(Bloomberg Gadfly)—When it comes to luxury retail, the American dream is turning into a nightmare.

The latest reporting season has exposed a fissure between U.S. high-end names and their European counterparts.

That’s been reflected in share prices. The Bloomberg Intelligence European Luxury Index, which traded at a discount to the Bloomberg Intelligence U.S. Luxury Index for most of 2016, has now pushed ahead.

There are several reasons for the dislocation.

First, the strong dollar is putting some tourists off visiting the U.S., stripping American luxury brands of a much-relied upon cohort. Instead of a trip stateside, shoppers are heading to Europe, including the U.K., where they can get more Prada bags and Louis Vuitton wallets thanks to a weaker sterling.

Department stores such as Neiman Marcus Group Inc., No. 36 the Internet Retailer 2016 Top 500 Guide,  Nordstrom Inc. (No. 18) and Macy’s Inc. (No. 6)—places shoppers once turned to for upmarket shoes and purses—are struggling to attract customers who’d rather shop online or directly with the likes of Ralph Lauren Corp. (No. 53) and Kate Spade & Co. (No. 140).

While luxury brands are trying to increase their e-commerce and diversify away from department stores, sales through that channel still make up a meaningful portion of their businesses. For Ralph Lauren, wholesale sales comprise 44% of revenue. It’s also hard to wean customers off an addiction to department-store discounts, as Coach Inc. (No. 163) and Michael Kors Holdings Ltd. (No. 375) have found.

There are some company-specific factors coming into play too.

Tiffany & Co.’s CEO Frederic Cumenal resigned last week after failing to reinvigorate the high-end jeweler, which has fallen out of favor with millennial shoppers looking for trendier styles. The company’s Fifth Avenue flagship store, which represents roughly 10% of sales, has also been hit by depressed traffic due to its proximity to President Donald Trump’s private residence. Tiffany is No. 127 in

Ralph Lauren boss Stefan Larsson will also exit in May after he couldn’t agree with the creative vision of the eponymous fashion brand’s founder on how to jump start the flagging firm. And Michael Kors is grappling with an over-exposed brand, whose desirability in the eyes of consumers is waning.

It all goes to underline the shortcomings of U.S. brands that will need fundamental, and time consuming overhauls.

That’s not to say there isn’t distress in Europe: Burberry’s sales have been boosted by the pound’s drop but that hasn’t helped reinvigorate its brand. Swiss watch groups Cie Financiere Richemont SA and The Swatch Group AG are also suffering from weak demand. But, even at Europe’s weakest brands, there are signs the worst might be over.

For one, the laggards are catching up. Prada SpA, knocked hard by the slowdown in China, said sales rose in January for the first time in more than a year. Prada also plans to double e-commerce sales in each of the next three years. Germany’s Hugo Boss AG, which last year parted company with its chief executive after a bad profit warning, now expects 2016 operating income to be at the upper end of expectations.

A revamped Gucci, meanwhile, has turbocharged Kering SA (No. 147 in the Internet Retailer 2016 Europe 500), whose stable also includes Bottega Veneta and Christopher Kane, while European power brands LVMH Moet Hennessy Louis Vuitton SE (No. 46 in the Europe 500) and Hermes International are motoring along quite nicely.

Some factors on the horizon could even things out a little.

Tax cuts for the wealthy from President Trump may boost U.S. demand for designer clothes and watches once more. An ever-rising stock market, which makes rich people feel richer, could also help stoke demand.

European luxury goods groups that sell in the U.S but make their products outside the country—as most do—could also be impacted by a U.S. border tax. (It’s little wonder LVMH CEO Bernard Arnault told Trump he wanted to make more products in America.)

And the divide could be bridged in another way: M&A.

Coach has made several informal takeover approaches to Burberry, according to the Financial Times, while Michael Kors and Tiffany have been mooted as takeover targets. Shares in Kate Spade rose the most in seven weeks on Tuesday after a report that said the handbag maker was awaiting first-round bids from would-be acquirers.

Michael Kors has been linked with a bid from LVMH, but, as Gadfly has argued, it’s hard to see what the group would want with a name that’s lost its luster. Anything Kors does, the Louis Vuitton brand could do better. And LVMH’s purchase of Donna Karan International Inc. didn’t work out so well either. It sold the business last year.

It is possible U.S. brands could attract European suitors with stronger performances and higher valuations. Should that transpire, this transatlantic dichotomy could prove short-lived. If not, expect the luxury gulf to widen.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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