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.
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