The European luxury market will soon shine brighter 

• Tim Safarov
  Equity Analyst
  Gonet

Enthusiasm around European luxury goods stocks has strengthened in recent months, as the latest quarterly results from several bellwether brands pointed to a stronger-than-expected sequential recovery. Beyond easier comparisons, the improvement was driven by better store traffic, higher conversion rates, and rising average unit retail. Momentum inthe US remained solid, while early signs of recovery in China were confirmed. Jewelry continued to lead category growth, supported by investment-driven purchases and pricing actions that helped offset surging precious-metal costs. Meanwhile, demand for luxury watches may have reached a bottom, as reflected in Richemont’s recent performance.The core leather goods segment — under pressure for nearly two years due to a weaker price-value perception — is finally showing signs of revival across all price points, supported by refreshed assortments, enhanced craftsmanship with limited price increases, and successful new product launches. The beauty category showed more mixed dynamics, with continued strength in fragrances and haircare offset by softness in cosmetics.

Looking ahead, while a few analysts still caution against another false start, the broader consensus now sees the luxury sector entering a more durable recovery phase in 2026, with expectations of a return to low single-digit percentage growth. The rebound should be supported by healthier year-on-year comparisons after two years of below-trend performance; a positive wealth and confidence effect as geopolitical and trade tensions ease; renewed creative energy driven by recent designer appointments, reigniting consumer enthusiasm; and the gradual return of both Western “aspirational” buyers and Chinese shoppers to luxury spending.

European luxury brands’ annual growth (%)

 

The importance of aspirational customers 

For many years, luxury industry experts have argued that producers should focus squarely on the very small percentage of customers who generate a disproportionately large share of industry revenue. This has meant pushing super-premiumgoods priced as high as possible to capture maximum value from utterly price-insensitive clients, while treating the“aspirational” customer — who has to stretch for something special — as a brand-tainting threat. That is classic management-consultant/activist-investor advice, but like many classics of that genre, it may be a poor long-term strategy. Aspirational purchases build brand loyalty among younger consumers, and the very top-end customer can be fickle.

Over the past thirty years, much of the industry’s expansion has come from a swelling middle class who bought Louis Vuitton handbags and Rolex watches in an attempt to keep up with the super-wealthy. Today, around 55% of globalluxury sales by value come from shoppers who spend up to $2,300 a year on high-end goods, according to estimates from the Boston Consulting Group. This helps explain the industry’s downturn over the past couple of years: spending by top clients has not been enough to offset the pullback among aspirational customers. According to the latest Bain &Altagamma study, the number of luxury consumers has fallen from 400 million in 2022 to around 340 million in 2025. Between 2024 and 2025, new customer acquisition for luxury brands declined by 5%.

Moreover, spending patterns within the luxury market are fragmenting, with buyers making fewer purchases and favoring smaller indulgences and markdown channels. This explains why growth has been difficult for some established luxury houses. Yet not all of the industry has suffered: in the wake of the pricing vacuum, several smaller independent brands have gained in popularity and traction. Their success reflects the rather obvious reality that most consumers do not haveinfinite bank accounts.

The K-shaped economy: A framework, not an exact science

At the same time, one of the reasons to own the big luxury houses today is to gain exposure to the ‘K-shaped’economy seen in many developed countries. Conceptually, it describes an environment in which purchases fromaffluent shoppers shoot up like the upper arm of the K, even as purchases from lower-income consumers droop like the lower arm.

It is true that the share of wealth held by the very rich is high and rising, largely because of the financial assets they own. In the US, for example, households earning over $250,000 a year represent only 9% of all house- holds yet hold 68% ofthe stock market, according to New York University. Even after the 20% pullback in April, the S&P 500 is up about 16% this year, creating roughly $8 trillion in additional stock-market wealth. Those who are already affluent are thereforebenefiting the most. By contrast, households earning less than $100,000 a year own just 10% of the stock market despite accounting for two-thirds of US households.

