Why Chanel Is Raising Prices On Its Most Popular Bags

Hello BoF Professionals, welcome to our latest members-only briefing: The Week Ahead. Think of it as your “cheat sheet” to what everyone will be talking about on Monday.

THE CHEAT SHEET

Chanel's Unshakeable Confidence

Source: Shutterstock

Chanel is raising prices by 6 percent on several popular handbags on Nov. 1, including Timeless Classic, 2.55 and Boy Chanel
The increases, first reported by Jing Daily, reflect rising production costs and strong demand
Asia is on track to surpass Europe as Chanel's biggest market

Luxury brands raise prices all the time, but the timing of Chanel’s latest hike takes some guts. Fears about the longevity of China’s spending boom have hammered shares of brands like Prada and Gucci-owner Kering. Privately held Chanel is sending a different message: that its brand is, if anything, still undervalued. Chanel may feel its size and reputation grant some immunity from the ups and downs of the global business cycle. The switch to a price harmonisation strategy in recent years, ending a longstanding practice of setting prices higher in Asia, likely emboldens the brand: the latest hike will be applied globally, and therefore won’t send Chinese tourists bag hunting overseas at a time when customs may be cracking down on luxury imports.

The Bottom Line: Chanel’s move presents a challenge to brands that consider themselves true luxury but may be more cautious on pricing given the uncertain economic climate.

Tariffs Begin to Bite

Coach store | Source: Shutterstock

Tapestry and Steve Madden likely to address concerns about tariffs in financial results due Tuesday
The Trump administration slapped a 10 percent tariff on Chinese leather goods in September, part of a broader trade war between the US and China
Kering and Moncler said this week that Chinese spending remains strong

Last week, Kering and Moncler offered some solace to fashion brands worried China's slowing economy, a customs crackdown, an escalating US-China trade war or all three would crater sales. Tapestry and Steve Madden are unlikely to break from that consensus when they report results Tuesday, but could offer new details on the impact of tariffs that starting in September raised the cost of handbags, belts and other leather goods imported from China by 10 percent. Tapestry makes less than 5 percent of its bags in China, according to Piper Jaffray, but enough that tariffs could still bite. Bags are less important to Steve Madden’s bottom line (and shoes weren't included in the list of goods subject to the tariff), but those it does sell are almost exclusively manufactured in China.

The Bottom Line: The fashion industry has every incentive to project optimism and hold the line on pricing, at least through the all-important holiday season. The bill comes due on Jan. 1, when Trump's tariffs jump to 25 percent.

Cardi B and Fashion Nova: A Match Made in Lycra Heaven

Cardi B in Fashion Nova jeans | Source: Instagram/@iamcardib

Cardi B's collection for online fast-fashion retailer Fashion Nova drops in November
The collection is a milestone for both (Cardi B's first fashion line, Fashion Nova's first celebrity collaboration)
Fashion Nova cracked top 10 trends for upper-income women in latest Piper Jaffray teen survey

Fashion Nova’s first celebrity collaboration couldn’t be more on brand: Cardi B is queen of the #NovaBabes, the army of Instagram influencers who have powered Fashion Nova from an obscure Los Angeles clubwear retailer into an online fast-fashion giant. Fashion Nova built its business by churning out hundreds of affordable clubwear and streetwear looks weekly and hyped by thousands of paid and unpaid fans on social media. The Cardi B collection, which is gearing up for a pre-launch promotional blitz this week, is meant to broaden the brand’s reach. Cardi B mixes Fashion Nova gear with luxury labels like Dolce & Gabbana, Moschino and Christian Louboutin. Judging from the brand’s high rank in Piper Jaffray’s survey of wealthy teens, a growing number of NovaBabes are doing the same.

The Bottom Line: Cardi B offers a crucial opportunity for Fashion Nova to elevate its reputation as more than an endless source of cheap knockoffs.

COMMENT OF THE WEEK

Source: Instagram/@prada

"Prada is the poster child for ugly chic. Their Cloudburst sneaker may not be as hyped as the Balenciaga Triple S or Gucci Sega Crystal but it's won its fair share of new fans. The relaunch of classic archive prints and shoes as well as Linea Rossa (which have recently just hit stores) will surely maintain the momentum."

-Uzi XIV pointing out another contributor to Prada's rebound in a comment on "For Prada, Success Is in the Bag"

SUNDAY READING

Professional Exclusives You May Have Missed:

What Net-a-Porter's Alibaba deal means for luxury e-commerce.
The secret to Selfridges' success.
For Prada, success is in the bag.
Luxury players rattled by China's economic woes.
How Tom Ford built his beauty empire.

The Week Ahead wants to hear from you! Send tips, suggestions, complaints and compliments to brian.baskin@businessoffashion.com.

Was this BoF Professional email forwarded to you? Join BoF Professional to get access to the exclusive insight and analysis that keeps you ahead of the competition. Subscribe to BoF Professional here.