In the post-pandemic period, the main luxury companies have doubled their sales and increased their EBIT by over 600 basis points, according to Bernstein estimates, mainly thanks to the repatriation of Chinese luxury spending during the years of the zero Covid policy, to increases in price lists contributed by brands and retail performance. Now, according to industry analysts led by Luca Solca, companies should reinvest part of the gross margin earnings (up to 200 basis points) in their products, addressing the issue of quality/price ratio. An indicator that seems inappropriate when referring to luxury goods.
”But luxury companies – the analysts point out – are not suppliers of unique artisan masterpieces, as they would like us to think of them: they churn out millions of pieces every year and direct production costs are significant”. One euro less or more in cost of goods sold can have a significant impact on profit – they specify -. To such an extent that luxury companies work hard, leveraging layers and layers of subcontractors (as per recent media reports), to reduce the direct costs of the product to a minimum. We had already highlighted this problem 15 years ago.”
The high-end groups should work on three fronts. One is that of novelty. If in the period following the pandemic it was human to think that they didn’t have to change much of what they did, busy dealing with the boom in demand, now «it becomes essential to amaze consumers and give them new reasons to invest their money. This will happen mainly thanks to creativity and we are at the beginning of important turnovers for creative directors.”
The second front is that of the content of the product. Balancing the value for money when it comes to craftsmanship, high quality and unrivaled craftsmanship will require further upstream integration – including further acquisitions of suppliers with unique expertise – and a focus on sourcing the best raw materials . Hermès, LVMH and Richemont have already taken this path.
The third is the entry price. “Exuberant like-for-like price increases have cut off aspirational middle-class consumers from the core products of major brands,” analysts say. This is particularly true in the sector of bags from renowned brands: finding regular-sized bags for less than 3 thousand euros/dollars has become practically impossible. Big brands are able to sell the absolute lowest priced products such as shoes, beauty products and eyewear to these consumers.
However, we believe that in a context of more limited growth, mega-brands will have to ensure that their entry prices are sufficiently accessible, otherwise they risk losing a significant slice of demand, at a time when they cannot afford it.” Bernstein experts point out that in more than 50 years luxury products have sustained like-for-like price inflation of 5-7%, with a growth rate twice that of price lists in general.
The continuous increase in income and wealth inequality, which began in the 1980s, has favored this phenomenon. Over the past three years, like-for-like price inflation, particularly in quiet luxury, has been significantly higher than its long-term average and in double digits, with brands such as Chanel leading escalation, followed by most competitors.

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