The luxury market in 2025 faces unprecedented challenges due to the Trump administration’s new tariff policies. Luxury brands, already struggling in a tough market, now encounter additional hurdles that threaten to deepen their woes.
Luxury automobiles, which saw a 5% decline to $641 billion last year, are preparing for further turbulence. Similarly, the personal luxury goods sector, which dropped 2% to $402 billion in 2024, faces an even steeper decline if the proposed tariffs take effect.
Globalization, which previously fueled growth in the luxury market post the Great Recession, is now on the decline. As foreign leaders negotiate with the U.S., the fate of luxury brands hangs in the balance.
The Americas, particularly the U.S., play a significant role in the global luxury market, accounting for a 28% share. American consumers are pivotal in driving the fortunes of luxury brands, with Europe closely following with a 30% share. On the supply side, the EU dominates as the largest supplier of luxury goods worldwide.
Italy, a major player in the luxury market, already feels the impact of economic changes. With fashion being Italy’s second-largest industry, a 5% decline to $106 billion was noted in 2024. Italian luxury brands heavily rely on exports, with a significant portion of their revenue coming from the Americas.
France, a key exporter of luxury goods to the U.S., faces challenges with the new tariffs. LVMH and Hermès, two prominent luxury brands, are strategizing to mitigate the potential impact on their sales and pricing.
The U.K., with a $105 billion luxury goods sector, heavily depends on exports, especially to the U.S. Tariffs on luxury goods, like Scotch whisky, have previously hurt the British luxury industry, raising concerns about a looming transatlantic trade war.
As the tariff situation evolves, consumer sentiment becomes crucial for the luxury market’s future. Luxury brands have seen a decline in customer satisfaction and trust, with a drop in net-promoter-score and customer base noted in recent years. The uncertainty surrounding tariffs and the global economy could further deter consumers from luxury purchases.
Consumer psychology plays a significant role in luxury spending. Rising prices, inflation, and economic uncertainty influence consumer sentiment, even among high-net-worth individuals. Luxury purchases are more than transactions; they symbolize personal identity and self-worth, making them sensitive to economic fluctuations.
Luxury demand often serves as a precursor to economic downturns, with affluent consumers closely monitoring economic trends. Half of high-net-worth consumers anticipate a recession within the next twelve months, reflecting concerns about the impact of tariff policies on the economy.
The luxury market’s future remains uncertain as consumers delay purchases, leading to a potential downturn in luxury fashion, accessories, jewelry, and other high-end purchases. Luxury brands face unprecedented challenges in 2025, emphasizing the importance of consumer psychology and economic stability in shaping the luxury market’s trajectory.