As consumer resistance rises, luxury goods giants finally hit the brakes on price increases

Due to the luxury goods industry adapting to a longer-than-expected period of downturn, coupled with the wealthy's resistance to annual price increases, the price increase of global top luxury brands has significantly slowed down this year.

According to the latest data from UBS, from January to May 2025, luxury goods prices rose by an average of only 3%, marking the slowest increase since 2019.

The first five months of this year typically cover the majority of annual price adjustments, as brands often set their annual budgets and complete major price increases in the first quarter. This means that after experiencing a "profit era" driven by significant price increases over the past few years, the luxury goods industry has begun to hit the brakes.

Global Economy Under Pressure, High-Net-Worth Individuals Also Start to "Budget"

Brands like Louis Vuitton (LV) and Chanel have significantly raised prices over the past few years to "reap the benefits," with substantial price hikes from 2019 to 2023 to capture strong demand for high-end handbags, clothing, and jewelry.

The most exaggerated example of price increases is LV's Speedy handbag, which has doubled in price since 2019, with a starting price of €1,650. The classic Chanel large flap bag currently sells for over €11,000, more than 80% higher than in 2019.

Initially, the price increases were indeed effective. According to McKinsey, from 2019 to 2023, 80% of global luxury goods sales came from price increases, with only 20% from actual sales volume growth.

But the current issue is that consumers really can't bear it anymore. Not only are the middle-class "quasi-luxury consumers" deterred, but even the truly wealthy are beginning to care about the "psychological discomfort" caused by price increases, and these consumers were key drivers of explosive growth in luxury goods during the pandemic.

The slowdown in price increases may signal a return of the luxury goods industry to a "more normal" inflation rhythm before the pandemic, with a moderate increase of 1% to 2% per year.

An executive from a luxury brand pointed out: "Just because top clients can afford it doesn't mean they are willing to endure annual price increases; no one likes the feeling of being fleeced."

A luxury goods executive stated that many consumers are starting to turn to more niche and trendy designer brands, rather than favoring those traditional big brands that are expensive and "ubiquitous."

Multiple analysis agencies and brand executives have pointed out that the current slowdown in prices reflects a simultaneous weakening of the macro economy and consumer confidence. Against the backdrop of high inflation and interest rates, enthusiasm for high-end consumption in the European and American markets has declined. Geopolitical conflicts and trade frictions have also increased uncertainty in the industry.

Bain & Company noted that the slowdown in price increases reflects a "clear strategic shift" for brands, moving from being driven by price increases to focusing more on maintaining sales volume and brand strength, especially in the current environment of increasing risk factors.

Second Quarter Earnings Season Begins, Luxury Goods Industry May Face Cycle Bottom in Q2

Starting this week, the second quarter earnings season officially kicks off. However, threats of U.S. tariffs and multiple geopolitical conflicts have dampened expectations for a rapid recovery in the luxury goods industry.

According to consensus expectations from Visible Alpha, LVMH, as an industry bellwether, is expected to announce a 3% decline in its group's organic sales this Thursday. Its core fashion and leather goods division (including Louis Vuitton and Dior) is expected to see a sales decline of up to 6%, primarily affected by geopolitical tensions that have suppressed the consumption willingness of high-net-worth clients HSBC analysts indicate that LVMH's second quarter is likely the "bottom" of this cycle, which may be an early sign of improvement in the industry. However, most luxury goods analysts have lowered their expectations for 2025 and postponed the timeline for industry recovery to as early as the second half of 2026.

Kering's organic growth is expected to decline by 13%, primarily due to the continued slump of its key brand Gucci. Analysts predict that Gucci's sales have plummeted by 25% before the arrival of new CEO Luca de Meo in September.

However, some luxury brand groups are relatively weathering the current downturn smoothly. Richemont exceeded market expectations last week, achieving double-digit organic sales growth for the third consecutive quarter, mainly due to the strong performance of its jewelry brands.

The world's most valuable luxury brand, Hermès, is expected to see sales growth of 10% this quarter. The brand maintains strong demand by strictly controlling product supply and focusing on high-end customer segments.

Citigroup analyst Thomas Chauvet believes that brands that did not significantly raise prices during the industry's boom period, such as Hermès and Richemont's jewelry brands Cartier, Buccellati, and Van Cleef & Arpels, have room for price increases in the coming years