Trade War a Looming Threat to Luxury Fashion?

“The Trump government unveils a trade war against China!”

“What’s at stake in the US-China Trade war?”

Such headlines are out in the open everywhere and anywhere. However, a general viewpoint is trade wars are related to import and export of cars, steel and services. What we forget is that fashion industry is a pivotal part of an economy. And change in tariffs across nations affects it. At times, even fashion industry gets a taste of the bitter medicine!

Feeling muddled up? Don’t worry, let’s break it down for you! The trade wars have caused a hike in tariffs for consumers for pricey handbags to designer shoes. This threatens the consumers’ spending power. An escalating trade war between the United States and China could abruptly end a glittering stock market run for luxury goods firms, with some investors already put off by lofty valuations in a sector powered by shoppers in the two countries.

The possible trickle-down effects of tit-for-tat tariffs hikes on consumers is adding to jitters over heady valuations, even though not directly. Market nerves around the sector are becoming more evident, and luxury companies and industry lobbies are on alert.

Experts are of the view that there’s an incremental risk from the great unknown of trade tariffs as well. The worse affected are included Italy’s Salvatore Ferragamo and Britain’s Burberry. Additionally, Gucci and Louis Vuitton are also in the midst of turnaround plans that have yet to fully hit their stride.

Also, let’s talk about numbers. Goods in the sector are already subject on average to 12% trade tariffs and are unlikely to be targeted for increases. The knock-on effect on revenues has been muted.

On the other hand, some may argue that global luxury sales are driven by a young clientele unafraid of splurging on branded goods. Additionally, the world’s wealthiest shoppers might shrug off any impact from tariffs were it to come to that. These people are less price-sensitive to taxes.

The extent of the economic damage will depend on how far both sides go. If the United States and China cool off after a first round of tariffs, the impact on their economies will be modest, according to Bloomberg Economics. Under a full-blown trade war in which the United States slaps 10% tariffs on all other countries and they respond, the economists reckon U.S. growth would slow by 0.8 percentage point by 2020.

This is not the first demand-driven wobble the luxury industry is facing. It has encountered a few in the past as well. The tariffs could jeopardize an upswing but Krown Kouture experts feel that the triviality of the price-sensitive customer of luxury goods is significant. The customers are loyal to their brands. Some might be hit by the bubble but eventually the bubble bursts!