Luxury goods companies were spared their worst-case scenario in Sunday's EU-U.S. trade deal, but they face a delicate balancing act as already weak consumer demand tests their ability to raise prices further.

Paris

Donald Trump has signed an order to impose tariffs imports into the U.S. from countries including China, Mexico and Canada.

Global Tariffs

Luxury brands such as Chanel, Louis Vuitton, and Dior are facing new challenges as a 15 percent U.S. tariff on European goods is introduced. While the tariff is lower than previously threatened rates, it comes at a time when the industry is already contending with weakened consumer demand and diminished pricing power.

Analysts note that luxury companies have already implemented substantial price increases in recent years, with some products more than doubling or tripling in price. The sector also lost 50 million customers last year, and further price hikes to offset tariffs may be difficult, especially as recent earnings reports show little sign of recovery.

U.S. tariffs will be test of luxury brands' pricing power

Luxury giants Chanel, Louis Vuitton and Dior may have dodged the worst in U.S. President Donald Trump's trade deal with the E.U., but a new 15 percent tariff on European goods threatens to deepen the pressure on an industry already faced with slumping consumer demand and fading pricing power. While the fresh duties are below the hefty 30 percent tariff that Trump threatened just weeks ago, they're a far cry from the zero-for-zero tariff deal the E.U. was hoping to clinch. Some high-end labels say they will be able to draw on pricing power to offset the cost of tariffs. But analysts and industry experts warn some players have limited wiggle room after a series of outsized price hikes, which have driven a chunk of the brand's profit growth. Big luxury companies raised prices by 33 percent on average between 2019 and 2023, according to RBC estimates. The price tag of Chanel's classic quilted flap bag, for instance, more than tripled between 2015 and 2024, while the Lady Dior bag and Louis Vuitton keep-all travel bag more than doubled, according to UBS analysts. Meanwhile, the sector lost 50 million customers last year, according to consulting firm Bain, as economic pressures and price fatigue dampened appetite for designer clothing and handbags. UBS estimates that a 15 percent tariff will require luxury brands on average to raise prices by around 2 percent in the U.S. or around 1 percent globally if they want to avoid widening regional price gaps or face an impact of around 3 percent on earnings before interest and tax. Such hikes may prove challenging while the latest round of luxury companies' earnings shows little sign of a rebound.

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Jerusalem

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Pangasinan

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U.S. tariffs will be test of luxury brands' pricing power

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