Luxury Labels Hike Prices But Give Little to Charity

      March 13, 2013 12:08

      Luxury labels are continuing to hike their prices in Korea even though foreign exchange rates and tariff cuts are working in their favor. Yet consumers are undeterred despite the recession. At the same time the labels are remarkably stingy when it comes to donating a portion of their massive profits to charity.

      ◆ Price Hikes

      Last Wednesday, Louis Vuitton raised the prices of some products by 0.8 to 6 percent, only four months after its last price hike. In January, Hermes hiked the price of the signature Kelly 35cm Bag from W9.98 million to W10.53 million (US$1=W1,096).

      Gucci also increased the prices of some popular bags by 4 percent and wallets by 5 to 11 percent. Celine, Burberry and Valentino are also likely to follow suit.

      The same thing has been happening with imported cosmetics. Japan's SK-II raised prices by an average of 3 percent in all department stores, duty free shops and in-flight sales channels starting March 1, and Chanel by an average of 4 percent for its line of perfumes.

      A closer look at the economic conditions shows just how absurd the hikes are. If the won strengthens against the dollar, the won-denominated price tags of imported products should be marked down. The won weakened to W1,184 against the dollar in May of last year but had risen to W1,094 on Tuesday.

      Assuming that $1,000 worth of products are imported, then the cost of W1.184 million in May last year should have fallen to W1.094 million based on the exchange rate.

      On top of that, and 8-percent tariff on luxury handbag imports was scrapped under the Korea-EU free trade agreement that went into effect in July 2011, while the 8-percent tariff on imported cosmetics is being eliminated incrementally over a five-year period.

      ◆ Little Charity

      Yet the labels give very little back to society. According to the Financial Supervisory Service, Richemont Korea, which imports the Cartier brand, achieved sales of W335.9 billion in 2011, up 38 percent from 2010, but gave only W1.57 million to charity.

      Swatch Group Korea, which imports the Omega brand and other luxury watches, donated nothing.

      CEO Score, which evaluates the performance of major business groups, looked into the revenues and records of donations of seven luxury watch makers over the last five years and found that their sales rose two to four time, but their donations totaled a mere W830 million.

      The situation is the same with the top 10 imported brands. Louis Vuitton saw sales of W497.4 billion in 2011 but gave a measly W201 million to charity. Its net profit totaled W44.9 billion, of which the company sent back W40 billion to headquarters in France.

      Sisley's net profit totaled W4.9 billion in 2011 and the company sent back W4.5 billion to headquarters. Prada also gave nothing to charity in 2011.

      "As long as consumers scramble to buy luxury brands, they will continue to hike prices while shunning social contributions," said Lee Jang-hyuk at Korea University. "Consumers themselves need to be more discriminating in buying their products."

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