“Setback by 50 years” - European fashion industry reacts to impending “Greenland tariffs”

As if the European fashion industry did not have enough on its plate already in view of rapid geopolitical shifts, impending regulation and environmental unpredictability, US president Donald Trump added to its woes this weekend: Eight countries supporting Greenland’s sovereignty - Denmark, Finland, France, Germany, the Netherlands, Norway, Sweden and UK - are facing an additional 10 percent tariff on “any and all goods” from 1st February, to be raised to 25 percent on 1st June.

The fashion industry has reacted with a mix of alarm and strategic exhaustion. While some executives are simply waiting for another TACO moment (Trump Always Chickens Out) and a subsequent U-turn, others are hoping for a favourable ruling from the US Supreme Court on the tariff’s legality. Retailers have warned of an immediate 10 to 15 percent price hike on European imports like French leather, Italian silk or British wool.

Industry voices between ‘wait and watch’ and worry

“While luxury giants may be able to overcome another seismic shift, there is a fear that smaller independent designers will not survive... Aspirational shoppers are expected to be priced out,” commented Helen Brocklebank, CEO of the UK’s official body for luxury goods, Walpole, according to The Guardian.

“These tariffs will be yet another burden for businesses across our country... The use of tariffs against allies is completely wrong,” stated UK Prime Minister Keir Starmer when asked about the sentiment of British heritage brands and the UK’s luxury sector according to Yahoo News.

“European designers could end up selling mostly in Europe; American designers could sell mostly in America. This could set the industry back 50 years,” said industry analyst and CEO of Tomorrow London Limited Stefano Martinetto when commenting on the potential for a complete breakdown of transatlantic fashion trade according to The Guardian.

How are luxury groups adjusting?

Luxury giant LVMH is taking a cautious, multi-tiered approach due to its 23 percent revenue exposure to the US market. According to analysts from Morgan Stanley, while LVMH usually has high pricing power, the luxury conglomerate that is home to brands such as Louis Vuitton, Christian Dior, Fendi, Bulgari and others can only partially offset these tariffs. In line with the fear voiced by Brocklebank, there is a risk of squeezing middle-income (aspirational) consumers who have already been hit by the inflation.

Throughout January, LVMH has been rushing shipments of leather goods and perfumes to US warehouses to beat the deadline of 1st February. Experts suggest there could be selective price hikes of 8 to 12 percent on core items like the Louis Vuitton Speedy or Dior Lady Bag toward the end of the first quarter.

French luxury group Kering, owner of brands like Gucci, Yves Saint Laurent, Balenciaga, Bottega Veneta and others, is in a more vulnerable position as it works to turnaround the Gucci brand. Unlike LVMH, Kering is more likely to absorb a portion of the tariff cost rather than passing 100 percent of it to the consumer, fearing that a price spike could stall Gucci's recovery.

The luxury giant is reportedly looking at harmonising global prices — raising prices in Europe and Asia slightly while keeping US increases moderate — to discourage US tourists from doing all their shopping in European metropolises to avoid tariff-inflated domestic prices.

French luxury brand Hermès has signalled that it would likely pass the full cost of the tariffs directly to its US clientele, thus banking on ultra-high-net-worth individuals who are on waitlists for Kelly and Birkin bags to accept a 10 to 25 percent “Greenland Surcharge.”

Many CEOs of luxury brands are currently at the World Economic Forum in Davos, attempting to lobby for a “Luxury Exemption” similar to those granted in previous trade disputes. However, if no deal is reached by 1st February, the first wave of price increases would likely appear on US e-commerce sites by mid-month.

What does this mean for US brands?

In view of the European Union currently favouring a “tit-for-tat” escalation and moving away from its usual diplomatic restraint, a subsequent “Trade Bazooka” could mean the EU retaliating with a package of measures targeting US-made clothing and denim and thus iconic American brands such as Nike, Ralph Lauren, Levi Strauss and others.

If implemented, US brands could see their European retail prices rise by 15 to 20 percent almost overnight. This would likely lead to a re-routing strategy, where they attempt to ship goods through non-targeted EU countries like Spain or Italy.