Luxury Brands a New Cash Cow for Savvy Shoppers

Korean consumers are starting to view luxury goods as quick-turnaround investments due to the continued price hikes of brands like Chanel and Louis Vuitton. Some are even beginning to hoard the goods, which are more expensive in Korea than in Europe, so they can sell them off as secondhand goods within a year to cash in on the rising price margins.

This picks up on a trend that has developed over the past few years of Koreans heading overseas to save money on luxury goods, where they are more competitively priced.

One 40-year-old housewife in Seoul's affluent Gangnam district said that she designed her latest vacation around her consumption habits. "Chanel's handbags went up in price in Korea on May 1, so I went shopping to the U.S. in the middle of May as the price there wasn't going to go up until June 1."

As a single handbag can cost W1 million (US$1=W1,084) less overseas, one shopping trip for a bag and accessories can easily cancel out the price of a flight ticket, she added.

Due to this phenomenon of hoarding hot items before imminent price hikes, Chanel replaced Louis Vuitton as the top seller in Korea's luxury goods market in April. The main branches of Lotte, Hyundai and Shinsegae, the country's top three department stores, sold W14.6 billion worth of Chanel goods in April, compared to their Louis Vuitton sales of W10.6 billion. Chanel sales were fueled by rumors that the brand was planning to raise its prices in May.

Chinese tourists are playing a key role in this shifting dynamic as they are increasingly willing to shell out on luxury goods in Korea, a trend that has had a considerable impact on the market.

"Until two or three years ago, Louis Vuitton and Gucci were the most popular brands among Chinese tourists," said one clerk at a department store in the capital. "However this has now changed to Hermes, Chanel, Fendi and Prada. We are seeing sales of luxury brands that are popular among the Chinese grow very quickly."

With profit margins so high, the smuggling of luxury brands has become another concern. Korea's customs office reported 13,593 cases of people attempting to illicitly bring luxury handbags worth at least US$400 apiece through Incheon International Airport so far this year, a rise of 86 percent from the corresponding period last year. Customs officials say the true number of cases is higher given the number that go undetected.

"It seems like overseas purchases of luxury brand handbags have jumped dramatically as some brands have consistently raised their prices in Korea. We plan to target travelers returning from Europe and Southeast Asia," said one official.