What: Trump's proposed tariffs threaten to deepen the luxury market's 2% decline, particularly impacting European suppliers who control 70% of global luxury goods production.

Why it is important: The tariffs' impact on European luxury suppliers could fundamentally reshape global luxury retail dynamics, accelerating the shift of market power from traditional European dominance to a more balanced US-Asia axis.

The luxury industry faces unprecedented challenges as Trump's administration moves to implement new tariff policies, potentially disrupting the €363 billion global market. The European Union, which currently supplies 70% of global luxury goods, stands at a critical crossroads, with Italian fashion and French luxury houses particularly vulnerable. The Americas represent a crucial 28% market share, with American consumers remaining key tastemakers driving luxury brand fortunes. Major brands are already adapting their strategies, with LVMH leveraging its US production facilities and Hermès announcing potential price increases for its iconic products. The impact extends beyond immediate financial concerns, affecting consumer psychology across all segments. Even ultra-high-net-worth individuals, traditionally considered immune to price fluctuations, are showing signs of hesitation. The timing is particularly challenging as the sector grapples with a significant decline in its customer base and shifting consumer preferences. Industry experts warn that these tariffs could accelerate existing trends of market polarisation and force a fundamental restructuring of luxury retail dynamics.

IADS Notes: The luxury industry's response to Trump's proposed tariffs comes amid an already challenging landscape. As reported in December 2024, the sector experienced a 2% decline to €363 billion, with a staggering loss of 50 million consumers over two years. The impact of tariffs could further strain the industry, particularly affecting European suppliers who currently control 70% of the global personal luxury market. January 2025 data reveals a stark 18-20% decline in China's luxury market, pushing major brands to pivot towards the US market, where luxury credit card spending showed a modest 1% increase. This shift aligns with broader market transformations, including the recent Saks-Neiman Marcus merger creating a $10 billion powerhouse in January 2025. Consumer psychology plays a crucial role, as evidenced by June 2024 reports of growing "luxury fatigue" in China, while BCG's March 2025 analysis projects additional import costs of $640 billion due to new tariffs, potentially accelerating the industry's ongoing restructuring.

As luxury brands brace for tariffs, affluent consumers hit pause