Summary of Key Points
Over the past few years, the luxury goods industry has reaped substantial profits through continuous price increases. However, due to consumers' financial constraints and doubts about the value of luxury items, the industry's growth has slowed down. Gucci was the first to reduce the prices of its new bags by 20%-25%. Other brands have responded by adjusting their product portfolios (introducing new models and expanding price ranges) but are hesitant to touch on their classic collections for fear of damaging their brand image and affecting the second-hand market. The industry still needs to address the underlying issue of consumers' reduced desire to purchase luxury goods; simply adjusting prices is not enough; innovation in design and new growth strategies are essential.
1. From “Crazy Price Increases” to “Quiet Price Cuts”: Consumers Can No Longer Afford It
During the pandemic, luxury price hikes became the norm. For example, the price of Chanel’s Classic Flap bag has risen from $5,800 in 2019 to $11,700, and the LV Neverfull bag has increased from $645 to over $2,000, representing an average annual price increase of 52% for luxury items. At that time, consumers were willing to pay higher prices, allowing brands to easily boost their profits. But things have changed: with rising living costs in the US, a slowing Chinese economy, and unstable situations in the Middle East, consumers are more cautious with their spending. Especially the younger generation is questioning whether luxury items are truly worth the high prices. Social media is filled with discussions about the cost-effectiveness of luxury goods, and 72% of Gen Z would prefer to buy a cheaper imitation of a Birkin bag (like the “Wirkin” from Walmart) over the real thing. Gucci’s declining sales (a 22% decrease in revenue in 2025) is a clear sign that further price increases will drive consumers away.
2. Classic Collections Are a No-Go: Price Cuts Could Be a Self-Inflicted Blow
Why does Gucci only reduce the prices of its new Mercato bags and not its classic collections? The risks of doing so are significant:
1. Admitting Past Overpricing: Brands have spent years marketing the value of their products. A price cut would lead consumers to question the rationale for the high initial prices, potentially undermining the brand’s reputation.
2. Breaking the Value Consensus: The luxury status of these items is based on the assumption that they are worth what they cost. A price cut would shake this belief; for instance, if a brand suddenly reduces the price of a $1,000 bag to $800, consumers would feel cheated.
3. Impact on the Second-Hand Market: During the pandemic, buying luxury bags was seen as an investment, leading to high prices in the secondary market. A price cut would lower these values, causing dissatisfaction among current owners and making it harder for sellers to get a good price.
Therefore, classic collections must maintain their prices or see only modest, inflation-adjusted increases.
3. Smart Ways to Adjust Prices Safely: Targeting New Models and Entry-Level Products
How can brands attract consumers without damaging their image?
- Quietly Lower New Models: Gucci’s Mercato bag, being a 2026 spring/summer release, is less well-known, so a price cut goes unnoticed. Even if it is noticed, it can be explained as an initial pricing adjustment without affecting the classic collections.
- Introduce Entry-Level Products: Burberry increased the price of its bags to £2,490 but later launched new models for under £2,000, reducing the proportion of high-priced items on its website from 30% to 3%. This strategy attracts budget-conscious consumers without affecting the prices of its classic lines.
- Expand Price Ranges: Brands like Coach offer both expensive coats and affordable socks; Ralph Lauren has a range of products for different price points, allowing consumers to enter the luxury market at lower entry points and upgrade as their incomes increase.
4. Price Adjustments Are Not Enough: Consumers Need a New Desire for Luxury
Simple price changes are temporary solutions. The real issue is that consumers’ desire for luxury goods has diminished.
- Lack of Design: Many entry-level products in the past featured large logos, making them seem basic and not truly desirable. Today, consumers want stylish, affordable options. LV’s new models in the $2,000-$3,500 range have been successful because they combine good design with reasonable prices.
- Need for New Growth Stories: Ten years ago, the rise of Chinese consumers and street culture drove industry growth. Now, brands need to find new reasons to make luxury items desirable, such as focusing on sustainability or personalization. Chanel, for example, continues to release attractive new designs without lowering prices, maintaining consumer interest.
5. The Future of the Industry: Further Price Cuts, but Classic Collections Remain Unchanged
More brands will adjust their prices, but the approach will be:
- Focus on New/Non-Classic Models: Less iconic and less expensive products will be the first to see price cuts or replacements.
- Strengthen the Mid-Range: Brands will aim to create a more attractive mid-range (e.g., €2,000-$3,000) to attract a broader audience.
- Classic Collections Stay Unchanged: Classics like Chanel and Hermès will continue to see price increases, as they are the foundation of the brand’s reputation.
In summary, the luxury industry is shifting from relying on price hikes for quick profits to focusing on product quality and broader customer reach. However, classic collections will always remain off-limits for price adjustments.