Will Kering and Hermès follow Louis Vuitton’s example on prices?

When Gucci owner Kering (PRTP.PA) and Hermès release their results this week, investors will be looking for signs that big luxury fashion groups are convinced that wealthy buyers are willing to pay higher prices for designer accessories.

Rival Louis Vuitton (LVMH.PA), the world’s biggest luxury brand, said on Tuesday it would raise prices globally from February 16 due to rising manufacturing and transportation costs – one of the first major luxury brands to do so this year. Read more

Pricing power could once again become a key driver of revenue growth in 2022 for the high end of the fashion and leather goods industry, following a series of price increases in 2021 and 2020.

Consumers have come out of lockdowns eager to spend their money on luxury fashion and accessories, after months at home. Brands take advantage of this purchasing power to make their products even more expensive and exclusive.

Bloggers from Chinese social media platform Xiaohongshu predict a price hike for Kering Gucci’s profit engine as early as Friday. Gucci’s small Marmont shoulder bag, which currently costs 16,500 yuan ($2,602), is expected to rise about 3%, while other Gucci accessories could climb 10-15%.

Users of the Xiaohongshu site, known in the industry as Little Red Book, often quote fashion brand sellers and are used to predicting price increases correctly, but do not always specify their sources.

Kering’s Balenciaga already raised prices in early January in China, according to the Xiaohongshu website. The price of the brand’s Hourglass round handbags in small and extra-small sizes, for example, rose 3.5 to 4 percent to 17,500 yuan and 11,550 yuan, respectively.

Kering declined to comment, noting it is in a closed period ahead of its annual results on Thursday.

Hermes told Reuters it would be likely to fix the pricing issue when it reports results on Friday, denying reports from analysts that the company had already raised prices last month by 3% to 10%.

Chanel raised the prices of some of its most sought-after handbags three times last year, with its classic small handbag now costing around $8,200, up 60% from 2019.

“This year is likely to bring a virtuous circle of pricing power and brand desirability,” UBS said in a note to clients.

Kering is expected to post 20% organic sales growth in the fourth quarter, HSBC forecast, helped by marketing investments that generated buzz around Gucci’s 100th anniversary – last year.

Hermès sales are expected to rise 12% at constant exchange rates over the period, HSBC said.