Trade War Blues

The story: The fashion industry isn’t waiting to see whether Trump and Xi Jinping can strike a deal. Ports on both sides of the Pacific are quieter than usual as retailers halt or reroute shipments.

Price hikes are here: Hermés says it will pass along the full cost of tariffs to US consumers starting this week (and eagle-eye luxury watchers noted Louis Vuitton already has). Shein and Temu hiked prices on April 25. Tariffs present a test for brands high and low – luxury labels will test pricing power as even wealthy consumers are hit by stock market declines and bond market turmoil. Mass brands fear consumers will cut apparel purchases as they reduce spending.

Some tactics brands are using to soften the blow of price hikes:

  • Turning price increases into a cause, via “Trump tariff” line items on receipts
  • Portraying price hikes as a last resort after exhausting efforts to lower costs
  • Selling more premium products to match higher price points
  • Quietly raising prices and hoping nobody notices

What comes next: Brands will need to balance signals from the Trump administration and ordinary consumers. The latter sound increasingly distressed. Below are some key dates to watch for assessing tariffs’ impact.

April 29 – Conference Board April consumer confidence reading

May 2 – US unemployment data for April

May 7 – Federal Reserve interest rate decision

May 13 – April consumer price index

A long road ahead: Many brands have raised prices. But few are radically altering their supply chains, a sign the industry is banking on – or at least hoping for – a quick normalisation of US-China trade ties.

Luxury’s Changing of the Guard

The story: For a brief window in mid-April, Hermés was the world’s most valuable luxury company. LVMH has regained the top spot, but the two are neck and neck, with both hovering around $280 billion.

The rich get richer: It bears repeating – a single brand is now worth more than a conglomerate that owns 75 brands, including some of the biggest names in luxury, beauty and spirits.

This reflects a sea change in where investors see luxury’s future. Until recently, the winning strategy was to simultaneously court both aspirational and ultra-wealthy customers with a growing array of products sold at rapidly escalating prices.

But only the latter group have continued to increase spending. The most successful brands are those, like Hermés and Brunello Cucinelli, that have always catered to this crowd. Many of their competitors are perceived as having raised prices without upgrading their product. As the economic tide goes out, we’re discovering who falls in which camp.

Shuffling designers or deck chairs?: Big brands are starting to address quality and creative issues. At LVMH, porting Jonathan Anderson over from Loewe to Dior should bring some heat to a brand that saw sales fall over 5 percent in the first quarter. Demna’s transition from Balenciaga to Gucci has met more scepticism, though with sales plunging 25 percent in the first quarter there may be nowhere to go but up.

The glacial pace of these transitions clearly has investors nervous (this isn’t necessarily an issue for family-controlled LVMH and Kering, which operates on a different time horizon than the market). Prada’s acquisition of Versace offers the tantalising promise of a top-to-bottom renovation at a beloved luxury name, though doing so in the middle of a sector-wide slump will be a challenge.

Nothing lasts forever: Brands may be tempted to write off aspirational shoppers, but they’ll return as soon as the economy stabilises. Perhaps the next great luxury success story will be written by a brand that figures out how to win the marginal customer back.

Blowing Up the Online Ad Market

The story: When US Federal Trade Commission chair and antitrust crusader Lina Khan resigned at the start of the Trump administration, many thought it was lights out on government efforts to break up big tech. This month we learned otherwise:

  • April 14 – The FTC’s antitrust case against Meta began. A government victory could see the breakup of Facebook, Instagram and Whatsapp.
  • April 17 – A federal judge ruled Google had illegally monopolised online advertising technology.
  • April 21 – A second federal judge began a three-week hearing that could see the company spin off its popular Chrome browser.

No love lost: The general trajectory of online marketing was that it was gradually becoming more expensive and less effective. This trend accelerated after Apple introduced privacy settings in 2021 making it harder to target individual consumers, and then as Shein and Temu piled in, ensuring many users would see their dupes first.

Alternative revenue streams: Splitting these companies up might force them to offer advertisers more favourable terms, but would also make it more complicated to reach consumers. Brands may complain about Meta and Google, but having a one-stop shop for clicks and customer data has its perks.

One reason the government may have a difficult time making its case is that where and how consumers and brands interact is constantly changing. TikTok broke Instagram’s dominance, and AI is disrupting search. On a smaller scale, influencers are evolving from brand mouthpieces to brand founders who depend less on any one platform, and from data generators to data gatekeepers.

Fashion Tech’s False Starts

The story: The implosion of CaaStle, which ran clothing rental services for many brands, overshadowed the fact that the whole concept was already on its way out.

Failed experiment: Setting aside fraud allegations against CaaStle’s founder, the bigger problem was that it is punishingly hard to make money renting out clothes. Not enough consumers were enamoured with the “endless closet” to justify the hassle.

Fad to fad: The industry never met a tech fad it couldn’t slap a logo onto. Most don’t make it out of the pilot stage. For every Klarna or Shopify, there are a dozen blockchain experiments, virtual try-on services and 3D printing labs that quietly get shelved after a few buggy months.

The stakes are higher when it comes to sustainability: Here are plenty of examples of good intentions getting ahead of the technology. But there are also brands that hop onto projects that will never exist outside a press release. Textile recycling, for example, is a promising concept suffering from sky-high expectations. Many brands, including H&M, Zara and Puma, say they want to make their clothes from reprocessed fashion waste by the end of the decade, but the supply chain to do this at scale has yet to be built.

Not dead yet: Any Silicon Valley investor will tell you the best strategy isn’t to bet everything on one world-changing start-up, but to back a dozen and hope one winner makes up for the 11 losers. We are seeing this process play out with AI, which is being adopted for everything from customer service chatbots to models. Even rental lives on; Urban Outfitters’ Nuuly just turned its first annual profit.

Footwear’s Generational Shift

The story: The footwear category is going through several era-defining transitions at once. The surprising staying power of the ballet flat may be the nail in the stiletto heel’s coffin. Luxury sneaker sales are in freefall, with US sales dropping from $1.1 billion in 2022 to $700 million last year.

What hath Miu Miu wrought: Miu Miu didn’t invent ballet flats, but the brand’s Autumn/Winter 2022 runway supercharged a trend towards minimalist high-end footwear that shows no signs of slowing. To cite two data points, even Christian Louboutin, best known for his red-soled high heels, added 38 percent more ballet flat styles last year, according to Edited. And Louis Vuitton just introduced a “Sneakerina” style merging – you guessed it — ballet flats with sneakers to sit alongside its Virgil Abloh-designed LV Trainers.

Room for everyone: Both high heels and chunky sneakers remain popular (the newly opened Printemps in lower Manhattan has plenty of Manohlo Blahnik heels on its shoe floor). It can take years for a trend to fully play out – we all remember how skinny jeans were declared dead, alive and dead again for years before wider silhouettes truly took over the denim category.

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