After Tariffs, A Confidence Trick
A scaled advantage will be transformative given the outlook for the industry. Megabrands could turn the crisis into a coup de grâce for smaller competitors.
A Wolf Eat Wolf World
Globalisation and social media have split the industry into scaled winners with $10 to $20 billion in revenues, Hermès, Louis Vuitton, Cartier, Chanel, Dior, Ralph Lauren and a handful of others — and the remainder. In some respects, mere billion-dollar businesses have become minnows due to market share expansion investment from the megabrands.
The financial strength, resources and the timeframes in which lower sales or more costly sales are sustainable without impacting services, positioning and communication strategies between the two groups is now almost incomparable. A scaled advantage will be transformative given the near-term outlook for the industry.
Bank of America Global Research analysts shared in a recent note: “Whilst structural growth drivers remain in place, shorter term visibility is very limited, especially in light of trade tension and tariffs... The next positive catalyst for LVMH/the sector would likely need to come from a macro surprise, as fundamentals will likely remain tough in the short term.”
The agency available to brands and the business opportunities that emerge in such a challenging economic context are neither equally available nor remotely fair.
Matter analyses the tactics we expect to see employed below.
Diversify Supply Chains
The diversification and de-risking of supply chains adopted by some market leaders post-pandemic should be adopted and accelerated where possible. Disruption is becoming the trend, and the hope of a return to 2018 type trade long-term is deemed increasingly fanciful by most trade analysts and think tanks.
However, in the short term, even market out-performing brands like Ralph Lauren, which with eminent sense read the room prior to the Trump administration, will suffer due to the globality of the tariff strategy. In the reality we lived in at that point in 2024, Ralph Lauren had done much more than the industry-norm to mitigate risk.
“Our global sourcing and supply chain is agile and well-positioned,” CEO Patrice Louvet said in a November 7th earnings call. Such supply chain diversification and agility was a long term seven-year strategy for the brand. “We have strong partnerships around the world and that’s really served us well and been a key differentiator for us through the pandemic and beyond.”
But the scope and speed of Trump’s tariffs are unprecedented.
Indeed, partial diversification could work against American firms as a trade war escalates. Reuters reported that Vietnam has proposed stopping the re-routing of Chinese goods in exchange for Mr Trump lowering tariffs. “This means that American firms operating between the two countries could face even higher tariffs,” writes The Economist.
What is clear is that some ‘luxury goods’ now make a lot less sense. The wide-ranging commercial trend to produce ‘luxury’ sneakers in South East Asia, priced with ambitiously significant margins has already fallen foul of shifting consumer tastes. To perpetuate investing in these product lines outside of necessity in this market is folly.
American Made Luxury? Hold Your Texan Horses
“You can’t replicate centuries of savoir-faire in Texas overnight,” the author of this article shared in Glossy’s Luxury Briefing this week. LVMH operates three Louis Vuitton factories in the US — in San Dimas and Irwindale, California, and Johnson County, Texas. Though LVMH does not specify which products are made at the sites, former workers interviewed by Reuters mentioned the Carryall, Keepall, Metis, Félicie and Neverfull handbag lines among the plant's products.
Reuters reports that errors made during the cutting, preparation, and assembly process led to the waste of as many as 40% of the leather hides, said one former employee with detailed knowledge of the factory’s performance. Industry-wide, typical waste rates for leather goods are generally 20%, a senior industry source said.
Finding staff in regions without hundreds of years of cultural affinity to luxury manufacturing or the ability to adhere to exacting standards is a challenge. One previous employee claimed “[I remember] using a hot pin to “melt” canvas and leather to conceal imperfections in a particularly difficult piece called the Vendôme Opera Bag.” Another former leather worker said they’d seen people melt material to hide holes or other imperfections in stitching.
Damien Verbrigghe, Louis Vuitton’s international manufacturing director, conceded to the news organisation that some at the Texas plant had chosen to change jobs or leave because of its stringent quality requirements. As of 2024, base pay for a leather worker position at the plant was $17 per hour, according to two people who recently applied for positions. The minimum wage in Texas is $7.25 an hour.
Beyond recruitment, retention, training, set-up costs and time frames, which are all significant challenges, luxury’s craftsmanship myth-making has rooted expectations that its products are made in global centres of craftsmanship excellence. Haute Couture must be produced by Petites Mains in Paris to qualify for the appellation. Italy is home to a network of family-owned, highly-skilled, tiny-scale operators that still produce a huge amount of luxury’s high-end leather products. The intricate networks of weavers of India are woven into their communities. These cannot simply be upped and moved, nor the culture behind them replicated.
