Find the latest episode of "The Uncertain Hour" here. Listen

Weak euro undermines Chanel’s China strategy

Adam Allington Mar 18, 2015
HTML EMBED:
COPY

Weak euro undermines Chanel’s China strategy

Adam Allington Mar 18, 2015
HTML EMBED:
COPY

If you’re thinking about planning a vacation to Europe, now would be a good time. The American dollar is worth more now against the Euro than at any point over the past decade.

While the exchange rate may be welcome news for some tourists, the same may not be said for luxury European brands like Chanel or Gucci. Chanel handbags are so much cheaper in Paris than in China that Chinese tourists are flooding Paris shops for luxury bargains. Chanel want them to buy its handbags in China, expanding its market there.

So Chanel will increase prices in Europe and cut them in Asia.

“I think the Chinese consumer will benefit from this, because they will get lower prices and they won’t have to go shop in New York, London or Paris in order to get the benefit of those relatively lower prices,” says Milton Pedraza of the Luxury Institute.

But high-end brands in particular need to think long and hard about changing prices from country to country.

“One of the keys to running a luxury business is that the customers understand that the prices don’t move all that often, and that you’re not waiting for products to go on sale,” says Stifel analyst David Schick.

Schick says long-term profitability for companies like Chanel or Louis Vuitton won’t hinge on exchange rates, but rather on how they are able to compete in a market that is increasingly crowed with competitors — many of whom are perfectly willing to sell you a handbag online, instead of through a shop on the Champs-Élysées.

Marketplace is on a mission.

We believe Main Street matters as much as Wall Street, economic news is made relevant and real through human stories, and a touch of humor helps enliven topics you might typically find…well, dull.

Through the signature style that only Marketplace can deliver, we’re on a mission to raise the economic intelligence of the country—but we don’t do it alone. We count on listeners and readers like you to keep this public service free and accessible to all. Will you become a partner in our mission today?

Your donation is critical to the future of public service journalism. Support our work today – for as little as $5 – and help us keep making people smarter.