New tariffs would test Europe's luxury sector
By: Tassilo Hummel
and Mimosa Spencer
Reuters
PARIS - European luxury goods makers say they could draw on pricing power to offset the cost of any tariffs imposed by U.S. President Donald Trump, but analysts say some brands may have limited room to hike prices.
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Famous brans like LVMH's Louise Vuitton or Kering's Gucci are counting on a buoyant U.S. market this year [2025] as China lags.
..... However, Trump has threaten new tariffs on the European Union due to trade surpluses it had with the United States, in a widening offensive that economists say could trigger a global economic slowdown.
..... Executives at Hermes and Kering, which make handbags and loafers that sell for thousands of dollars, said last week [02/12/2025] they could leverage their brands' cachet to absorb any additions duties.
..... "If duties increase, we'll increase our prices accordingly," Hermes Execute Chairman Axel Dumas said Friday [02/14/2025] after reporting results.
..... Kering CEO Francois-Henri Pinault signaled the same commitment earlier in the week [02/10/2025] saying his brands, including Gucci, Balenciage and Yves Saint Laurent, would "review (their) pricing strategy" in the event of tariffs.
..... "We know how to maneuver that," he said
Passing on costs
..... Yet, years of aggressive price hikes, particularly during the post-pandemic boom, could make it harder for some brands to pass on higher import costs.
..... Most brands lifted prices by their most ever in recent years, analysts from firms including UBS, Citi and Bernstein said.
..... Chanel's classic quilted flop bag has more than triple d in price since 2010, while the Lady Dior Bag and Louis Vuiton Keepall travel bag have more than doubled, according to UBS,
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"We've talked a lot about "greedflation' for the past 12 months, the aided that you've going to far, too high, to quickly. and at the end of the day, you've basally cut yourself off from that aspirational consumer,: said HSBC analyst Erwan Rambourg.
..... A significant price rise would counter a recent trend for more cautious pricing policy, especially in the U.S. market.
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Dior, for example, kept U.S. prices flat last year, [2024] while Louis Vuitton increased them by a little more than 2%, according to Paris-based market intelligence firm Data & Data, which monitors Online retail prices for brand catalogs.
..... Chanel raised prices by 5.4%, a moderate move compared with previous years, while jewelers Tiffany and Richemont-owned Cartier and Van Cleef & Arpels slowed the pace of U.S. increases to 4% to 6%, from over 8% in the previous year, [2023] data showed.
..... "I think that the major brands' room for maneuver in terms of price increases in the United States will be fairly limited in 2025," said Data & Data CEO Zouheir Guedri.
..... "This would risk accentuating price difference between different regions and jeopardize costly effort undertaken over the years to harmonize prices on a global scale.
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Moringstar analysts said in a recent note: "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 the ultra-rich patrons.
Choppy outlook
..... As Chinese demand stays subdued, Europe's luxury companies are pinning their hopes on Americans in 2025, boosted by roaring equities and crypto markets.
..... Even though business with American customers is expected to grow fast this year, [2025] at 6%, buoyed also by a strong dollar, sales to Chinese customers are set to drop 1%, UBS has forecast. But the outlook remains uncertain.
..... U.S. consumer sentiment dropped unexpectedly in February [2025] to a seven-month low and inflation expectations rocketed as households feared they could pay the price for Trump's trade policies.
..... Analysts at Citi noted spending habits of aspirational shoppers - consumers who stretch there budgets seeking to elevate their soc la status - remain choppy.
..... Hermes CEO Dumas last week [02/19/2025] said he still saw the United States as a "land of conquest" to generate growth, pointing to his group's retail expansion into second-tier U.S. cities, with upcoming openings in Phoenix and Nashville.