Every time someone walks into one of her stores in the Alpine gateway of Cortina D’Ampezzo, Daniela Kraler can almost predict exactly where the conversation will lead: tariffs. Since US President Donald Trump started threatening his allies with tariffs, European luxury brands and their moneyed customers have been worrying about what they might mean for an already troubled industry.
“It has become the topic of the day, they [clients] are afraid,” said Kraler, who owns a series of high-end boutiques in the winter resort town with her husband Franz, and whose customers include Italian Prime Minsiter Giorgia Meloni. “Fashion lives on perception, exclusivity, and quality, but it is also extremely sensitive to the price.”
Since the start of this month, nearly all EU exports to the US face a tariff of 15%. A deal reached between the two sides in July, widely seen as a European surrender, prevented a worse outcome but also locked in the new US tariffs — in contrast to China, whose more robust approach made Trump blink and ‘delay’ the tariffs.
For Europe’s luxury industry, fears are mounting that brands may have to pass on the price rises to consumers in the US, the sector’s second-biggest market after China. That comes on top of slowing sales and a general impression among industry watchers that luxury prices have moved out of reach of the aspirational classes.
A deepening crisis in the industry will be felt widely across Europe’s economy, which is home to the world’s three largest luxury conglomerates: LVMH, Kering and Richemont. Italy and France are particularly exposed: The sector contributes 5.1% and 3.1% of their respective GDP.
Tariffs meet greedflation
The recent price rises followed the Covid-19 pandemic, when people confined to their homes spent less on luxury clothing. In response the industry doubled down on its ultra-rich clients, raising prices to offset slumping sales.
But eventually, moneyed clients from China and elsewhere began questioning whether they were getting enough value from products that suddenly cost twice as much for little to no improvement. And aspirational consumers, who a decade ago might have bought one or two luxury items a year, have been almost entirely frozen out.
“In recent years, luxury of all kinds has become obscenely, disgracefully, and inconceivably expensive,” lamented Katharine K. Zarrella, an American fashion journalist, in a December 2024 New York Times opinion piece. The Financial Times’ luxury editor Jo Ellison wrote earlier this month that top brands are no longer offering entry-level handbags or items of clothing for a few hundred euros, missing the chance to snag new customers outside the ranks of the ultra-rich.
One of Chanel’s most coveted bags, the classic medium 2.55 flap bag, has seen its price more than double on the US market since 2017 — from approximately $5,300 to $10,800 in 2024; overall US inflation is around 30% for the same period. Last year, the company’s overall sales declined by about 2% year-on-year.
French luxury powerhouse LVMH, owner of iconic brands like Louis Vuitton and Christian Dior, has also steadily increased prices since 2020 to offset declining sales. Earlier this year, the company’s sales fell 3% compared with the previous year.
“Even the ultra high-net worth customer is looking at these raised prices and [is asking himself]: Am I getting the value for what I’m investing?” Scott Kerr, the founder and managing partner at Silvertone Consulting, a luxury consultancy, told The Parliament. “You can be loyal to a certain brand [only] up to a certain point.”
Adapt or die
The risk of US customers being further squeezed was enough to keep the titans of industry up at night. Bernard Arnault, the CEO of LVMH and Europe’s richest man, warned in April he might have to move production to the US if a trade war spiraled out of control. "It will be Brussels' fault if this happens," he reportedly told a shareholder meeting.
The following month he urged EU leaders to follow the UK after it secured a 10% trade agreement. He praised the eventual 15% deal as an “act of responsibility” and a “good agreement” for having warded off the prospect of an even higher tariff.
To Kerr, Arnault’s loss of composure reveals how much the industry stands to lose. “If he [Arnault] has a cold or LVMH has a cold, then the whole industry has the flu,” he said.
Before Trump’s return to power earlier this year, analysts had hoped that 2025 might be the year the luxury industry turned the corner. Those hopes, however, were dashed amid mounting economic uncertainty and market turmoil. “As long as tariffs remain in place … the mountain just gets steeper,” Kerr said.
With no prospect of relief, luxury entrepreneurs are looking for new ways to survive and grow. Kraler sees a future in experiential tourism, and is planning with her husband to open a chalet in Cortina d’Ampezzo by the end of the year.
“Smart brands who are targeting ultra-high net worth luxury understand that they have to elevate the experiences that come along with it,” agreed Kerr. Simply raising prices “is not a sustainable strategy.”
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