What happened Luxury is going from one extreme to the other. After a dozen rounds of price hikes since the pandemic, some brands have priced themselves out of reach of their core customers — members of the middle class. Hence, they are going into reverse. According to the Wall Street Journal, mid-tier luxury brands, like Burberry and Saint Laurent are attempting to reclaim market share by reducing prices. Data indicates that Burberry has recently slashed the price of its medium-sized Knight bag by 22%, and the brand has lowered the price of all handbags designed since creative director Daniel Lee took over, by an average reduction of 5%. Meanwhile, Saint Laurent has also reduced the prices of its popular Loulou handbags across various sizes in the US market. The small Loulou bag, for example, saw a price drop of 10%, from $2,950 in January this year to $2,650, though this is still above the price tag of $2,050 at the end of 2020. The Jing Take While aggressive price increases are still acceptable for top-tier luxury brands, like Hermès and Chanel, which cater to ultra-high-net-worth consumers less sensitive to price hikes, such a strategy may have been a significant misstep for mid-tier brands like Burberry and Saint Laurent over the past five years. The key difference lies in the fact that top luxury brands have successfully demonstrated their brand value to the market, while mid-tier luxury brands have struggled with a shaky brand value foundation, slow growth, and ongoing transformations. These brands lack the brand equity necessary to support price hikes. Unlike high-end luxury goods, which are often seen as investment pieces, mid-tier luxury products don’t benefit from second-hand market value: Oftentimes, they see their handbags’ price halved in the resale marketplace. Indeed, China’s second-hand market boom is damping mid-tier brands’ image and value, as consumers are offered cheaper options for the same product. Bernstein’s estimates show that Burberry’s new handbags, launched after Lee's appointment as creative director, are 58% more expensive on average than previous models. This strategy has alienated middle-class consumers who once formed the backbone of these mid-tier brands, without attracting affluent consumers who do not consider these brands among their top choices. Building affluent consumers’ trust in a brand often requires a long period of observation According to data from Boston Consulting Group, more than half of global luxury purchases are made by approximately 330 million people who spend less than $2,215 (15,815 RMB) annually on personal luxury items such as handbags, clothing, and jewelry. In contrast, the ultra-wealthy, who spend over $20,000 (158,135 RMB) annually on luxury goods, represent a much smaller group of just 2.5 million people and account only for 10% of luxury purchases. That said, much of the sector’s growth has been driven by aspirational shoppers, especially in Asia. In lower-tier cities many are first-time luxury purchasers, who used to rank mid-tier brands’ handbags as their first choice. These luxury brands are now losing China’s new shoppers. Because of deteriorating income expectations, middle-class consumers are not only less willing to stretch for top luxury brands, but are now also being priced out of mid-tier luxury products. The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.