US-EU tariff agreement challenges Chanel, LVMH, and Hermès's room for price increases
2025-08-01 22:02
Boutique companies avoided the worst of the US-European trade deal reached on the 27th, but still face a delicate balancing act as already weak consumer demand tests their ability to raise prices further.
In recent years, big brands such as Chanel, LVMH's Louis Vuitton and Dior have relied on steep price increases to drive their profit growth.
While the baseline tariff is lower than the 30% that Trump threatened weeks ago, it is a far cry from the zero-for-zero tariff deal Brussels hopes for.
As China, once a growth engine, slows and global sales decline, luxury goods industries are turning to the United States, only to face new tariffs.
Some high-end brands have said they will use pricing power to offset the cost of tariffs, but analysts and industry insiders warned that after a series of sharp price increases, some brands have very limited room for maneuver.
Large boutique firms, benefiting from a post -pandemic rebound in consumer demand, will see an average price increase of 33% between 2019 and 2023, according to RBC estimates.
UBS analysts said prices for Chanel's classic quilted flap bag more than tripled between 2015 and 2024, while prices for the Lady Dior bag and Louis Vuitton Keepall travel bag more than doubled.
UBS analysts said half of the growth in luxury sales would come from four consecutive years of price increases starting in 2019, compared with just a third between 2016 and 2023.
However, the luxury sector lost 50 million customers last year as economic pressures and weak prices curbed demand for designer clothes and handbags, according to consultancy Bain.
Hermès, which has clearly held back on steep price increases during the post-pandemic boom, is outperforming rivals, with analysts predicting a 10% rise in second-quarter sales.
UBS estimates that if a 15% tariff is imposed on US exports, luxury brands will need to raise their prices by an average of about 2% in the US, or about 1% globally, to avoid widening price gaps between regions. Otherwise, their earnings before interest and taxes will be affected by about 3%.
Such price increases could be challenging at a time when luxury brands show no signs of rebounding from their latest round of profit performance.