As trade tensions bite, luxury industry giants like LVMH and Hermes are feeling the pinch, with top-tier fashion houses not entirely immune to the effects of tariffs imposed by the Trump administration.
Even top-tier fashion houses are not entirely immune to the effects of tariffs imposed by the ‘Trump administration.’
Tariffs are taxes imposed on imported goods by a country's government.
They can be used to protect domestic industries, generate revenue, or retaliate against other countries' trade policies.
The World Trade Organization (WTO) regulates tariffs and sets rules for their implementation.
Tariff rates vary widely between countries and products, with some reaching as high as 200% on certain goods.
The impact of tariffs can be significant, affecting both consumers and businesses through higher prices and reduced competition.
LVMH (LVMHF) and Hermes, the world’s two largest luxury houses, have typically been more insulated from economic turbulence than other retailers. However, high profits and a reliable base of wealthy clients can only go so far in shielding them from the impact of tariffs.
The Tariff Impact on Luxury Conglomerates
Tariffs are taxes imposed on imported goods and services.
They can have a significant impact on international trade, affecting both countries implementing tariffs and those affected by them.
The main effects of tariffs include increased costs for consumers, reduced imports, and potential job losses in industries competing with foreign producers.
Additionally, retaliatory measures from affected countries can lead to trade wars.
Tariffs can also influence government revenue, as they generate income through customs duties.
Both companies say their American sales remain largely unaffected by the new tariffs. But LVMH this week reported weaker-than-expected revenue for the first quarter, citing a challenging global economic landscape. The group’s sales between January and March totaled 20.3 billion euros ($23 billion), a 3 percent year-over-year decline, with organic sales down in all regions except Europe.
LVMH acknowledged that US levies could disrupt its manufacturing model. The company currently operates three Louis Vuitton production sites in the U.S., which account for roughly one-third of the brand’s American supply. This is concerning, as it may lead to a shift in production to the U.S. to offset the added costs.
A Production Shift to the US?
‘We can increase the capacity or production for the U.S.,’ said LVMH CFO Cecile Cabanis. ‘Still, it’s something that you don’t do overnight.’ The company may also manufacture more Tiffany & Co. products domestically if needed.
Meanwhile, Hermes is taking a different approach to the tariffs. The company will pass the added cost on to US buyers, with prices set to rise across all product lines starting May 1. This includes already-costly items like the ‘Birkin’ and ‘Kelly bags,’ both of which start at $10,000.
Hermès, a French luxury fashion brand, has been affected by tariffs imposed by the US government.
In 2019, the US introduced a 10% tariff on European Union (EU) goods, including leather goods and apparel from France.
This led to an increase in prices for Hermès' products sold in the US market.
According to a report, Hermès saw a significant decline in sales due to the tariffs, with revenue dropping by 14% in the first quarter of 2020.
The company's CEO, Axel Dumas, stated that the tariffs had 'a very negative impact' on the brand's business.
The Tariff Impact on Hermes
Hermes is not yet feeling the full effects of Trump’s tariffs, but it will soon. The company has a 90-day hold on US imports before levies are imposed, but further proposed tariffs could hit within three months, significantly raising costs for consumers.
