The price of a basic Hermès Birkin handbag has jumped $1,000. This first-world problem for fashionistas is a sign that luxury brands are playing harder to get with their most sought-after products.
Hermès recently raised the cost of a basic Birkin 25-centimeter handbag in its U.S. stores by 10% to $11,400 before sales tax, according to data from luxury handbag forum PurseBop. Rarer Birkins made with exotic skins such as crocodile have jumped more than 20%. The Paris brand says it only increases prices to offset higher manufacturing costs, but this year’s increase is its largest in at least a decade.
The brand may feel under pressure to defend its reputation as the maker of the world’s most expensive handbags. The “Birkin premium”—the price difference between the Hermès bag and its closest competitor, the Chanel Classic Flap in medium—shrank from 70% in 2019 to 2% last year, according to PurseBop founder Monika Arora. Privately owned Chanel has jacked up the price of its most popular handbag by 75% since before the pandemic.
Eye-watering price increases on luxury brands’ benchmark products are a wider trend. Prada’s Galleria bag will set shoppers back a cool $4,600—85% more than in 2019, according to the Wayback Machine internet archive. Christian Dior’s Lady Dior bag and the Louis Vuitton Neverfull are both 45% more expensive, PurseBop data show.
With the U.S. consumer-price index up a fifth since 2019, luxury brands do need to offset higher wage and materials costs. But the inflation-beating increases are also a way to manage the challenge presented by their own success: how to maintain an aura of exclusivity at the same time as strong sales.
Luxury brands have grown enormously in recent years, helped by the Covid-19 lockdowns, when consumers had fewer outlets for spending. LVMH’s fashion and leather goods division alone has almost doubled in size since 2019, with €42.2 billion in sales last year, equivalent to $45.8 billion at current exchange rates. Gucci, Chanel and Hermès all make more than $10 billion in sales a year. One way to avoid overexposure is to sell fewer items at much higher prices.
Many aspirational shoppers can no longer afford the handbags, but luxury brands can’t risk alienating them altogether. This may explain why labels such as Hermès and Prada have launched makeup lines and Gucci’s owner Kering is pushing deeper into eyewear. These cheaper categories can be a kind of consolation prize. They can also be sold in the tens of millions without saturating the market.
“Cosmetics are invisible—unless you catch someone applying lipstick and see the logo, you can’t tell the brand,” says Luca Solca, luxury analyst at Bernstein.
Most of the luxury industry’s growth in 2024 will come from price increases. Sales are expected to rise by 7% this year, according to Bernstein estimates, even as brands only sell 1% to 2% more stuff.
Limiting volume growth this way only works if a brand is so popular that shoppers won’t balk at climbing prices and defect to another label. Some companies may have pushed prices beyond what consumers think they are worth. Sales of Prada’s handbags rose a meager 1% in its last quarter and the group’s cheaper sister label Miu Miu is growing faster.
Ramping up prices can invite unflattering comparisons. At more than $2,000, Burberry’s small Lola bag is around 40% more expensive today than it was a few years ago. Luxury shoppers may decide that tried and tested styles such as Louis Vuitton’s Neverfull bag, which is now a little cheaper than the Burberry bag, are a better buy—especially as Louis Vuitton bags hold their value better in the resale market.
Aggressive price increases can also drive shoppers to secondhand websites. If a barely used Prada Galleria bag in excellent condition can be picked up for $1,500 on luxury resale website The Real Real, it is less appealing to pay three times that amount for the bag brand new.
The strategy won’t help everyone, but for the best luxury brands, stretching the price spectrum can keep the risks of growth in check.
Write to Carol Ryan at carol.ryan@wsj.com
