Market Analysis

Hermes Shifts U.S. Tariff Burden to Wealthy Shoppers Amid Slower Sales Growth

Mellissa · 17 Apr44.1K Views

Image Credit: Reuters

France's Hermes has announced it will fully shift the burden of U.S. tariffs to its affluent clientele, the company revealed on Thursday, as it reported first-quarter sales that slightly fell short of market expectations in an unusual display of weakness.

While Hermes' first-quarter sales were impacted by a prolonged slowdown in China, they still outperformed many competitors. Earlier this week, LVMH, a key industry player, reported a 5% sales drop in its crucial fashion and leather division, allowing Hermes to reclaim its position as the most valuable luxury brand by market capitalization.

To navigate the impact of the U.S. trade war and President Trump's tariffs, Hermes is leveraging its pricing power as an exclusive luxury brand. The company plans to add a premium to all its products sold in the U.S. starting May 1, effectively offsetting the new duties. This will be in addition to regular price increases of about 6%-7% implemented this year.

Hermes, known for its high-end Kelly and Birkin handbags, which retail for at least $10,000, reported sales of 4.1 billion euros ($4.66 billion) for the three months ending in March. This marked a 7% increase on a constant currency basis but was below the 9.8% year-on-year growth expected by analysts, according to a VisibleAlpha consensus estimate cited by HSBC. JP Morgan analysts described the performance as below Hermes' usual standards, and shares dropped around 1.9%, recovering from earlier declines in Paris trading.

The company, maintaining a tight control over production levels, continues to increase output by 6%-7% annually, helping preserve the exclusive image of its leather goods. This strategy has made the brand resilient during economic downturns, although it can limit growth.

Hermes' finance chief, Eric du Halgouet, stated that there has yet to be any significant shift in consumer behavior in the U.S., where the company still sees double-digit growth. However, he acknowledged caution due to the geopolitical uncertainty that has led to significant volatility in financial markets.

While the luxury sector has been relying on wealthy Americans to revive growth, the situation has become more uncertain following Trump's April tariff announcements, which caused stock markets and the dollar to plummet. The proposed tariffs could impose a 20% duty on European fashion and leather goods and a 31% charge on Swiss-made watches. Last week, Trump paused most of these tariffs for 90 days and set a general 10% duty rate instead.

Regarding China, another major market, du Halgouet noted that while the country is facing a real estate crisis, government efforts to boost spending were encouraging.

In Europe, Hermes' sales were boosted by American tourists taking advantage of a strong dollar earlier this year, with growth of 13.3%. However, du Halgouet cautioned that this positive trend might not last, given the recent weakening of the dollar.

In other parts of the luxury sector, Italian outerwear brand Moncler reported a stronger-than-expected 1% increase in revenue for the first quarter, driven by direct-to-consumer sales and demand from Asia, while cashmere brand Brunello Cucinelli posted growth figures in line with analyst expectations.