The news: Prada is nearing a deal to acquire Versace, per Italian media reports—even as tariffs add further upheaval to an already shaky luxury market.

Much has changed: The deal looks very different in the harsh light of the post-tariff environment. Not only are the new duties a serious headwind for luxury brands, but the possibility of a US (or global) recession is set to shift attention back to quiet luxury, just as companies were banking on the opposite.

• A renewed interest in minimalist clothes might work in Prada’s namesake brand’s favor, but it could tank Versace’s already pressured sales.
• That could explain why Versace’s asking price has reportedly been slashed by one-third to €1 billion ($1.08 billion).

An uncertain outlook: President Donald Trump’s tariffs are a considerable threat to luxury fashion—as they are to virtually every industry.

• Like the broader apparel sector, most luxury goods are imported from other markets, like the European Union, the United Kingdom, and Switzerland—which face tariffs of 20%, 10%, and 31%, respectively.
• Shoppers will be stuck with at least some of those costs: UBS expects European luxury goods to cost 6% more, on average, as a result of the tariffs.
• The toxic combination of rising prices, plummeting consumer confidence, and stock market sell-offs will make luxury consumption less appealing even to wealthier consumers, who may choose to stow their cash cannon as their net worths drop.

That will deal a considerable blow to luxury brands, which have become increasingly reliant on US consumers to make up the shortfall as Chinese shoppers pull back on expensive purchases. There is also the possibility that a drawn-out trade war will further curb Chinese consumption, creating an even more difficult operating environment for luxury brands.

Our take: Not all luxury brands will suffer from tariffs; the top end, consisting of quiet luxury staples like Hermès, Brunello Cucinelli, and Prada, will continue to thrive thanks to steady spending from the ultra-wealthy. Likewise, brands like Louis Vuitton that have ramped up their US manufacturing will face less disruption.

But companies like Kering and Richemont, alongside brands like Burberry, will find it much harder to make their case to shoppers.

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