Following the EU–U.S. trade agreement announced on July 27, European luxury brands have avoided the steep tariffs once threatened by President Donald Trump, but still face elevated rates. With sales slumping in recent years, some brands are recommending price increases “in a smart way.”
Under the agreement, most goods imported into the United States from the EU, including automobiles, will face a 15 percent tariff, half of the 30 percent rate that Trump had suggested the United States would impose in a July 12 letter to European Commission President Ursula von der Leyen.
Kering, the parent company of Gucci and Saint Laurent, welcomed the news.
Since Trump first introduced reciprocal tariffs on all countries on April 2, companies worldwide have responded by absorbing the costs, passing them on to consumers through price hikes, or announcing shifts in production to the United States.
European luxury brands have significantly increased prices since 2019, but the move has likely hurt their sales, as they have faced revenue declines in the U.S. and Chinese markets, the world’s first- and second-largest markets for luxury goods.
“Strong price increases returned to the sector in 2022–2023, led by leading luxury brands such as Chanel, Dior, Louis Vuitton, and Rolex,” the report reads.
“From 2024 onwards, overall revenue growth was negative. This means that compared with pre–COVID-19, volumes are flat to slightly negative in the industry overall.”
The report noted that while the U.S. luxury goods market has been decelerating in the past few years, it’s still the largest market in the world.
“Going forward, higher consumer confidence levels should lead to single-digit growth in the U.S.,” it reads.
Meanwhile, China, the world’s second-largest market for luxury goods, “has faced a more challenging environment due to broader economic turbulence,” the report says.
The company’s revenue fell by 10 percent in North America and 19 percent in the Asia-Pacific region in the first half from a year earlier.
Kering Deputy CEO Francesca Bellettini said during the earnings call that the general economic environment in China continues to weigh on consumer confidence, making Chinese consumers “for sure, more discerning.”
Poulou said the new tariff is “manageable through price adjustments,” noting that some of the company’s brands raised prices in the second quarter, either globally or specifically in the United States.
“We may consider a second wave in the autumn because we generally address the prices at the moment of the introduction of seasonal collections,” he said.
However, amid weak sales, the company will ensure that price increases are applied “in a smart way,” Poulou said.
Babak Hafezi, adjunct professor of international business at the Kogod School of Business at American University, said that luxury brands may be better able to absorb the tariffs than most traditional retailers, given their substantially higher margins.
“The ultra-high net worth and high-income segments have enough discretionary spending capacity that a 15 percent increase in the price of a $4,000 luxury item will not majorly impact their decision-making for such large purchases,” he told The Epoch Times. “They may buy fewer units over time, but their overall spending will not materially change.”
Hafezi said that the impact varies by market segment.
“The highest risk to these brands is the aspirational customer, who is much more price sensitive and may not be able to consume the products because of the price,” he said. “Brands that have greater exposure to aspirational customers will be hurt more than other luxury brands that focus on high-net-worth and high-income customers.”
LVMH also said it doesn’t expect a significant impact from the tariffs “on a comparison basis” and expressed willingness to absorb some of the costs.
Cabanis said that while the company could increase prices moderately in some activities, fashion, and leather goods, “you can’t play too much with your prices. ... So probably that’s where there might be an impact on margin.”
Rania Sedhom, managing partner at Sedhom Law Group, said that brands will need to consider brand loyalty and consumer tolerance for increased costs to map their best next steps, likely opting for moderate price hikes.
“Reasonable, incremental increases allow brands to make additional price changes to address government action,” she told The Epoch Times.
Amrita Bhasin, co-founder and CEO of Sotira, a reverse logistics company that enables retailers and brands to offload and monetize unsold inventory discreetly, sees the luxury brands’ pricing strategy varying between short-term and long-term.
“Luxury companies may eat a portion of the costs initially to ease consumers in, but ultimately they will pass most on to consumers,” she told The Epoch Times.
In addition, Bhasin said it’s unlikely that these brands will shift manufacturing to the United States, as it would be difficult to find skilled U.S. labor.
“The U.S. is not set up to be able to do luxury apparel work; the art of switching tags, as an example, is a dying practice in the US, ” she said.
Hafezi, however, said they may be forced to shift some parts of their business to American manufacturers.
Kyle Peacock, founder of Peacock Tariff Consulting, sees a hybrid response.
“Mass-market luxury brands like Gucci or Prada may expand U.S. production for entry-level goods, while ultra-luxury houses will likely keep core manufacturing in Europe. However, they may explore U.S. assembly or finishing for tariff-sensitive lines,” he told The Epoch Times.
LVMH has shifted some production to the United States and plans to expand more to navigate tariffs.
“In terms of supply chain, there are a few activities where we have levers to optimize the flows and the supply chain, versus the topic around tariffs,” Cabanis said. “So, Vuitton, we mentioned we have some local production in the U.S., and we can increase that.”
Sedhom also expects other brands to manufacture some of their products in the United States.
