Prices of luxury branded goods continue to rise
Currency fluctuations, political instability in many parts of the world and the changing habits of weathy Chinese have been prompting luxury companies to increase prices of their products in the past two years.
Prices of luxury goods rose 4 percent annually between 2012 and 2014, and some could rise up to 6 percent this year, according to a note from Sanford Bernstein. The financial research firm based its research on its index tracking the prices of 19 bestselling products across greater China and Europe.
Major luxury powerhouses such as Hermes and LVMH Group could increase prices between 4 and 6 percent this year, while Gucci, Prada and Burberry are likely to see 2-to-3 percent price inflation, driven by the strong euro and sterling and the changing habits of Chinese customers. The single currency has risen around 6.2 percent against the U.S. dollar since last year, while sterling has gained 10.1 percent.
“Luxury goods companies have strong pricing power,” Mario Ortelli, senior European luxury goods analyst at Sanford Bernstein, told CNBC in a phone interview. “Increasing prices is a way to protect your revenues from headwinds from foreign exchange and from changes in demand. It is a way to extend your margins.”
Last month, Burberry said the strong pound could impact its profits, while luxury eyewear maker Luxottica said profits were affected by currency volatility in the first quarter of 2014. This has pushed these designers to raise prices in local currencies.