Key Takeaways:
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- Luxury brands that aggressively raised prices during the pandemic, such as Chanel and Dior, are now reporting disappointing sales and profit declines.
- Chanel’s sales fell 4% in 2024, with operating profit plunging nearly 30%, while Dior’s sales underperformed LVMH’s overall fashion and leather division, which saw a 5% drop.
- In contrast, Hermès and Richemont, which adopted more restrained pricing strategies, reported 7% sales growth in the first quarter of 2025.
- Brands that raised prices excessively may struggle to maintain consumer loyalty, while those with moderate increases are better positioned to weather economic challenges and tariffs.
What Happened?
Luxury brands that targeted the ultra-wealthy during the pandemic by significantly increasing prices are now facing the consequences. Chanel and Dior, which raised prices by 59% and 51% respectively between 2020 and 2023, are seeing sales and profits decline. Chanel’s Classic Flap handbag, for example, now costs $10,800, nearly double its 2019 price of $5,800.
Meanwhile, Hermès and Richemont, which took a more conservative approach to pricing, have continued to grow. Hermès raised prices by only 20% during the same period, while Richemont avoided “greedflation,” focusing instead on sustainable growth. Both companies are now gaining market share from rivals perceived as overpriced.
Luxury brands face a dilemma: cutting prices risks damaging their exclusive image, while maintaining high prices could alienate consumers. Chanel, for instance, has paused price hikes in the U.S. since March 2024, a departure from its usual twice-yearly increases.
Why It Matters?
The luxury sector’s performance highlights the risks of overpricing, even for brands targeting the ultra-wealthy. While luxury goods are often seen as immune to economic cycles, excessive price hikes can erode consumer trust and loyalty, especially as inflation and economic uncertainty weigh on spending.
Brands like Hermès and Richemont, which prioritized long-term customer relationships over short-term profit gains, are now better positioned to navigate challenges such as President Trump’s tariffs on luxury goods. These companies have already passed on tariff costs to U.S. consumers without significant backlash, while others like Chanel may be forced to absorb the costs.
The broader lesson for the luxury industry is clear: restraint in pricing can protect profit margins and market share, even in a high-demand environment.
What’s Next?
Luxury brands that overreached on pricing may need to focus on designing new, lower-priced products to boost sales without damaging their premium image. Inflation and income growth could eventually make their goods seem more affordable, but this will take time.
Meanwhile, brands like Hermès and Richemont are likely to continue gaining market share, particularly in the U.S., where demand for their products remains strong. The impact of tariffs and broader economic conditions will also play a key role in shaping the luxury market’s trajectory in the coming months.
