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Luxury Brands Tread Carefully Amid Tariffs and Weakening Demand
28 Jul
Summary
- 15% tariff on EU goods brings uncertainty to luxury's key U.S. market
- Brands struggle to raise prices further as consumer demand weakens
- Hermes outpaces rivals by holding back on large price increases
The luxury goods industry is navigating a complex landscape as it grapples with new tariffs and weakening consumer demand. A recent EU-U.S. trade deal has imposed a 15% tariff on EU goods, bringing much-needed certainty to luxury's key U.S. market. However, this comes as the sector is already facing declining sales globally, with the industry losing 50 million customers last year.
Big luxury brands like Chanel and LVMH's Louis Vuitton and Dior have relied on dramatic price increases in recent years to drive profit growth. But they are now treading carefully with further hikes, wary of alienating younger and occasional shoppers. Some high-end labels say they will be able to draw on pricing power to offset the cost of tariffs, but analysts warn that many players have limited room for maneuver after a series of outsized price tag increases.
In contrast, Hermes, which notably held back on large price hikes during the post-pandemic boom, has outpaced its rivals. The brand's more measured approach appears to have paid off, as the latest round of luxury earnings shows little sign of a rebound for the sector as a whole.
