How Trump’s trade war is impacting the luxury market

The luxury market is facing a new challenge as the threat of tariffs looms large, impacting major players like French luxury group Hermes and sector bellwether LVMH. Hermes, renowned for its iconic Birkin Bag, has announced plans to pass on any tariffs imposed by the United States to its wealthy clientele. Despite reporting a 7 per cent rise in sales in constant currency in the first quarter, the figure fell short of market expectations. On the other hand, LVMH reported first quarter earnings below expectations. Michael Zahariev, Co-Founder of Luxity, shed light on the potential impact of tariffs on the luxury industry and the pre-owned market in South Africa in a recent interview on CNBC Africa. Zahariev indicated that the luxury market's resilience in the face of tariffs may vary depending on the brand and target market. While Hermes targets an ultra-affluent clientele and has strategically limited supply growth to 6-7 per cent annually, LVMH has faced challenges in its aspirational market. The interview highlighted how the pre-owned market is expected to benefit from tariff-induced price inconsistencies between new and pre-owned luxury goods. As demand for pre-owned luxury items rises, driven by pricing differentials caused by tariffs and currency fluctuations, prices in the pre-owned market are likely to increase. Ultimately, the tariff situation may create an investment opportunity for owners of luxury items looking to sell in the pre-owned market. Despite rumors regarding the manufacturing origins of luxury goods, Zahariev clarified that brands like Hermes prioritize manufacturing in countries like France, debunking misconceptions about reliance on Chinese production. Zahariev also addressed concerns about pricing in the event of sustained tariffs, explaining how pricing dynamics in the luxury market, influenced by currency fluctuations and tariffs, are expected to impact both new and pre-owned pricing. In markets like South Africa, currency fluctuations play a significant role in pricing shifts. Overall, the interview underscored the potential implications of tariffs on the luxury market and the opportunities that may arise in the pre-owned sector as a result.