

The Month in Luxury is a roundup of the digital activity across the luxury market in China. We analyze luxury brands across multiple digital channels to bring top performers from both a brand and a product perspective.
China Luxury
Nov
9
//
2022

LANVIN - The Brand that Won October

Lanvin has topped the overall luxury brand rankings in China during October with a well-orchestrated strategy - including the announcement of ChengYi as the brand’s spokesperson- that culminated in a solid performance during Double 11 Festival.
LUXURY INSIGHTS
Nov
8
//
2022

The Month in Luxury - A Review of October 2022

The Month in Luxury is a roundup of the digital activity across the luxury market in China. We analyze luxury brands across multiple digital channels to bring top performers from both a brand and a product perspective.
LUXURY INSIGHTS
Oct
11
//
2022

Is DeWu (Poizon) siphoning luxury sales in China?

DeWu (得物) / Poizon, an ecommerce platform originally for sneakerheads, is becoming a popular a destination for GenZ consumers in China to discover and buy luxury products. While their consumer base profile aroused the interest of luxury brands, the presence of heavily discounted products also brings some concerns on brand image and cannibalization to direct channels. In our initial analysis of luxury products on DeWu, we look at the performance of 4 luxury sneakers (Balenciaga, Gucci, Saint-Laurent and Burberry) compared to their TMall flagship stores.
LUXURY INSIGHTS
Oct
10
//
2022

The Month in Luxury - A Review of September 2022

The Month in Luxury is a roundup of the digital activity across the luxury market in China. We analyze luxury brands across multiple digital channels to bring top performers from both a brand and a product perspective.

Sign up for our Newsletter

Enter your email and get the latest Asia digital disruption insights, news & interviews.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.