Effects on prices, falling profit margins, location relocations? The luxury goods industry is silent about the possible consequences of the announced tariffs in the United States, which have been an important luxury goods market since the consumption decline in China.
“None of the companies we recorded (…) has commented on the effects of the tariffs, since everyone is obviously still thinking about how to proceed,” wrote analyst: Inside the Bank HSBC in a note.
Zuzanna Pusz, analyst at UBS, expects “that most European luxury goods companies will pass on the tariffs to end users via price increases: inside, who are usually less price -sensitive than in other industries,” says a note from the bank. “Ultimately, these tariffs will probably cause American luxury consumers to buy abroad,” she adds.
A statement that the managing director of the Hermès Group, Axel Dumas, had already made in February on the sidelines of the presentation of the annual results. “If the tariffs rise, we will increase our prices to compensate for it,” he said. “The American customers will remain loyal to us, and those who are too expensive will use our hotel infrastructure in Paris and shop at Faubourg (Flagship store and headquarters of the group at Rue du Faubourg-Saint-Honoré, editor),” he assured.
At the same time, Bernard Arnault, CEO of the world’s largest luxury goods manufacturer LVMH, emphasized that there is an “optimistic wind” in the USA. He had experienced it himself when he and his daughter Delphine, CEO of Dior, and his son Alexandre, deputy managing director of Moët-Hennessy, took part in the ceremony for the inauguration of Donald Trump.
“In the USA you will be welcomed with open arms, taxes will fall to 15 percent, the workshops that can be built in the USA are subsidized in a number of states, and the US President promotes that the market is developing very quickly,” he said.
“Psychology is the real topic”
LVMH has 1,182 shops in the United States, three Vuitton studios and four vineyards, but a large part of its production remains in France. Especially for champagne such as that of Krug, Ruinart or Veuve Cliquot, as well as for Cognac from Hennessy Odee Wine from Cheval Blanc or Chateau d’Akm.
The fashion and leather goods from LVMH brands such as Dior, Celine or Loro Piana are also largely produced in Europe. This also applies to perfume brands such as Guerlain or Acqua di Parma. After Donald Trump announced additional tariffs of 20 percent on EU products, neither LVMH nor his competitor Kering from AFP wanted to make a comment. Chanel had not answered by Friday afternoon.
Thomas Chauvet, Analyst at Citi, said: “Companies with a strong power power and positioning in the upper price segment, such as Hermès and Richemont, will probably be better able to cushion the effects on price increases”.
“The most endangered companies will be those who generate most of their sales in the United States,” he added in a note and called Brunello Cucinelli (34 percent), Ferragamo (31 percent), LVMH (24 percent) and Richemont (20 percent). The Helvetian group is likely to suffer all the more than the announced US tariffs for Switzerland are 31 percent.
“Indirect effects could occur due to the potential effects on the worldwide consumption mood, especially in the core segments of the sector – the consumer: inside in China (which make up about thirds of sales) and the USA (25 percent of sales),” said UBS.
“Psychology is the real topic,” adds HSBC. “The elongated topic that is in the room and what no one wants to talk about are not so much the mechanisms of tariffs on the results of the luxury goods industry, but rather a combination of wealth destruction (NASDAQ has lost 15 percent in the past three months), falling US purchasing power (the euro is at a highest level compared to the US dollar) and a gradual deterioration in the USA,” adds HSBC. “Everything goes out to this incredible element: you don’t buy luxury because you are rich, but because you believe in the future,” said the bank.