Faster, higher, stronger: luxury pricing goes for gold

Fri Aug 10, 2012 8:21am EDT
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By Nina Sovich

PARIS (Reuters) - If, like French fashion house Balmain, you can sell a ripped cotton tee-shirt for more than 1,000 euros, you might wonder if there's any price your well-heeled customers won't pay.

It's a question the luxury industry has been posing for years as it skipped through the financial crisis in diamond slingbacks - House of Borgezie, 120,000 euros ($148,000).

"There is a tendency among the most high-end buyers to forget about cost. They want the best. They want what they want," said Michel Chevalier, author of Luxury Brand Management.

It is the most expensive brands, dubbed "absolute" luxury - among them Hermes, Van Cleef & Arpels and Bottega Veneta - that are growing the fastest of all, thanks to emerging market demand, particularly from China.

According to Bain research, the "absolute" segment has grown 6 percent a year, outperforming the general luxury market, since 2000. It now accounts for 40 billion euros of the 191 billion euro luxury market and is expected to grow faster than other segments through 2014.

"There is limited supply of these products," said Citigroup luxury analyst Thomas Chauvet of prestige and vintage cognacs and champagnes, which come from just a small region of France. "This is a fantastic opportunity to increase prices."

Analysts say prices in the luxury industry have surged from 2001 to 2011 and will keep rising faster than broader prices. Thomas Mesmin at Cheuvreux estimates that prices for fashion and leather goods rose 62 percent in that period, while watches and jewelry have risen 78 percent. Euro zone inflation has totaled just 26 percent over the 11 years.

Much of the rise in luxury prices occurred before the 2008 crisis, but prices have been rising again since the second half of 2010. In 2011 Cheuvreux estimates that luxury prices rose 7 percent across the board.   Continued...

A worker makes preparations for the upcoming opening the largest Louis Vuitton store in China, which is located in Shanghai, July 17, 2012. REUTERS/Aly Song