Luxury sector faces challenges: Tariffs, declining sales, and economic headwinds

Paris - The global luxury sector is facing increasing challenges, grappling not only with a decline in the consumption of high-end handbags, perfumes, and designer clothing but now also contending with new tariffs on exports to the United States, a crucial market.

Bernard Arnault, chairman and CEO of LVMH, acknowledged the difficult landscape. "We are facing headwinds, with the cyclical difficulties of the global economy," Arnault stated. He further added, "In addition, there are geopolitical difficulties and the decrease in tourist travel in Europe and the US." These pressures have impacted LVMH, which houses brands like Louis Vuitton, Dior, and Celine, reporting a 22 percent drop in net profit to 5.7 billion euros in the first half of the year, with sales falling 4 percent to 39.8 billion euros.

Adding to these woes are the newly agreed-upon 15 percent tariffs on exports to the US, a pact reached on Sunday between US President Donald Trump and European Commission President Ursula von der Leyen. Arnault defended the agreement on Tuesday, describing it as "not perfect" but "necessary" in the "current context," especially considering Trump had initially threatened the EU with 30 percent tariffs. The US market accounts for a significant 25 percent of LVMH's total sales. In a move perhaps aimed at mitigating future tariff impacts, LVMH plans to open a new Louis Vuitton workshop, its flagship brand, in Dallas in late 2026 or early 2027, adding to its existing three Louis Vuitton workshops in the US.

Many luxury conglomerates appear to view the 15 percent tariffs as manageable. Kering, despite ongoing challenges with its flagship brand Gucci, considers the tariffs "manageable." Armelle Poulou, Kering's chief financial officer, indicated that the company might increase prices on "certain brands" to offset the new costs.

Dollar decline and divergent strategies

Unlike LVMH, François-Henri Pinault's Kering group, which owns Gucci, Yves Saint Laurent, Balenciaga, and Bottega Veneta, does not operate workshops in North America, where it generates 24 percent of its sales. Pinault recently voiced his perspective on local production, stating, "We sell French culture, we sell Italian culture. It wouldn't make sense for me to have Italian Gucci bags made in Texas."

Axel Dumas, CEO of Hermès, prefers to "wait for the precise rules of the game," noting that "the latest announcements need to be refined." He pointed out that tariffs were at 4.7 percent at the beginning of the year, with an additional 10 percent "approach fee" introduced in April. Dumas believes that "if the 15 percent is the 10 percent plus the five percent that existed, there is no reason to increase prices." Following the 10 percent tariffs in April, Hermès did raise its US price list by 5 percent, which, remarkably, did not impede sales in the "Americas" zone, seeing a 6.3 percent increase in the second quarter.

Hermès, seemingly unaffected by the broader "headwinds," announced a 7 percent increase in sales for the first half of the year. British brand Burberry also remains unfazed, reporting a 4 percent increase in its "Americas" sales during the first quarter of its staggered financial year. The UK has negotiated 10 percent tariffs for its products exported to the US. Kate Ferry, Burberry's chief financial officer, reassured analysts, stating, "Obviously, 19 percent of our revenue comes from the US. While this still represents an obstacle, 81 percent of our business is not affected."

Tariff impact on luxury consumers

Beyond the direct accounting impact, UBS bank noted in a recent brief that tariffs could also influence "the confidence of (luxury) consumers globally, particularly in the important Chinese (about one-third of sales) and US (about 25 percent of sales) markets." They anticipate that these tariffs might also encourage US luxury consumers to purchase abroad due to existing price differentials, which can be "in the order of 10 percent, in addition to the VAT refund in Europe."

Dumas underscored the significant role of exchange rates in the current climate, asserting, "We have a dollar that has fallen a lot, that has as much impact, if not more, than tariffs." This highlights that currency fluctuations present an equally, if not more, formidable challenge than the tariffs themselves for luxury brands operating in international markets.

This article was translated to English using an AI tool.

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