True luxury products, rather than luxury branded products, are also the sum of their parts. The best leather from the Swiss mountains, the best metal hardware and zips from Japan, the best buttons and embroidery from Paris, weaving from India… The list is long and established. Such imports in a tariffed trade system would make the products almost obscenely expensive to make in the U.S. and without any associated positive brand narratives or price justifications. Suitable only for the extremely price-insensitive consumer.
At Scale, Steal?
In challenging times, the deep pockets of the industry’s winners will likely be used to full effect to at least gain a ‘return’ of increased market share from the increased costs of doing business in the near-term.
“Brands like Vuitton have deliberately driven an escalation in fixed costs because it is in their interest. The more they spend on fixed costs, the more they make it difficult for competitors to keep up and stay in the same premier league,” Luca Solca, the head of luxury at Bernstein, wrote in 2024.
By increasing costly collaborations, staging large scale brand events, innovating and expanding clienteling, companies with strong cash foundations can distance themselves even further from the rest of the industry, and elevate their standing in the eyes of consumers, and long term, the investment they can demand for their goods from them.
Maintaining retail productivity will be a critical focus due to the outsize proportion of sales flagships and physical retail generate. Solca analyzes the disparity as this: “The difference between making or losing money with your flagship is purely driven by the amount of sales you drive through your square feet. What lies at the core of our megabrand virtual-cycle concept is that the sales-per-square-foot is driven by the absolute amount of communication dollars you pour into the market. So, as you get bigger and bigger, you can put more and more advertising dollars into the market, while sacrificing a relatively small portion of your top line.”
In Bernstein’s calculations, 5% of Vuitton’s sales is the same as the total sales of brands like Salvatore Ferragamo, at around €1.1 billion. “What is your chance of being seen in this economy of attention when you have a giant dwarfing you and grabbing all of the consumer attention and traffic?” he concludes.
Repricing Strategies
In 2024, HSBC found that the average price for a luxury good had increased in Europe by 52%. McKinsey found that 80% of growth was achieved through price increases not volume growth.
Perhaps the most interesting insight from the LVMH earnings call was the indication that the company would consider repricing goods to offset inflation and other headwinds. Though details were sparse on what shape and what categories this would apply to, the mere mention of an adjustment to prices is of note. So slavishly serving the price-insensitive 2% has perhaps blinded much of the industry to the reality of living standards experienced across a broader spectrum of the population.
Apple has allegedly stockpiled inventory in the U.S. to exceed two months of sales to minimize the impact of tariffs. This strategy allows businesses to hold off passing costs on to their communities.
Operating a vertical manufacturing model, LVMH does not have the opportunity to push costs on to its supplier, like the likes of Walmart announced they would be doing. Instead, it must come from margins or savings. But that is not to say that rationalisation might be safer long term. It’s one thing to protect shareholder performance, another to become synonymous with inequality and have protesters armed with flares storm your headquarters.
“When we look at the political implications of this divide, the fine line is when consumers and people at the bottom of the social pyramid stop seeing those at the top as examples to emulate, and instead see them as usurpers and people who got there without merit. And if, for example, Chinese policy went towards a more populist agenda, then this would clearly be a problem for the global luxury industry. Let me be clear, we have no sign of that at the moment, but I do see a political risk in this inequality situation,” Solca told System Magazine last year.
Whilst artificial Veblen pricing has been de rigueur in recent years, perhaps ‘Augusta’ pricing – costs that consider the consumer community not the shareholder – is where brand cut through exists now. Matter dubs this pricing ‘Augusta’, named after the famously low-priced concessions at the U.S. Masters golf tournament in Augusta, Georgia — where a cheese sandwich costs just $1.50.
Focusing on the Customers You Know
For all brands, scaled or otherwise, CRM, after-sale engagement and community connection will be critical. Get creative, get specific and get pro-active.
The full impact of the pinch has yet to be felt. Sales associates are even more critical cogs in luxury’s machine when optimal inventory management and customer retention are profit lifelines.
Brands should focus on localised activations which directly stimulate footfall into retail locations while avoiding the high-cost and at times low-reward top of funnel marketing activities.
Seeking to generate more revenue from existing clients, even if that comes at lower prices and higher costs, is more efficient and effective in existing market conditions, especially if scaled businesses use this opportunity to acquire even more share of mind.
Surviving ‘Guócháo’ — China’s National Wave
Following its experience of the first Trump term when Beijing was seemingly caught off-guard by Trump’s trade policies, Chinese regulators have been developing legal frameworks to support them in the circumstances the world now faces.
“These include sanctions for following other countries’ sanctions, export restrictions and an “unreliable entities list” (UEL), which, when a company is added to it, can stop its staff from entering the country and block it from doing trade with China,” writes The Economist.
