Amid ongoing global inflation and rising interest rates, many luxury brands have pursued a strategy of price increases to maintain and improve profit margins. However, cooling demand and shifting consumer behavior are beginning to challenge the sustainability of this “price hike model.”
This reality was underscored by the 2024 full-year financial results announced by French luxury maison Chanel.
The company reported annual revenue of $18.7 billion, down 4.3% from $19.7 billion the previous year — marking its first year of negative growth since 2020. Operating profit declined sharply by 30% to $4.5 billion, while net profit dropped 28.2% to $3.4 billion, reflecting a significant contraction in earnings.
China, the U.S., and the Resale Shift
Behind this decline lies a slowdown in luxury spending in Chanel’s two largest markets: China and the United States. In the Asia-Pacific region, sales in mainland China fell sharply, contributing to a 9.3% decline across the region. In contrast, Europe saw a modest 1.2% increase, while the Americas posted a relatively mild decline of 4.3%.
Commenting on the situation, Global CEO Leena Nair noted, “We saw challenging macroeconomic conditions which had an impact on sales in some markets,” emphasizing the direct impact of global economic volatility on Chanel’s business strategy.
In the Chinese market, Chanel’s long-standing pricing strategy is now under pressure. In the past, raising prices served to convey a sense of exclusivity and prestige. However, in recent years, younger consumers, who are increasingly price-sensitive, appear to be changing their purchasing behavior. For example, on the e-commerce platform Dewu, authenticated luxury products are being sold for up to 33% less than retail prices, signaling the growing prominence of the resale market as an alternative shopping channel.
This growing preference for resale is not unique to China—it is also becoming increasingly evident in the U.S. market. According to Arizton Advisory & Intelligence, a Chicago-based market research firm, the U.S. luxury resale market was valued at $8.65 billion in 2024 and is projected to exceed $13 billion by 2030. With a compound annual growth rate (CAGR) of over 7%, the trend is being driven particularly by Gen Z and Millennials, who are seeking more affordable access to high-end products.
In recent years, resale platforms such as The RealReal have gained consumer trust by leveraging AI-powered authentication and dynamic pricing optimization. As inflation and tariffs continue to drive up the cost of new luxury goods, the resale market is steadily solidifying its position as a key player in the luxury ecosystem.
Tariff-related uncertainty in the U.S. is also complicating Chanel’s pricing strategy. CFO Philippe Blondiaux told Vogue Business, “The U.S. tariff situation is extremely volatile. We are waiting to see what will be the outcome of all the ongoing discussions,” signaling a cautious approach to upcoming policy changes.
The Divide: Winners and Losers in Price-Hike Strategies
Chanel’s challenges are not unique. Other luxury players have also seen mixed results from price hikes.
Hermès stands out as a success story. In 2024, the brand implemented average price increases of 6–7%, yet reported a 13% jump in annual revenue. Its leather goods division alone grew by 16.4%, showing that when executed thoughtfully, premium pricing can enhance brand value and drive growth.
By contrast, Louis Vuitton raised U.S. prices by 1.3–4% in July 2024 but saw overall sales decline by 2% year-over-year. Gucci faced steeper challenges: despite price increases, the brand experienced a 23% drop in revenue — a stark reminder that pricing power is not absolute, especially in economically unstable or price-sensitive markets.
These cases illustrate that raising prices is no longer a guaranteed route to profitability. For many brands, external factors and evolving consumer expectations are redefining what luxury means — and how much people are willing to pay for it.
Chanel’s Record Investment and Strategic Pivot
While many competitors are tightening their strategies, Chanel is doubling down on long-term investment. In 2024, the brand committed to a record $1.8 billion in capital expenditure. This includes high-profile real estate acquisitions in Paris and New York, and plans to open 48 new boutiques globally. In China, 15 new stores have already opened, with another 15 scheduled for 2025.
“China is one of the most dynamic and important markets for the entire luxury ecosystem,” Nair said, reaffirming the brand’s deep commitment to the region.
However, the recent rebound in overseas luxury spending by Chinese tourists, particularly in countries like Japan and South Korea, has had a dual effect. While it has boosted demand abroad, it has simultaneously suppressed domestic consumption in mainland China. Notably, favorable currency exchange rates, such as the weakened yen and won, have led to a “reverse import” phenomenon, where Chinese consumers shop overseas for better value. This dynamic poses a potential threat to brand profit margins in the domestic market.
At the same time, younger consumer groups such as Gen Z and Gen Alpha are reshaping the definition of luxury. Rather than equating luxury solely with high prices, they are placing greater emphasis on experiences, authenticity, and value for money.
To navigate these shifts, bold branding alone is no longer sufficient. Luxury brands must reassess their pricing strategies, develop culturally attuned marketing tailored to each region, and build deeper, more meaningful engagement with local markets.
Having long relied on premium positioning as a driver of growth, Chanel now finds itself at a pivotal moment—one that demands a fundamental reevaluation of its strategic direction.
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