Luxury in America is Now 8 to 10 percent Tastier

As reported by Rachel Dides and Christina Passaariello in the Wall Street Journal, “for the first time in recent memory, luxury-goods makers are cutting prices on designer apparel, shoes and handbags in the U.S. market. With even the biggest spenders starting to scrimp, luxury companies from Chanel S.A. to Versace SpA, Christian Louboutin and Chloé are reversing the industry’s maxim that luxury prices only move up. The cuts range from 8% to 10% on most products sold in the U.S. But the move isn’t likely to dent the profit margins of most European fashion houses because the value of the dollar has increased 28% against the euro since April. Luxury-goods companies don’t disclose margins for their individual brands, but Louis Vuitton, one of the world’s most profitable labels, is estimated to have a margin of 45 cents on every dollar. In addition, brands such as Hermès, Chanel, Vuitton and Versace make most of their products in Europe, paying for their materials and labor in euros. The strengthening of the dollar means luxury-goods companies are earning more than they had budgeted on every handbag or piece of clothing sold in dollars. Luxury-goods executives must walk a fine line when cutting prices. While $2,000 handbags and $700 stiletto heels are still expensive for most people, if prices drop precipitously, the perception of a label’s value may also drop.” During the recent boom years, luxury companies often assumed that money was no object for their avid fans. French fashion house Louis Vuitton, which will hold prices steady for now, proved that consumers would buy its goods despite price increases. This year alone, the company has raised sticker prices in dollars twice for an average increase of 10% and sales have still continued to rise.”

Via Wall Street Journal