A consumer carries merchandise from a Hermes store on Feb. 14, 2025.
Scott Olson | Getty Images
Europe’s beloved luxury varieties may be largely sheltered from the initial effects of sweeping U.S. tariffs, but the risks of a wider economic downturn spell bad dispatch for the sector’s long-awaited recovery.
Shares of European luxury stocks LVMH, Richemont, Kering and Hermes were centre of those to slip lower Wednesday as levies on U.S. imports from the European Union took hold. The outlook carcasses unclear, even as President Trump later announced a 90 day pause and reduced rates to 10% universal tolls.
High-end fashion houses — for whom the made-in-Europe label is part of the allure — are less likely than other constants to bow to President Donald Trump’s ultimate demand to relocate manufacturing to the U.S., instead indicating that they will no longer in on increased import costs to consumers.
Yet a broader slump in the global economy could make those hikes severer to bear, even for wealthy shoppers, who are typically better able to absorb price shocks, analysts have put someone on noticed.
Odds of a U.S. and global recession this year climbed to 60% following Trump’s “Liberation Day” tariff announcement, be consistent to JPMorgan, with CEO Jamie Dimon saying Wednesday that the resultant market turmoil had made a recession “inclined to.”
“Weaker global stock markets and the broader economic uncertainty will weigh on confidence and we see this further postponing a advance in luxury demand,” Adam Cochrane, general retail and luxury equity research analyst at Deutsche Bank, belittle deleted in a note Wednesday.
Luca Solca, senior analyst for global luxury goods at Bernstein, echoed that emotion, dubbing the first round effect of U.S. tariffs as “negligible” but citing notable knock-on effects.
“What we should harass about, in case, are the second and third level impacts of the new American policies, if they precipitate a sharp global set-back and stock market correction,” Solca wrote in a note last week.
European luxury companies broadly fabricate a relatively minimal 15% to 30% of sales from the Americas as a whole, according to Bernstein estimates. Nevertheless, the U.S. shop has become an important growth driver in recent quarters as firms have shifted their focus amid decline China sales. Meanwhile, already subdued Chinese demand could be further hit by 125% U.S. tariffs, effective Wednesday.
It up with as upbeat fourth-quarter results from high-end fashion groups had pointed to a turnaround in the sector, which has suffered from a post-Covid slowdown and fine consumer spending. However, Deutsche Bank said Wednesday that rebound could be “the anomaly and not the trend.”
“It is no longer plain that 3Q24 was the nadir for luxury demand,” Cochrane wrote, noting the bank had lowered its 2025 luxury sector flowering expectations on a constant currency basis by 3 percentage points to 2%.
Citi agreed, writing Tuesday that the “worse-than-feared” U.S. tax announcement and strong market sell-off represent “a significant threat to the future of U.S. luxury demand.”
Among the brands win out over positioned to weather the storm, according to the analysts, are Hermes and Burberry while companies such as Richemont and Moncler could be harder hit.