Editor’s Note
This analysis examines the shifting dynamics in the luxury sector, where the traditional strategy of raising prices is being challenged by cooling demand in key markets and the growing influence of the resale economy. Chanel’s latest financial results underscore this pivotal moment for the industry.
Amid persistent global inflation and rising interest rates, many luxury brands have pursued strategies to maintain or improve profit margins through price increases. However, a cooling of previously robust demand and changes in consumer behavior are forcing a reassessment of this “price hike model.” This reality was highlighted by the full-year 2024 financial results announced by the French heritage maison, Chanel.
The company’s 2024 revenue decreased by 4.3% to $18.7 billion from $19.7 billion the previous year, marking a return to negative growth for the first time since 2020. Operating profit fell by 30% to $4.5 billion, and net profit also declined by 28.2% to $3.4 billion, revealing a significant setback in profitability.
The background to this performance deterioration includes a slowdown in high-end consumption in key markets, namely China and the United States. In the Asia-Pacific region, sales in mainland China fell sharply, leading to a 9.3% decline for the entire region. In contrast, Europe saw a slight increase of 1.2%, and the Americas recorded a 4.3% decrease, showing relatively moderate changes.
commented Global CEO Leena Nair, highlighting the reality that global economic fluctuations directly affect Chanel’s global strategy.
Furthermore, in the Chinese market, the price strategy that previously supported the brand’s growth is now facing demands for change. While Chanel had previously used price hikes to create an aura of “scarcity” and “status,” recent shifts in purchasing behavior, particularly among price-sensitive younger consumers, are emerging. For example, on the e-commerce platform “Dewu,” authenticated luxury products are sold at up to 33% below official retail prices, indicating the rise of the resale market as a new purchasing channel.
This growing trend towards resale is not limited to China; a similar pattern is observed in the US market. According to Chicago-based market research firm Arizton Advisory & Intelligence, the US luxury resale market was valued at $8.65 billion in 2024 and is projected to exceed $13 billion by 2030. With a forecasted compound annual growth rate (CAGR) of over 7%, the desire to acquire luxury goods at more affordable prices is expanding, particularly among Gen Z and Millennials.
In recent years, resale platforms like The RealReal have gained consumer trust by leveraging AI for authentication and price optimization. As prices for new luxury items continue to rise due to inflation and tariffs, the resale market is steadily strengthening its position.
Additionally, the uncertainty surrounding US tariff policies has also cast a shadow over the company’s pricing. CFO Philippe Blondiaux expressed a cautious stance in an interview with Vogue Business:
Amid these factors contributing to the performance downturn, the outcomes of “price hike strategies” are mixed not only for Chanel but also for other luxury brands. Hermès serves as a successful example, implementing an average price adjustment of 6-7% in 2024 while achieving a 13% increase in annual revenue. Its leather goods division grew by 16.4%, demonstrating that price increases can be linked to enhanced brand value.
In contrast, Louis Vuitton raised prices in the US by 1.3-4% in July of the same year, yet its overall sales decreased by 2% year-on-year. Gucci faced a staggering 23% sales decline amidst price hikes, revealing the reality that price strategy alone cannot sustain demand.
Against this backdrop, it is becoming clear that “price hikes” do not necessarily lead to increased sales or profits for luxury brands. This trend is particularly pronounced in regions with unstable economies and in countries where the price-sensitive consumer base is expanding.
On the other hand, Chanel announced a record-level investment of $1.8 billion for 2024. The company plans to acquire premium real estate in Paris and New York and open 48 new stores worldwide, having already completed the opening of 15 stores in China. Furthermore, it plans to open an additional 15 stores in 2025.
Nair stated,
indicating the intention to continue positioning the country at the core of its growth strategy.
However, the recent recovery in overseas luxury spending by Chinese tourists has boosted demand in Japan and South Korea while simultaneously acting as a factor suppressing purchases within mainland China. In particular, the phenomenon of “reverse imports” due to favorable exchange rates (weak yen, weak won) could potentially hurt brand profit margins.
Moreover, younger consumer segments like Gen Z and Gen Alpha are increasingly prioritizing value-for-money and experiences over the old paradigm of “luxury equals high price.”
To adapt to these changes, relying solely on the previous aggressive brand strategy is insufficient. A review of pricing strategies, marketing that considers regional cultural contexts, and deeper engagement with local markets will be required for luxury brands moving forward.
Chanel, which has achieved growth by wielding a premium strategy, now stands at a juncture where it must reconstruct its direction.