However, the wealthy do not necessarily consume the incremental wealth they accumulate, because they already havemost of what they need. Instead, they tend to reinvest it, reflecting the broader pattern in which high-income householdssave far more than they spend – a dynamic sometimes described as a savings glut at the top, which ultimately channels more capital into financial markets and lifts asset values.

This dynamic is visible in US personal spending data by income group in recent years. While spending by the top 20% rose significantly in 2023 as the S&P 500 gained 20%, it actually declined in 2024 even though the index surged another31%. Nevertheless, 2026 may bring fresh fuel to affluent households’ spending engines. President Donald Trump’s One Big Beautiful Bill includes a series of tax breaks and new deductions that could deliver a notable windfall for high-income earners come tax season, potentially bolstering their propensity to spend.

Nominal cumulative growth in US personal spending by income tier (%)

How to invest in 2026

Over the past few years, Hermès and Ferrari have been among the best-performing pure-play luxury stocks, supported by supply-constrained business models and strong appeal among the ultra-wealthy — features that made them effectivedefensive plays during the sector’s cyclical downturn. However, their relative valuations have become less compellingahead of a broader sector recovery, especially compared with LVMH, which is expected to deliver a higher cumulative annual growth rate over the next three years. The group appears among the best positioned for a growth re-acceleration primarily driven by volumes rather than pricing. Price increases were significant in 2025 (2–4% tariff-related and 2–3%inflation-related) but generally absorbed by consumers. Yet tolerance for further hikes is diminishing, making volumenormalisation — particularly in Asia and travel retail, where LVMH has a strong footprint — the key driver of revenue andoperating-leverage recovery. Louis Vuitton illustrates this particularly well. Its tightly controlled distribution, premium store locations, and scale create disproportionate operating leverage relative to other brands, meaning that even modest volume normalisation can materially lift profitability. In addition, LVMH spends around €10 billion per year on marketing — more than the total revenue of many competitors — providing unmatched financial firepower. A recent example is “The Louis,” the brand’s new boat-shaped concept store and exhibition space in Shanghai. With pricing power now muted across the sector, brand heat and visibility become the primary differentiators of volume recapture.

Alternatively, if one wants more leveraged exposure to the rich-get-richer trade and expects continued pressure on themiddle class — whether from persistent inflation or potential white-collar job losses to AI — Richemont stands out. Jewelry remains the first choice of ultra-wealthy households, particularly in the United States. The group has grown sales in the Americas by more than 10% year-on-year for seven consecutive quarters, and more recently closer to 20%,significantly outperforming the broader luxury sector. Even with an expected normalisation, consensus still anticipates around 14% sales growth in 2026. The caveat is that US jewelry demand is increasingly tied to financial-market performance, reflecting the wealth effect highlighted earlier. If a bubble forms and subsequently bursts, the shine couldfade quickly. At the same time, jewelry has also become more appealing to aspirational customers, who view it as emotionally meaningful, backed by intrinsic worth through precious metals and gemstones, and offering better value formoney than, for example, handbags. In fact, price discipline in jewelry has been stronger. Cartier’s Love bracelet prices have risen about 4% per year since 2020, compared with roughly 11% for Chanel’s Classic Flap Bag and more than 8% for the Lady Dior, according to Bernstein research. From a longer-term perspective, jewelry is broadly seen as astructurally faster-growing category than soft luxury. Most of the global jewelry market remains unbranded, dominated by local family-owned ateliers and small regional players. Branded houses such as Cartier and Van Cleef & Arpels are still in the early stages of market-share capture. As branding gradually expands, standard discretionary purchases become premium, high-margin global luxury goods.

The key takeaway is that while 2026 may mark a year of stabilisation for the luxury sector, the rising tide may not lift allboats equally. What is clear is that consumers have become more discerning, suggesting that polarisation across brands and categories is likely to remain elevated.