Luxury brands are now at a pivotal crossroads as U.S. tariffs take effect, challenging their ability to pass on import costs without alienating a fatigued consumer base. A newly brokered U.S.-EU trade deal announced July 27, 2025, imposes a 15 percent tariff on most European luxury goods—lower than prior estimates of up to 30 percent, but still significant at a time of retreating demand. While the deal brings some clarity, brands are being forced to navigate a delicate balancing act between preserving high margins and maintaining brand allure.
Since the pandemic, luxury brands like Chanel, Dior, Louis Vuitton, and Gucci have steered growth through steep price hikes—often exceeding 50 percent—only to confront mounting backlash from affluent and aspirational buyers alike. UBS and analysts warn that raising U.S. prices another 2 percent to offset tariffs could dent global earnings by about 3 percent, and plunge sales further. HSBC highlights that brands which overplayed price surges now risk cutting off entry-level luxury customers essential for wider growth.
Some groups are better positioned to absorb the shock. Brands that took a moderate approach to price increases—such as Hermès and Richemont—are outperforming peers amid the downturn, carving out market share thanks to brand scarcity and craftsmanship narratives. Meanwhile, LVMH and Kering are contending with deeper declines in key lines like handbags and fashion accessories; last week LVMH’s fashion and leather unit fell 6 percent in year‑on‑year revenue, and Gucci may post a near 25 percent drop
The tariff cost issue is layered. In many cases, U.S. importers—not foreign exporters—are absorbing duties, squeezing margins before consumers even see price hikes. LVMH CFO Cécile Cabanis acknowledged that some product categories, such as high jewelry, can sustain modest price increases, but staples like cognac and mass‑market beauty goods offer minimal pricing elasticity.
In response, several luxury brands are exploring strategic pivots. LVMH, for instance, is expanding U.S. production with a new factory in Texas slated by 2027. This boosts tariff resilience while catering to local demand. Some industry players are even considering relocating manufacturing closer to core markets to avoid duties and potentially reduce costs, though experts note brand heritage—“Made in France” or “Made in Italy”—is central to luxury identity and remains non‑negotiable for many labels.
Analysts caution that with global luxury sales expected to shrink 2–5 percent in 2025—the steepest drop since COVID—the era of unchecked price escalation appears over. UBS projects U.S. prices may enable only modest recapture of tariff costs before sales volumes suffer. Bain & Company also forecasts a slowdown but notes that robust luxury fundamentals—including rising Gen Z buying power, China’s recovery, and digital adoption—support longer-term resilience.
The industry’s immediate challenge is narrative: brands must reaffirm intrinsic value, not rely solely on price engineering. Experts argue storytelling, heritage, and authenticity now matter more than ever—especially for companies like Brunello Cucinelli and Prada, which remain anchored in brand DNA rather than marketing theatrics.
The next few quarters promise to test which luxury houses can maintain margins without jeopardizing loyalty—or price out the very consumers that fuel growth. Brands that invested in pricing restraint and brand equity may emerge stronger, while those leaning into “greedflation” risk long‑term reputational damage. The U.S. tariff test, though moderate in headline terms, arrives at a fragile moment for the sector—and the balance between pricing power and brand integrity may determine winners and losers in the luxury world.
