Prices of luxury brands have all but decreased. Take the Kelly Bag from Hermes - this cost $4,800 in the year 2000 and today this luxury bag costs $7,600. In general, the cost of luxury goods has risen 60 per cent in a decade and while it can partly be explained by the rising costs of raw materials, such as crocodile skin, it still does not account for this sharp price escalation.
What is really behind the price increases is psychological. Burberry for example recently admitted that it would increase prices to attract new, wealthier customers after more 'exclusive' products.
Other brands such as Prada and Alexander Wang anticipate their consumers search for discounts so they are forced to artificially inflate prices to counter the margin pressure.
Of course, there is a threshold for any price increase, but in successful these increases can have significant impact on gross profits. As a general rule of thumb a company can improve their operating profit by more than 8% for each 1% improvement in price.