Louis Vuitton has a problem. The want for the long famous logo-splashed canvas bags has slowed. What can they do? They want to stay a brand of luxury and exclusivity and not to be associate with mass-market consumerism. At the same time they want to boost their sales as much as possible.
One reason for their slowdown comes from China. China's well-to-do have purchasing of luxury items as the Chinese economy's grown. They're looking to move away from flashy logos and move a little towards subtlety. That means a move away from the canvas bags adorned in "LV" monograms visible from a block away.
Enter Louis Vuitton's new strategy. By raising their prices and changing their style, the brand hopes to keep those high-end consumers, while losing just enough of the low-end to enhance their image without impacting their income.
So far, the main draw of Louis Vuitton has been based on drawing in the lower end of the luxury market using flashy canvas bags. Increasing their prices, of course, is a pretty clear way of casting off these consumers -- they're the most price-sensitive of any buyer category.
Vuitton's hope seems to be that by getting rid of the low-end clients, the brand will gain new customers on the top end. It's a strategy Hermès has followed successfully for over a century -- the people that spend thousands on Hermès don't care about an extra $500 price increase, but it keeps the lower end away.
It may be that Louis Vuitton is looking to follow in Hermès' footsteps, by releasing bags that are somewhat subtler, quite a bit more expensive, and all about the leather.
Yes, the $190 key pouches will no doubt still be available, even if at a higher price. The key pouches, card cases, and keychains are -- as their most inexpensive items -- among Louis Vuitton's best sellers, possibly accounting for the bulk of their accessories revenue. (These low-price accessories also serve an important marketing purpose: they allow young buyers to buy into the Louis Vuitton brand, spending sums they can afford for a small item, so they stop by later when they have full-time jobs and become loyal customers.)
Still, the strategy may be already starting to pay off. The new Capucines and W purses have proven highly successful... despite their price tags of $4730 and $3380. (These are the ones that were featured in the new Vuitton campaigns with Michelle Williams.) The design is closer to Céline's luggage totes than Vuitton's traditional style, and customers -- at least, those that can afford it -- are lapping up the blending of two LVMH brands' designs.
There is one thing customers can breathe a sigh of relief over. The shift to higher prices will take some time. LVMH CFO Jean-Jacques Guiony, speaking to a conference call of investors, said the supply of quality leather was proving tough to come by. It may be that the firm simply wants an alibi for their price hike, sure. But the effect is the same for consumers.
What else did Guiony say? While the Capucines and W are doing great, they're too high-end to have much of an effect on the Vuitton bottom line. The Vuitton brand slightly underperformed similar LVMH brands like Fendi, Céline, and Givenchy -- which may be one inspiration for the style-shifting price hike.
The departure of Mark Jacobs is another. CFO Guiony noted that after 16 years as Vuitton's artistic director, Jacobs is leaving to focus on the fashion house that bears his name. (It's also a LVMH brand.)
In the same conference call, Guiony noted that the US was not the cause of Louis Vuitton's troubles. Their revenue has seen robust growth there this year, with acceleration in leather goods, fashion, and wine and spirits. China's revenues only grew half as much by comparison.
Overall, we'll see whether Louis Vuitton's new bags will manage to supplant the logo-drenched ones that were a major status symbol of the past decade. The price increase will affect all their products -- boosting the sticker-shock by up to 13% across the board, and the new leather models come in at twice the price of their famous canvas cousins.
On the other hand, if Vuitton is looking to get rid of the "riff raff," that may be exactly the point. The trick will be to pull that off while increasing sales. Judging by their CFO's statements to investors, it is not that they are looking to shift away from the low end of the luxury market. It is that they want to be perceived as a higher end brand while keeping those lower-end customers.
That is, keeping them, and keeping them paying more.
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