Kim Kardashian might as well be naughty this Christmas, because even if she’s nice her fiancé is unlikely to shell out for a Louis Vuitton handbag.
Rapper Kanye West, who gave reality TV star Kardashian a diamond ring worth millions to celebrate their engagement, told a U.S. radio show recently that Vuitton’s prices are “just too extreme.” The criticism by West, who has collaborated with the Paris-based label on products including a range of $1,000 sneakers, is a signal some luxury companies may be charging too much, turning off even the wealthiest clients.
Luxury prices are soaring as brands attempt to move upmarket amid slowing sales. The shift upscale, which often includes using more expensive materials, is designed to restore a veneer of exclusivity after years of churning out logoed handbags that were snapped up by shoppers the world over.
The strategy is a response to customers, many in Asia, who are abandoning logos in favor of designs they perceive as more luxurious. Problem is, only a handful of brands can pull it off, according to Rahul Sharma, managing director of Neev Capital, an advisory firm in London that follows the luxury industry.
“There are people who will pay up just because it is Hermes or Dior or Chanel,” said Sharma. “It’s a lot harder for Gucci and Vuitton” to charge more given their reliance on mass-market consumers.
Organic revenue growth at LVMH’s fashion and leather-goods division, where Vuitton is the biggest brand, slowed to 3 percent in the third quarter, while Kering SA reported the weakest growth in four years at its Gucci brand in that period. Hermes International SCA, on the other hand, last month raised its full-year sales target, saying they will rise more than 11 percent.
Vuitton-owner LVMH Moet Hennessy Louis Vuitton SA declined to comment for this story and Gucci didn’t respond to requests. A representative of West declined to comment, while one for Kardashian didn’t return phone calls and e-mails. LVMH shares rose 0.4 percent in Paris trading today, while Kering advanced 0.8 percent.
The average price of Vuitton leather bags without logos rose 13 percent in the first nine months of 2013 as it introduced the $3,850 W and $5,350 Capucine lines, Exane BNP Paribas estimates. That’s almost double the annual rate at which Vuitton, LVMH’s biggest brand, boosted prices for its logoed canvas travel bags over the past decade.
The more elite brands are also getting pricier. Chanel’s Jumbo Flap bag, which was $2,650 in 2010, currently sells for $4,900, while the price of a medium Lady Dior handbag more than doubled, to almost $4,000, in the period, according to Sharma.
European luxury-goods makers from Mulberry Group Plc to Salvatore Ferragamo SpA have attributed higher prices in part to surging raw-material costs and unfavorable currency swings. Prime leather skins have gained as much as 16 percent this year alone, according to Mulberry, spurring companies such as Chanel and Kering to buy tanneries to secure supply.
Ballooning luxury prices come as the cost for all accessories, from fast-fashion purses to regular belts, grew at an average of less than 1 percent annually in Europe between 2005 and 2012, according to Eurostat, the statistical service of the European Union. Inflation was 18 percent in the period, Eurostat says.
In order to continue raising prices, brands need to ensure they are also investing in an improved product, according to Laurence-Anne Parent, senior partner at Advancy, a business consulting firm in Paris.
“Long-term, you can’t fool the customer,” Parent said. “At some point there is going to be a discrepancy between the product and the price.”
Worldwide luxury sales this year expanded at the slowest pace since 2009 as slack Chinese consumption and the weakness of the Japanese yen have weighed on growth, Bain & Co. estimates. Sales of personal luxury items such as apparel and watches rose 2 percent to 217 billion euros ($297 billion), a fifth of last year’s rate, Bain said.
And Exane BNP Paribas notes that growth in luxury in China over the next decade will be driven by the middle class rather than the truly rich. That means brands have to engage the merely well-off clients that many depend on for revenue.
“Targeting the really wealthy shopper, you’re essentially blocking the masses from buying your product,” said Verdict Research analyst Kate Ormrod.
Companies from Vuitton to Burberry are seeking to do both by introducing perfume and cosmetics that can cost less than $50. Still, lower-margin cosmetics may not be enough to compensate for slowing sales of fashion and leather goods, which account for a more than half of LVMH’s profit.
As European luxury brands raise prices, American rivals such as Michael Kors Holdings Ltd., a maker of $120 jersey dresses, and Tory Burch, producer of $575 totes, are winning share with more affordable goods. Kors’s sales are set to lead the industry with 24 percent growth in 2014, according to data compiled by Bloomberg. That’s more than twice LVMH’s estimated growth rate and three-and-a-half times Kering’s pace, data show.
The competition doesn’t mean the big European luxury houses will be lowering prices anytime soon, according to Fiona Harkin, senior vice president of content at advisory firm Stylus in London. The companies have recognized that their wealthiest customers are seeking less conspicuous luxury even if it costs more, she said, and those who aspire to extreme wealth will follow their lead -- if they can afford it.
“This is discreet luxury,” said Harkin. The trend “may well be a lasting legacy of an era of austerity and as a result of the widening gap between rich and poor.”