You would think the type of shopper who can afford a Tag Heuer watch or a Hermès Birkin bag, costing tens of thousands of pounds, would largely be immune from macroeconomic turbulence. But their longstanding resilience, including during the pandemic, is now being tested.
The $350 billion global luxury market is facing challenges as geopolitical instability and tariffs introduced by President Trump shake investors’ confidence and sap consumers’ appetite in two of its most crucial regions: China and the United States.
Trump has imposed a 145 per cent tariff on Chinese imports to the US, provoking immediate retaliation from Beijing, which hit back with a 125 per cent tariff on American goods. Although Trump’s measures were paused for 90 days, the shock has already rippled through global markets.
It was a bruising week for the sector, which had only recently shown signs of rebounding from last year’s volatility. Shares in the French luxury conglomerate LVMH, owner of Louis Vuitton, Dior and Givenchy, tumbled after it became the first big player to report earnings since Trump’s blanket tariff plan was unveiled.
Organic sales in LVMH’s crucial fashion and leather goods division fell 5 per cent year-on-year to €10.1 billion in the first three months of the year, missing analysts’ expectations of a 1 per cent rise by a wide margin. The group, long seen as a bellwether for the luxury sector, caused a rout in luxury shares as investors digested the implications of higher costs and faltering demand.
“The year started well but worsened from March due to economic turmoil linked to tariffs,” Bernard Arnault, 76, LVMH’s chairman, said.
The downturn was not limited to LVMH. Hermès, widely viewed as the most resilient of all luxury players, also reported a hit to sales this year owing to weaker demand in China. The French brand, known for its exclusivity model and “quiet luxury” aesthetic, said it would raise prices in the USfrom May to counteract Trump’s 10 per cent tariff on imports.
The luxury outerwear specialist Moncler disclosed falling sales in the Americas, underscoring the uncertainty across the sector.
Kering, the French luxury group behind Gucci, has not issued formal guidance since the tariffs were implemented but analysts expect its performance to reflect similar headwinds. The Italian luxury fashion house Valentino is bracing itself for a continued slowdown after it revealed on Friday that it had suffered a 20 per cent drop in operating profit and 2 per cent sales decline last year.
The tariffs have played a large part in the slowdown but the Bernstein analyst Luca Solca said there was more behind it: “Luxury thrives when consumers have reasons to feel better. The fall of the real estate market has caused Chinese consumer confidence to plunge. The recent stock market correction is causing western consumers to also be cautious.
“Previously, high inflation had caused middle-class consumers to sober up from the Yolo [you only live once] post-Covid euphoria. When you bring all of these elements together, and add geopolitical tensions, you don’t get a lot to celebrate.”
Although the luxury sector is typically able to weather economic storms its recent record suggests that the current environment is different. Over the past year demand has weakened across multiple key markets: China, North America, Britain and Europe.
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Signs of a modest recovery had emerged around the Christmas trading period, when geopolitical tensions appeared to ease and inflationary pressures began to recede, but the relief proved short-lived.
Alice Price, retail analyst at GlobalData, said that brands were being affected by pressures on “aspirational” shoppers, not so much those at the upper end of the wealth spectrum. “Unremitting economic challenges in key markets continue to weigh down on this core demographic’s appetite to spend,” she said.
Elaine Parr, who leads the consumer products, retail and luxury business for IBM, explained why luxury had been less resilient this time around. “The one thing that’s different to every other time we’ve looked at luxury is that there is no growth release valve,” she said.
“Historically, if China caught a cold you could look to another kind of release valve. Whereas at the moment, there just isn’t one. The US was wobbly, then it got a bit better, and then Trump. Europe was cautious, and then Trump. China continues to struggle. Even the Middle East is catching the Chinese cold, although Japan and the Far East have helped some of those players.”
Parr said it would be wrong to declare a crisis. “I don’t think what’s going on in luxury at the moment is structural or terminal,” she said. “There are so many articles being written as if luxury is dead, and it’s not, but consumers are thinking differently about luxury, about values and cost and value.”
Yanmei Tang, an analyst at the investment company Third Bridge, said: “With higher import duties now in place in the US, American consumers are less likely to travel to Europe for luxury shopping. At the same time, Chinese shoppers, once a dominant force in global luxury, are travelling less and spending more cautiously. Economic uncertainty at home and a lack of incentives from the Chinese government to spend abroad have slowed outbound travel and overseas luxury purchases.”
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Deutsche Bank analysts noted that the sector’s pain may not yet be fully priced in: “The lack of a dramatic slowdown in US luxury in March is somewhat reassuring, given all of the noise, but we suspect this may be yet to be fully reflected in the data, given weaker consumer confidence.”
Much of the pressure is focused on the demand side but structural questions are being asked of the sector’s biggest players, none more so than LVMH. Arnault recently won shareholder approval to extend the maximum age limit for the chairman role to 85, raising questions over succession planning at the group he has long dominated.
LVMH remains tightly controlled by the Arnault family, who own about half the company’s shares. With no clear successor formally announced, attention is increasingly turning to his five children, all of whom hold leadership roles within the business.
Some investors and analysts are beginning to ask whether the group, spanning more than 75 brands, has grown too unwieldy to manage effectively.
“LVMH has become more of a brand collector than a brand builder,” Mark Pilkington, a retail analyst, said. “Just look at Hermès’ record in maintaining its exclusivity. Also, Bernard Arnault’s age and family succession plan is an issue.”
Parr added that the contrast between the big players was instructive and that LVMH needed to get its houses in order. “Hermès is robust and LVMH looks patchier because it’s just a bit clearer what Hermès is delivering,” she said. “LVMH is obviously a potpourri of amazing maisons. What’s going on at the moment is a reset. It’s an evolution. It’s cyclical.”
The renewed slowdown has prompted speculation that LVMH could eventually be split up to unlock value, a notion resisted by the group so far.
Pilkington added: “The risk is that the current turmoil sets off a global financial crisis, which could reduce the wealth held in shares, property and other assets. Until we are through the next few months I would not want to bet on an early recovery in LVMH.”
Solca at Bernstein noted that the impact of tariffs may be overestimated in some areas: “Tariffs apply on the transfer price from Europe to the US, which is typically 20 per cent of retail. A 20 per cent tariff on 20 per cent of the retail price means you [can] increase retail prices by 4 per cent and you’re insulated.”
Still, investors’ nerves remain fragile. The fallout from Trump’s tariffs caused an immediate drop in shares across the luxury sector, with Burberry, Mulberry and Watches of Switzerland among those taking a hit.
Stifel analysts warned that the environment was especially harsh for struggling names such as Burberry, which has been undergoing a turnaround effort. “The deteriorating external backdrop, especially for aspirational luxury shoppers in the US and China, is creating a rocky road to recovery for turnaround stories like Burberry, which are losing market share in a global luxury market that is shrinking and unlikely to grow meaningfully in [the 2026 financial year].”
For now, analysts remain divided on when the sector might stabilise. Much will depend on the trajectory of global interest rates, property markets in China and whether the trade war continues to escalate.
