Luxury jewellery brands quietly plan to roll out price hikes amid soaring gold prices, banking on their clientele as everyday buyers become increasingly cautious about big purchases, reports Reuters.
A 57-percent surge this year sent gold past the US$4,100 barrier for the first time on Monday as people increasingly view the precious metal as a safe port in an increasingly stormy global economic landscape. These record-high gold prices, compounded by US tariffs and a weaker dollar, threaten the gross margins of Tiffany owner LVMH and others in the high-end goods industry.
“Each of these [factors] alone could be offset by the high-end branded jewellery players and watchmakers but all together, it becomes very difficult” to keep profit margins from being eroded, Jon Cox, head of Swiss equities at Kepler Cheuvreux, told Reuters.
World-leading luxury conglomerate LVMH is expected to report flat third-quarter sales today, with fashion and leather goods declining 4 percent while watches and jewellery see a 1-percent increase, according to a VisibleAlpha consensus figure cited by HSBC.
[See more: Facing stagnant sales, luxury fashion is betting on a fashion week revival]
Luxury jewellery brands, including LVMH’s Tiffany and Bulgari, as well as Richemont’s Cartier, Van Cleef & Arpels and Kerings, have recently outperformed their fashion-focused stablemates. Where first-half sales in watches and jewellery were flat at LVMH, profit sinking 13 percent, its fashion and leather goods division saw sales drop 7 percent and profits plummet 18 percent.
Fashion, including brands like Louis Vuitton and Dior, accounts for about half of LVMH sales while watches and jewellery make up just over 12 percent, according to estimates from HSBC.
One analyst told Reuters that gold accounts for a relatively small portion of input costs for luxury jewellery brands, about 10 percent of sales on average – less (5-8%) for very high-end designer brands, Bernstein analyst Luca Solca noted. So, “even a modest retail price increase could take care of material gold price increases,” he added.
But even that modest increase, other analysts told the news agency, requires caution as price increases could erode demand from shoppers. Rising prices already cost luxury fashion 50 million customers last year, according to consultancy Bain, as post-pandemic price fatigue and economic pressures left little appetite for designer clothes and handbags.
