Tariff Rates Changed Three Times in a Week...
"A Poison to Consumer Sentiment"
The trade war sparked by U.S. President Donald Trump has dampened expectations for a recovery in the luxury market this year. As China's economic downturn prolongs, forecasts suggest that luxury demand in the U.S. will continue to decline due to tariffs.
According to the Financial Times (FT) on the 13th (local time), Bernstein recently projected a 2% decrease in luxury industry sales this year due to rising economic uncertainty and the possibility of a global recession. This reverses the previous growth forecast of 5%.
An industry insider said, "Our baseline scenario now is that the luxury market recovery will be delayed until 2026." FT diagnosed that the trade retaliation between the U.S. and China could severely damage consumer confidence in the two major luxury-consuming countries.
During the COVID-19 pandemic, luxury consumption surged due to "revenge spending," leading to a boom in the industry. However, as China's economy slows and middle-class customers tighten their wallets, the luxury market has fallen into a slump. The situation has worsened further with President Trump's trade war.
Luxury companies are less sensitive to the direct impact of tariffs compared to other businesses because they can mitigate tariff effects through price increases due to their strong brands. However, FT pointed out that the damage to consumer sentiment is greater.
Most luxury goods are produced in European countries such as France and Italy. High-end watches are mainly made in Switzerland. President Trump announced on the 2nd that he would impose reciprocal tariffs of 20% on the European Union (EU) and 31% on Switzerland but decided to delay them for 90 days. Nevertheless, Bernstein and others maintain their forecast of a decline in luxury industry performance this year.
The industry is concerned that President Trump's measures are causing confusion. An executive from a luxury company said that within less than a week, the tariff rates on goods exported to the U.S. had to be changed three times, adding, "Loss of trust lasts a long time, and uncertainty is an absolute poison to consumer sentiment."
Erwan Rambourg, director at HSBC, said, "The number of champagne bottles popping this year will literally decrease." HSBC initially expected organic sales in the luxury industry to increase by 5% this year compared to 2024 but now anticipates stagnation. At the end of last year, HSBC upgraded its investment opinion on luxury stocks, anticipating increased U.S.-led luxury consumption, but has since reversed that view.
On the 10th, Prada announced it had acquired Versace for 1.25 billion euros (approximately 2.0318 trillion KRW). The sale was initially expected to be around 1.6 billion dollars (approximately 2.2859 trillion KRW), but the price reportedly dropped at the last minute due to market turmoil caused by reciprocal tariffs.
Some in the industry have expectations for Bernard Arnault, chairman of Louis Vuitton Mo?t Hennessy (LVMH), who has had a long-standing relationship with President Trump. Arnault attended Trump's inauguration in January and said that an optimistic wind is blowing across the U.S., considering expanding LVMH's production within the country. The industry hopes Arnault can leverage his connections with President Trump to negotiate tariffs.
However, Barclays forecasted that LVMH's organic sales of fashion and leather goods, considered a luxury industry economic indicator, will decline by 1% in the first quarter. Hermes's first-quarter sales are expected to grow by 8%, but Gucci, Kering's largest brand, is projected to see a 25% decrease in first-quarter sales.
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