Can Korea end its love affair with Louis Vuitton, Chanel, Hermes?

By Lee Hyo-sik

Louis Vuitton, Chanel and Hermes, three of the most popular foreign luxury goods brands here, made headlines last week when they were found to have earned hundreds of millions of dollars in profit in Korea last year only to send most of it to their headquarters abroad. According to their audit reports compiled and released by the Financial Supervisory Service, however, the three made no or little social contributions in Korea.

The stories have remained pretty much the same for quite some time as Koreans' love affair with pricy goods made by French companies has been steadily growing. In particular, during the COVID-19 lockdown from 2020 to 2022, sales jumped at an explosive rate as people had nowhere else to spend their money.

Louis Vuitton Korea saw sales increase by 15 percent to 1.69 trillion won ($1.3 billion) in 2022 from the previous year, while net profit jumped 69 percent to 338 billion won. Chanel Korea's sales also rose 30 percent to 1.59 trillion won and net profit rose 74 percent to 311.5 billion won. Hermes Korea recorded 650.1 billion won in sales last year, up 23 percent from 2021, with net profit rising 23 percent to 153.8 billion won.

They clearly outperformed the overall Korean economy, which grew only 2.6 percent, down from 4 percent in 2021. In the fourth quarter alone, the nation's gross domestic product shrank by 0.4 percent from the previous quarter, due to falling exports and sluggish consumer spending.

Louis Vuitton, Chanel, Hermes and other global luxury brands were able to defy the odds, thanks to many Korean consumers' unabated spending frenzy, regardless of their financial status. Most Koreans shopping for luxury brands are willing to wait in line for hours, rain or shine, to enter the shops and get their hands on particular handbags, shoes and other fashion items, despite their outrageous price tags.

Taking advantage of this undying demand, Chanel hiked the prices of its products four times in 2022 and Louis Vuitton twice to generate larger profits. Higher price tags did little to discourage Koreans interested in French brand goods and some may even argue that it actually encouraged sales. If consumers continue to form lines outside stores, these luxury goods brands will certainly hike prices further.

According to Morgan Stanley, Korea's per-capita spending on European luxury goods was tallied at $325 last year, the highest in the world. Americans spent $280 per person and China $55. The global investment bank said Koreans' heavy focus on appearance has partially contributed to an increase in sales, pointing out that popular celebrities were hired to promote luxury brands and further bolster sales.

Even more disappointing is that, despite earning huge profits, these luxury goods brands make no or little contributions to local communities, while being eager to send as much money as possible to their headquarters. Louis Vuitton Korea sent 225.2 billion won in dividends to its French headquarters in 2022, up 44 percent from a year earlier, while Chanel Korea's dividends to its headquarters in Luxemburg rose 327.5 percent to 295 billion won. But Louis Vuitton Korea did not even donate a single penny locally last year and Channel Korea gave a mere 1 billion won.

Their after-sales service has been the biggest source of consumer complaints here for years but the French brands appear to have no interest in improving it. Consumers complain that they were charged with enormous fees for simple repairs, and that it took at least several months to get their products back. Many said they have no choice but to take items to local repair shops that offer faster services at much lower fees.

Against all these backdrops, Koreans may finally have a chance to push back as the sales of luxury goods have begun slowing down in recent months amid soaring inflation, rising interest rates and other unfavorable economic conditions. According to Lotte Department Store, sales at luxury goods stores at its outlets rose only 7 percent in the first three months of this year, down 30 percent from a year ago. The story was pretty much the same for two other major department store chains; Shinsegae and Hyundai.

The time is ripe for Korean consumers to start demanding French brands refrain from further raising prices and improve after-sales service. If they don't, just like in other many cases, consumers should boycott them. If the companies want to do business here, they should put customers first and do whatever it takes to offer the highest level of satisfaction, on top of acting as responsible corporate citizens. They should hire more workers, pay more taxes and contribute more to improve local communities. But we haven't seen any such significant efforts on the part of foreign luxury goods makers operating in Korea.

Unfortunately, the reality is there are still many consumers here willing to pay thousands of dollars to buy pricy handbags. Let's just hope the waiting lines outside Louis Vuitton, Chanel and Hermes shops become shorter and shorter day by day.

The writer is the business editor of The Korea Times.