According to a paper by Evan S. Medeiros of Georgetown University and Andrew Polk of Trivium, a consulting firm, these three mechanisms were used 15 times in 2023, but 115 times last year. In the first two and a half months of 2025 alone additions to the UEL and export controls have been deployed around 60 times.
And it is not just the Chinese state that American brands will have to re-establish positive sentiment with. Studies have shown that negative sentiment of China, in the US, is mirrored by the Chinese population’s view of Americans. Unlike neighbouring Asian powers, Japan and South Korea, Chinese soft power largely suffered in the 2000s as a result of geopolitical tensions and policies, as well as racist narratives resurfaced throughout the pandemic. The so-called national wave (guócháo), which drove greater demand for homegrown brands and new interpretations of traditional Chinese design (xīn zhōngshì), gained traction in this context.
The vocal netizens of China, as well as influential state media, will be a challenge for American brands in the country. China has called on Donald Trump to “completely cancel” his tariffs regime, and “return to the right path of mutual respect”. It has pledged to “fight to the end,” though compellingly it has stopped increasing tariffs, confident that the additional costs achieved already will be sufficient enough to destroy consumer demand for U.S. goods.
“We are deeply disappointed by the Trump Administration’s decision to impose new tariffs on all imports. This action will particularly affect American fashion brands and retailers,” the trade group United States Fashion Industry Association said in a statement last week.
Indeed. Fashion stocks immediately plunged in after-hours trading, with Lululemon’s shares dropping over 10%, Nike’s falling 7%, and Tapestry, Capri’s and PVH Corp.’s down around 5%. The declines exceeded a nearly 4% dip in S&P 500 futures.
The only potentially mitigating option available to luxury is empowering local talent, or hiring more, to respond to opportunities and reputational risks that emerge. These strategic decisions should be ‘Made in China’, not Paris, Milan or New York.
The long term risk is grave, China has 5000 years of cultural and craft traditions to elevate and commercialise. Just like Japan before it, which evolved from a “copycat” market into a byword for manufacturing excellence, China has the creativity, culture and craft. Previously, perhaps it lacked the will to create a genuine competitor to European luxury brands. Now, not so much.
Go Golfing
One constant of the Trump administration is its proclivity towards personal relationships. Indeed, inconsistent and impermanent tariffs increase the opportunity for lobbyists.
Reportedly, public record shows that Donald Trump spent $26 million of tax payer money to enable him to play golf in the first 69 days of his term. Luxury executives should join the mercurial president on the fairway.
On Monday 14th of April, when asked about possible exemptions the president shared that he had spoken to Apple’s chief executive, Tim Cook, and “helped” him recently. “I’m a very flexible person. I don’t change my mind, but I’m flexible,” Mr. Trump said.
Bernard Arnault attended the inauguration, his brands have dressed the first lady and first family consistently (perhaps the most, along with Oscar de la Renta) and in the first Trump term the executive opened politically-aligned Texan manufacturing plants with great fanfare.
While Apple’s significance to the American economy and the trade volume between China and the U.S. dwarfs that of the luxury industry, working in concert, the conglomerates could get a seat at a table or time on the phone.
Alternative Markets
Luxury will undoubtedly be considering its investment into alternative markets to the U.S. Tourism, a critical sales driver for the industry, has plummeted since the Trump administration took power, especially from the EU.
Globally, confidence in the ability of the Trump administration to manage the consequences of its policies is diminishing fast. The Economist has outlined the possibility of the end of the dollar-as-reserve currency era and identified the fragility of the U.S. bond market, of which a full third is owned by private entities immune to diplomatic pressure. Any such event would tank global finances. But even positing such a dramatic change to the global financial order is an indication of the depth of the challenges facing the U.S. today.
While the interconnectedness of global trade and financial markets will disseminate financial hardship everywhere, there are existing pockets of opportunity that should be explored.
The Chinese economy, though previously considered weak due to its ongoing property market malaise, has been consistently seeking to better insulate itself from global market shocks by stimulating a consumption economy. Perhaps with mixed results, however, in current circumstances, having committed and rational political will behind such an ambition is no small advantage.
What’s more, intra-Asian tourism has been growing at pace since pandemic restrictions were relaxed. Global Blue data found that in 2024 the Tax Free Spending recovery rate was 204% more than 2019.
Beyond national markets, niche-communities and activities that have a high propensity of price insensitive consumers are also now critically important. As Matter analysed last week, in 2024, skiing attracted 65 million U.S. visitors each year and, perhaps more compelling, 14 million Chinese visitors.