The EU-US deal has given respite to the luxury sector. What does it mean for brands' profits?
The ability of companies to raise prices is limited, with some estimates already rising an average of 33% in the four years since the pandemic

Luxury goods makers avoided a worst-case scenario after the U.S. made a trade deal with the European Union and imposed 15 percent duties on imports of European goods, according to Reuters. The U.S. is becoming a key market for the industry while China is losing ground as a major growth engine. But the duties threaten brands' profits: they will be forced to raise prices by 1-2% or accept a reduction in revenues, UBS predicted. Increasing prices will not be easy: luxury goods have already increased in price by an average of one-third over the past four years, and buyers are getting tired, which could translate into a global decline in sales this year, analysts warned.
Details
Luxury companies avoided the worst-case scenario after the EU-U.S. trade deal, but will now have to strike a balance between offsetting new duties by raising prices and risk scaring off buyers amid already weakened demand, writes Reuters.
While the base duties were below the 30 percent that U.S. President Donald Trump threatened just a couple weeks ago, they are very different from the reciprocal zero-duty agreement Brussels had hoped for, the agency noted. That said, the new duties come at a time when the luxury goods industry is increasingly posed to the U.S. market: the economy of its former growth engine, China, is slowing and global sales are falling, Reuters reported.
Major brands such as Chanel, as well as Louis Vuitton and Dior, owned by LVMH, in recent years provided profit growth largely due to significant price increases, notes Reuters. And now some luxury goods manufacturers say they will be able to offset the effect of duties through pricing, the agency writes. However, analysts and industry representatives warn: after a series of sharp price increases, many players have little room for maneuver, it noted;
What are the analysts saying?
The agreement, which imposes a 15% duty on goods from the EU, brings much-needed certainty to the key U.S. market for the luxury segment, said Jacques Ruizen, managing director for China at Digital Luxury Group. Его мнение представил Reuters.
UBS estimates that the imposition of a 15% duty on exports to the US will force luxury brands to raise prices by about 2% on average in the US market or about 1% globally - to avoid widening price gaps between regions. Or they will have to accept a decline in earnings before interest and taxes of about 3%.
However, it will be difficult for companies to raise prices due to weak demand: the latest reports of luxury companies do not yet show signs of recovery, writes Reuters. According to Ruezen, "brands are cautious about new price increases so as not to scare off young audiences and consumers who make infrequent purchases".
"Overall it [the U.S. agreement with the EU] is good news as it further removes uncertainty in the broader macroeconomic context," Luca Solka of Bernstein told excerpt The Wall Street Journal. The luxury goods industry is able to bear duties more easily than other sectors due to high margins, the WSJ noted, citing analysts' views. However, brands in the sector have limited ability to shift production because the origin of products is an important part of their appeal, the newspaper added.
Brands that have not found the right balance in their pricing policies are facing the biggest challenges today, said Flavio Cereda, GAM's investment strategy manager for luxury brands. By contrast, the Hermès brand, which unlike many rivals has refrained from significant price increases during the post-pandemic boom, has outperformed rivals in terms of growth, Reuters noted. Analysts forecast a 10 percent increase in the company's sales in the second quarter, a report for which is expected on Wednesday, July 30, the agency added.
Context
Major companies in the luxury segment have capitalized on the recovery in consumer demand following the pandemic, with RBC analysts estimating that they have raised prices by an average of 33% between 2019 and 2023. According to UBS calculations, the price of Chanel's classic quilted bag more than tripled between 2015 and 2024, while the Lady Dior bag and Louis Vuitton Keepall travel bag more than doubled.
Over the past four years, a "gap" has emerged between the prices of individual luxury goods and their perceived quality and creativity, according to Carolyn Reil, head of premium brands at Pictet Asset Management;
According to consultancy Bain, the industry lost 50 million shoppers last year as economic pressures and high price fatigue reduced interest in designer clothing and accessories. Bain predicts global luxury sales will decline 2-5% in 2025 after falling 1% last year. This will be the largest decline in 15 years, excluding the COVID pandemic period, Reuters notes.
This article was AI-translated and verified by a human editor