European Luxury Price Hikes Could Be Coming to a US Mall Near You
European luxury goods manufacturers including Louis Vuitton and Gucci are signaling possible price increases to offset tariffs threatened by President Donald Trump. Louis Vuitton's owner, LVMH, and Kering SA , parent of Gucci, both gave price increases in the U.S. market as a possibility. Even Hermes, famed for its leather Birkin bags, said it’s testing the pricing power of luxury brands by increasing the cost of some items in select countries.
Trump recently threatened to “substantially increase” tariffs on European goods including wine and handbags to compensate for what he sees as unfair trade advantages that benefit from subsidies. The European Union has denied providing unfair state aid. While Trump’s latest levies are ostensibly in response to trade surpluses—the EU had a goods surplus of 156 billion euros ($175 billion) last year, including a $141 billion gap with the U.S.—they’ll also impact sales and the global economy.
Luxury is a key export for the EU, producing almost 12 times more of the goods than the U.S. does. “Luxury goods that are produced in Europe and sold in the U.S. will most likely experience price increases if tariffs really come into play,” said Axel Dumas, Hermes’ chief executive officer. The company is “very confident that we’ll still sell our products,” he said, though caveats apply.
For decades, luxury houses including Chanel and Tiffany & Co. as well as Paris jeweler Van Cleef & Arpels have kept prices the same around the world, to avoid luxury shoppers buying goods wherever the price is lowest. “We always try to have the same prices around the world,” said Hermes’ Dumas. “There are a few exceptions for countries with very specific currencies or specific levels or taxes which means the prices are not exactly the same.”
Louis Vuitton recently increased prices in Japan and South Korea, where its handbags tend to cost less than those bought in New York or Paris. In those cities, “we have to compensate for the decrease in prices when compared to European prices,” said Antoine Delon, deputy managing director of Louis Vuitton.
Louis Vuitton and Gucci, both European brands, sell some of their handbags at higher prices in New York than they do in Paris or London. Analysts say that’s where tariffs would make sense to increase. “Price increases in the U.S. market are the strongest rational for European brands,” said Zuzanna Pasiak, an analyst with Deutsche Bank.
“It’s usually not the tariffs that are forcing the price increases but the exchange rates.” Economists expect Trump’s tariffs to shave 0.3 percentage points off EU economic growth this year, although the exact impact depends on the currency exchange rate. Trump’s levies may also eventually hurt the global economy, according to a Bank for International Settlements analysis.
“What we’ve seen from luxury over the last year is that it’s actually the tariffs that are creating the uncertainty, not the quantitative easing,” said Melanie Baker, an analyst with Bloomberg Intelligence. “It’s really the uncertainty that’s coming through.” The industry has weathered other price increases, and analysts think luxury brands can handle higher costs in the U.S. too. Burberry recently increased prices in its home market of the U.K., and Chanel hiked prices on its classic flap bags last year in Hong Kong and mainland China.
“The price increases that we’ve seen in Europe do seem to be digested by the market,” said Luca Solca, an analyst with Exane BNP Paribas. “Clients have gotten used to the fact that prices are moving.”
