The apparel sector was heavily impacted during the covid-19 pandemic; however, luxury brands are less affected. Luxury brands from Louis Vuitton to Gucci and Cartier have earned stellar profits. Their strategy is hiking prices.
The global economy is coming around after the pandemic last year, but the recovery is accompanied by rising inflation. This is increasing the price of raw materials and energy.
The luxury sector responded to this by shifting the cost to consumers, however, unlike other apparel brands increased prices make luxury apparel more appealing.
According to UBS analysts, top brands such as Louis Vuitton have increased their prices 2.5 times higher than the inflation rate over the past 20 years. Pricing power is one of the key characteristics of the luxury apparel industry.
Louis Vuitton has earned $72 billion in sales and $13.5 billion in net profit in 2021. Kering -- which owns Gucci and Yves Saint Laurent -- also beat its pre-Covid levels to book a net profit of $3.6 billion on sales of $19.9 billion. Hermes earned a net profit of $2.7 billion on a sale of $10.2 billion.
These high prices are likely due to the increasing demand for luxury apparel from customers. If demand is low prices are less likely to increase. For example, Rolex refrained from increasing prices for the last two years, but as demand increased in 2022, they increased prices more than 3 % and for some popular products prices have increased by 12%.
According to Bain & Company, the luxury sector is forecasted to grow by 6-8 % annually and the market could expand from $407 billion to $429 billion by 2025.
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