Will Chanel's Weak Results End Bagflation?
Maybe there's a ceiling to handbag price increases for even the wealthiest customers.
Loose Threads
I stopped by the Victoria Beckham resort presentation in New York this week, where I learned she’s still filming her three-part Netflix docuseries slated for release this fall. Victoria was brilliant in the Netflix series about her husband, and the new show will focus on her running her fashion and beauty brands. She was nowhere to be seen when I showed up but told Vogue the new collection was “everything that I’m personally looking for in my wardrobe.” I like her line and she looks great in it, but it also strikes me as rich-person Banana Republic.
I also went to the preview for Hill House — the nap dress brand — their kids’ stuff is ridiculously sweet.
I’ll do a Cannes fashion roundup soon, but I did love pregnant Rihanna’s Smurf-blue Alaïa gown.
If you need a quick primer on new TikTok star Becca Bloom and how she got so rich, here you go.
Hailey Bieber is on the new cover of Vogue wearing a striped Prada shirt that probably costs around $2,000 in the shower, as one does.
Earlier in Back Row:
Will Chanel's Weak Results End Bagflation?
The media narrative for years has been that the richest luxury fashion customers will tolerate wild price increases we’ve been seeing since 2019 because they have so much money that an extra thousand here or there is nothing to them.
Handbag price increases — bagflation — have been particularly egregious. This month, owing to tariffs, Hermès increased the price of its cheapest Birkin from $12,100 to $13,310. (Hermès had already enacted a 7 percent increase at the beginning of the year.)
Since 2019, Chanel has been on an apparent mission to increase prices to Hermès levels. In 2021 alone, Chanel had three price increases. By 2024, a classic Chanel flap bag went up to $10,800 which was, PurseBlog noted, “a whopping 86% higher than its 2019 price of $5,800.” The customer base seemed to tolerate this. Here’s the Wall Street Journal in early 2022:
“As much as some people are upset at Chanel’s price increases, they are still buying,” [Meaghan Mahoney Dusil, co-founder and CEO of PurseBlog.com and PurseForum.com] said. “As the price goes up, it becomes unattainable for some. But the core customers won’t be priced out.”
Well, Chanel’s bagflation seems to have finally hit a ceiling. This week, the company reported that its operating profit declined 30 percent in 2024, while revenue decreased 4.3 percent to $18.7 billion. This is Chanel’s first decline since 2020, when it failed to capture pandemic spending that was boosting rivals like LVMH and Hermès. Analysts believed its price increases were one way it aimed to catch up. (Chanel is privately owned by brothers Alain and Gerard Wertheimer, whose net worth is $42.3 billion each, according to Bloomberg.)
Business of Fashion blamed the 2024 results on slowed handbag sales:
Growing sales across ready-to-wear, beauty and jewellery suggest the decline in Chanel’s overall revenues could be largely attributed to the core leather goods category, a key driver of Chanel’s profits.
The price of a medium classic flap bag seems to have held steady at $10,800 in the U.S. (Chanel doesn’t list prices for the bags on its site, so if any of you are a Chanel sales associate or client and have different information, please comment.)
Chanel has said that it will wait out the “volatile” tariff situation in the U.S. before raising prices this year. While some European luxury brands have passed the current 10 percent tariff on to customers, Chanel CFO Philippe Blondiaux told Vogue that “we believe the most responsible posture we can take is to wait for the end of the discussion. When things are decided, we'll make a decision on this.”
Blondiaux downplayed Chanel’s recent price increases in interviews about the 2024 results. “The average pricing effect we had for fashion was 3 percent last year, which I’m sure you will agree was perfectly in line with global inflation, if not less than that,” he told BoF. “We intend to maintain more or less the same policy, which is to monitor our prices in line with global inflation in 2025.”
While Chanel’s price increases in 2024 were lower than in recent years, it seems misleading to characterize them as not that bad. Between 2019 and 2024, the rate of inflation in the U.S. was 23.5 percent — yet Chanel’s bagflation was, at 86 percent, more than three times that. “We use exquisite raw materials and our production is very rigorous, laborious, handmade — so we raise our prices according to the inflation that we see,” Chanel CEO Leena Nair said in April of last year.
However, customers aren’t buying that. In an interview I conducted recently for a future “Retail Confessions” column, a Chanel employee in a German store said her colleagues in sales “struggled with justifying [the prices of] some pieces.” When messaging clients about new items, “sometimes they were like, I'm not sure if I even should send this picture to my client because they will ask me if I'm nuts.” For example, the “première sound watch,” somehow a combination of a watch, a necklace, and headphones, has a $14,700 pricetag.
The prices seem insane in part because the narrative online for years now has been that Chanel’s quality is in decline. The problem is, if you’re going to charge $11,000 for a bag, people are going to notice every scratch, crease, and loose thread.
“I know the quality of Chanel has decreased and it’s not what it once was,” TikTok reviewer Marena Rodriguez said in a 2023 video (she ultimately concluded that a caviar leather classic flap bag was a pretty good bag anyway). TikToker Kira Kirby made a whole video in January about how a bag she saw displayed in the Chanel store looked so poorly made that she wondered if it was a dupe. Yet another TikTok — just a photo of a bag with apparent creasing set to the same creepy music people put on videos about ghosts and shark attacks — has a caption that reads, “As much as I LOVE this bag I simply can not [sic] support this quality.” It has more than 300,000 views.
I can’t remember exactly when social media started calling Chanel “Zara for rich people” — maybe that picked up during the Viard years — but I also struggle to remember Chanel NOT being called that. I suppose it had a different sheen when Karl Lagerfeld was creative director. I doubt executives would ever admit Chanel is Zara-ish, but their new 25 bag seems to be just that. In various stories about the 2024 earnings, Chanel executives have talked up the Chanel 25, a sportier style, with an ad campaign featuring Dua Lipa and Jenny, and a starting price of $6,000. You can’t buy it new online, but Chanel has deigned to list the price on its website. It seems like a bag for younger, aspirational shoppers — the kind Chanel may have started to leave behind with its price hikes. Though the small version has been likened to a “diaper bag” and the creator of one widely viewed video has said it’s already dead, many reviews on TikTok have been positive. (Not many are available on the second-hand market yet, but FashionPhile has a small one for $10,600, suggesting it’s a hot item.)
The Chanel brand has been confused for a while, maybe since Lagerfeld died in 2019. Does it want to be high-end Zara — or Hermès? Can it be both? Frankly, new creative director Matthieu Blazy can’t start soon enough (his first show walks in October). He doesn’t seem like the person you hire if you want to be upscale Zara. He makes capital F Fashion, the kind that intimidates people who get to share its air space. Unlike so many “high-end” minimalist brands these days, his clothes are more than overpriced Banana Republic. If he has a good debut (which he probably will) Chanel could have an edge while its competitors flounder in ongoing crappy economic conditions.
I am happy we are starting to see this- sales going down with burberry, gucci, chanel... may it continue! 86% price hikes are insane and they need to come back down to reality.
I remember when a Chanel 2.55 was $2200…a mortgage payment for me but it didn’t seem CRAZY. And that’s when the hardware was still goldplated!