January 19, 2013 08:22
Luxury labels are still hiking their prices steadily here even though the won is rising. Luxury brands are already more expensive in Korea than anywhere else and also mysteriously failed to reflect the tariff benefits of the Korea-EU free trade agreement.
Italy's Gucci hiked the price of some popular handbags by 4 percent and wallets by a whopping 5 to 11 percent on Monday. Prada hiked prices of most products such as bags and wallets three times last year. And Louis Vuitton increased the price of leather goods by 3 percent in October 2012
The same month, Chanel hiked the prices of 20 items including fragrances by an average of 8 percent.
Yet the won buys more euros. One euro was traded for W1,506 in April last year but for only W1,412 as of Tuesday. It would be reasonable to expect prices of European goods to drop, but luxury labels seem to have other ideas.
The same is not true for all European brands. Swiss watchmaker Parmigiani Fleurier reduced the prices of popular items by about 10 percent in October, and Lancôme skincare products went down by 7 to 16.7 percent in department stores in November.
But the price cuts had nothing to do with currency fluctuations; they were simply motivated by the desire to sell. A relatively unknown brand, Parmigiani Fleurier tried to make inroads into the Korean market, and Lancôme found itself losing ground to cheaper Korean-made cosmetics.
No such problems plague luxury labels, since customers are apparently unaffected by the global crunch. Prada claims it slashed the prices of some products, but in fact the price of popular goods went up by 6 to 8 percent.
One department store staffer said, "No luxury brand has said it would reduce prices."
Yet when the won was weak, the labels gave that as a reason for hiking prices. French brand Hermès increased the price tag of popular items by an average of 5 percent in January last year citing rising raw materials and labor costs and the weak won. Prada also claimed its price hike of 450 items last July reflected "changes in the exchange rate."
Song In-seong, a professor at Seoul National University, warns the strategy can in the long run hurt brand image. "You can maximize profits by hiking prices when the dollar is strong and not giving back the returns to the customers when the dollar is weak," he said. "But ultimately such practices can have an adverse effect on customer relations."
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