According to Reuters, Chanel has raised the prices of its iconic handbags again in the lead-up to Christmas. The famous 2.55 quilted bag now costs 7,800 euros, compared to 6,050 last Dec. The Small Classic Bag, which was priced at 6,300 euro at the end September, now costs 7,300 euros. This is an increase of 1,000 Euros in just a few short weeks.

Pandemic-related price increases are not always related to price hikes

Since the pandemic, luxury brands have incrementally and regularly increased their prices to make up last year’s lost sales and maintain scarcity on the market. The rate of inflation in France was 1.96 percent in 2021, which means that the price increases are not representative of national price developments.

Delphine Dion from Essec Business School said that the price hikes were not surprising. Chanel must have seen that the bag was selling too well. Luxury brands raise the price when a product becomes too commonplace to stop it becoming “commonplace.” Dion says that luxury is different to mass market fluctuations in that luxury responds to this logic.

These are known as Veblen goods. They were named after the economist and sociologist who discovered this effect. The more they are priced higher, the greater the demand. This is in contrast to conventional products, where the price increases cause the price drop.

Chanel responded to price rises by saying that it makes adjustments as a luxury brand. “We adjust our prices regularly to account the evolution in our production costs, the prices of raw material and exchange rate fluctuations. According to the price harmonization commitments, these adjustments are made by making sure that there isn’t too much price difference among the markets where the Brand is available or present,” the company stated to BFM business news.

Multiple reports have reported this year that luxury houses are increasing their retail prices. Louis Vuitton added 8 percent to its handbags in main markets.

Covid’s economic repercussions have affected many businesses, but the luxury sector has been resilient and strong. Hermes shares rose 32 percent in 2020. The company made a net profit at 1.174 billion euros during the first half 2021. This is 56 percent more than 2019.

This summer, Chanel’s finance chief told Reuters that the group hadn’t yet raised prices in 2021 but that it could in the second half of the year – in keeping with its policy to review prices globally twice a years. This week, the price increases took effect.

Chanel sales dropped 17.6 percent last year, but the privately-owned company raised prices on certain items by up to 29 percent over the course a year. The Maxi handbag, a large version of the Classic Handbag, is still available at the same price, which will be 8,900 euros in 2021.

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