Adapted by:
Rubén Andrés
WriterWriter at Xataka. I've been working remotely for more than a decade and I'm a strong advocate of technology as a way to improve our lives. Full-time addict of black, sugar-free coffee.
Alba Mora
WriterAn established tech journalist, I entered the world of consumer tech by chance in 2018. In my writing and translating career, I've also covered a diverse range of topics, including entertainment, travel, science, and the economy.
The luxury goods industry is at a challenging crossroads due to President Donald Trump’s new tariff policies. Although Trump has issued a temporary 90-day pause, the introduction of tariffs of up to 20% on European products poses a significant setback for high-end fashion, watch, and accessory brands.
This situation not only leads to inevitable price increases for luxury items. It also raises concerns about the future of prestigious labels such as “Made in Italy” and “Swiss Made,” which are synonymous with quality and design in some of the most exclusive products.
Luxury sector vs. tariffs. Europe has long been the epicenter of global fashion and luxury. Prominent brands such as Louis Vuitton, Hermès, Cartier, Chanel, Rolex, and Patek Philippe thrive by balancing artisanal tradition with global strategies. However, this landscape has shifted dramatically amid the developing trade tensions with the U.S.
Estimates suggest that tariffs ranging from 10% to 20% on certain luxury items produced in Europe and the United Kingdom could lead to higher prices for consumers. The European market currently represents 24% of total global luxury spending, according to consulting firm Bain & Company.
Switzerland remains quiet. The situation is more critical for the watch industry. The U.S. has imposed a 31% tariff on Swiss products, even though Switzerland isn’t part of the EU. The Swiss government hasn’t opted for reciprocal tariff measures. However, authorities express strong discontent with this perceived unfair policy.
Leading brands such as Rolex, Patek Philippe, and TAG Heuer are particularly vulnerable to these tariff increases. Their manufacturing takes place exclusively in Switzerland, and they have no plans to shift production to the U.S. Despite these challenges, the Swiss watch industry remains optimistic. Brands believe that their primary customers, who possess significant purchasing power, will continue to pay the elevated prices. An additional 31% cost could be a minor inconvenience for them.
Migration isn’t on the roadmap. In this new context, you might think that European luxury brands should consider relocating their production to the U.S. in order to avoid tariffs. However, no fashion or luxury brand has indicated plans to abandon its current production sites. “In every single conversation I have had with clients over the last five to 10 days, not a single person was talking about building a factory in the U.S.,” William Susman, managing director of investment bank Cascadia Capital, told The New York Times.
Brands like Victorinox, known for its iconic Swiss Army knife, have emphasized that quality craftsmanship is an essential part of their identity. They believe that changing the production location would compromise this essence. “This Swiss icon is inextricably linked with the quality promise ‘Made in Switzerland.’ We will stand by this,” Victorinox CEO Carl Elsener Jr. said speaking to The New York Times.
The only exception is the Louis Vuitton Moët Hennessy (LVMH) group, which includes American brands like Tiffany & Co. and operates several factories in California and Texas. However, this move would only alleviate part of the costs associated with tariffs. Importing high-quality materials such as furs and fabrics from Europe and other regions would still incur reciprocal tariffs.
Aspirational consumers: a risk for luxury brands. According to Reuters, the U.S. market accounts for around 20% to 30% of sales for major fashion, cosmetics, and luxury accessory groups such as LVMH, Kering, Richemont, and Hermès. This includes not only wealthier individuals who can afford luxury items but also a substantial number of aspirational consumers. This kind of customer might consider spending $2,000 on a handbag but would hesitate if the same item costs $2,400.
“A 10% to 20% tariff on European luxury goods could depress luxury sales in the U.S., especially for companies like Burberry and Kering that focus more on an affluent and aspirational clientele as opposed to ultra-rich patrons,” analysts at consulting firm Morningstar told Reuters.
Another challenge is emerging. The trade war comes at a time when, much like the luxury car sector, the high-end goods industry was aiming to recover from declining sales in the Chinese market in 2024. Lowering sales expectations in the U.S. represents a significant setback, particularly when key brands in the sector have already opened new stores in the U.S., according to Business of Fashion.
Industry analysts suggest that brands may need to raise prices by 4% to 6% to offset these increased costs. Business of Fashion also projects a negative impact of 1.5% on LVMH’s fashion and leather goods division, and a 2.4% decline for Prada and Hermès.
Companies that rely heavily on aspirational consumers, like Kering (Gucci, Balenciaga, Yves Saint Laurent, etc.), may find themselves more vulnerable. Meanwhile, Swiss watch manufacturer Richemont (Cartier, Piaget, Baume & Mercier, Vacheron Constantin, etc.) could face a 7.1% decrease in sales. This contrasts with industry forecasts that had previously predicted growth of up to 3% for the year.
Image | tommao wang
Log in to leave a comment