Behind the gloss, a quieter reality is emerging. The luxury sector is in a cyclical slowdown, with earnings slipping even among its most celebrated names.
In 9MFY2025 ended Sept 30, luxury bellwether Louis Vuitton Moët Hennessy (LVMH) saw a 4.3% decline in total revenue to EUR58.1 billion ($87.5 billion) from EUR60.8 billion a year ago, with revenue declining across all segments — wine and spirits; fashion and leather goods; perfume and cosmetics; watches and jewellery; and selective retailing.
In 3QFY2025, revenue grew 1% organically, based on a constant consolidation scope and currency effects. This marks a recovery from two consecutive years of decline, which supported some growth in its share price. As of Nov 18, shares in LVMH are trading at EUR611.30, representing a 3.8% decline year to date.
Despite the 9MFY2025 decline, the group remains optimistic about a third-quarter improvement. “LVMH showed good resilience and maintained its powerful innovative momentum despite a disrupted geopolitical and economic environment,” the company said in its results commentary.
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“In an uncertain economic and geopolitical environment, the group remains confident and will maintain a strategy focused on continuously enhancing the desirability of its brands, drawing on the authenticity and quality of its products, excellence in retail and agile organisation,” says LVMH.
Meanwhile, peers such as Kering — the owner of brands including Gucci, Saint Laurent, Balenciaga and Bottega Veneta — remain under pressure, with revenue coming in at EUR3.4 billion, down 5% y-o-y, but beating analysts’ expectations for a 9.6% decline.
This quarter, Gucci sales declined by 14% y-o-y, representing the brand’s seventh consecutive quarterly double-digit decline. Gucci accounts for more than half of Kering’s overall profit, and after over two years of decline, Kering reports that some improvement has been seen in key markets, such as China. Despite the lacklustre results, things are looking up for Kering, with a recent share price rally following Luca De Meo’s arrival as group CEO in early September. As of Nov 18, shares in Kering have increased by 30% this year to EUR309.80.
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“Kering’s third-quarter performance, while representing a clear sequential improvement, remains far below that of the market. This reinforces my determination to work on all dimensions of the business to return our houses and the group to the prominence they deserve. We are working relentlessly on our turnaround, as shown by our recent decisions,” says de Meo in the group’s results release.
On Oct 21, Kering announced that it will be selling its beauty business to L’Oreal for EUR4 billion. As part of the deal, L’Oreal would acquire Kering’s fragrance line Creed and receive exclusive rights to develop fragrance and beauty products for 50 years under Kering’s fashion labels, including Bottega Veneta and Balenciaga. Kering Beauty will be L’Oreal’s largest acquisition to date, bigger than its purchase of Australian brand Aesop for US$2.5 billion in 2023.
This sale is Kering’s attempt to reduce its net debt, which stood at EUR9.5 billion as at June 30. Long-term lease liabilities totalled EUR6 billion. De Meo plans to rationalise and reorganise to reduce debt. The group’s eyewear business may be up next to be divested.
On the other hand, Richemont, which owns brands such as Cartier, Van Cleef & Arpels, Jaeger-LeCoultre, Montblanc and Chloé, is seeing some positive growth. Revenue for its 2QFY2025 ended September gained 14% y-o-y at constant exchange rates to EUR5.21 billion, beating consensus estimates of a 7% increase. This positive momentum was driven by improved demand in China and a robust North American market, which helped offset higher gold prices and costs resulting from US tariffs.
In the group’s results release, Richemont chairman Johann Rupert says: “Looking ahead, it is evident that we will need to continue navigating through uncertain times, given that recovery paths remain unsteady, for instance in China, and that external pressures show no sign of abating.”
Weathering through the cycle
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Luxury has always moved in waves. Morningstar data show that personal luxury has grown at about 6% per year since 1996, roughly double the global real GDP growth rate, but with repeated periods of sharp slowdown followed by recovery. Previous downturns typically lasted around two years before demand rebounded, and the current retrenchment fits that historical pattern.
The roots of today’s weakness lie in the post-pandemic boom. “After the Covid pandemic in 2020, there was a period of overspending from 2021 to 2023 where consumers shopped again and indulged despite elevated prices,” says Caroline Reyl, head of premium brands at Pictet Asset Management. “A normalisation started to take effect in the second half of 2023 with a slowdown in luxury demand evidenced globally.” She notes that inflation, high interest rates and softer confidence in China have driven a cyclical downturn, with most brands posting weaker sales through 2024 and into 2025, led by middle to high-income consumers whose purchasing power has been squeezed.
Morningstar has a similar view on the industry. “We view this slowdown as cyclical rather than structural, as long-term demand drivers and brand strength remain intact,” writes senior equity analyst Jelena Sokolova, pointing to enduring brand appeal, high entry barriers and concentrated market share among global groups.
Regionally, the picture looks more like a comedown from unsustainable highs than a collapse. In the US, Morningstar argues that the recent slowdown “appears more a function of normalisation than structural weakness”, following the pandemic-era splurge funded by excess savings and stimulus cheques.
China’s story is similar, although it begins from a different point. Luxury spending remains below pre-pandemic levels, but high household savings and a shaky property market are affecting consumer confidence. Morningstar anticipates that stabilisation in property prices and incremental policy support will unlock part of that pent-up demand over the next few years.
Jonathan Pines, head of Asia ex-Japan at Federated Hermès, also views the slowdown as cyclical. He cites the US luxury sector, which was hit by the Global Financial Crisis in 2008, before rebounding. “Even though we’ve been seeing deflation in China and this apparent desire for consumers to hold back… It’s a cycle to come back,” he says, adding that it is “human nature” to want to spend and acquire luxury goods.
“We’re not sure when it will come back, but when you’ve got an opportunity to buy stocks cheaply… You can afford to wait a little,” says Pines.
Sai Tunuguntla, partner and managing director at AlixPartners, notes that China and the US together account for roughly 40% to 50% of the luxury market today and that China alone could drive up to 40% of the market by 2030, suggesting that brands will remain anchored to these demand centres.
Still, not all customers behave alike through the cycle. Pictet’s Reyl observes that high-net-worth individuals (HNWIs) “have always shown more resiliency in difficult times” and have continued spending, even in recent years, citing the steady growth trajectories of companies such as Hermès, Brunello Cucinelli and Ferrari. The brunt of the pullback has come from aspirational consumers, many of whom were effectively “priced out” by aggressive increases during the boom years.
Brands are now adjusting for the downcycle, as Morningstar flags that companies are trying to re-engage aspirational buyers with more accessible products, less aggressive pricing and renewed creativity, while still protecting their core positioning. HSBC Global Investment Research’s Erwan Rambourg similarly points to “end of greedflation and acceleration of ‘newness’” and sees a “flurry of new designers” and product initiatives as catalysts for the return of aspirational customers from 2026.
Reyl sums up the dynamic as one the industry has experienced before, and both cyclical and specific factors can explain the headwinds. “We believe that the industry will recover and reaccelerate as companies adapt and get ready for the upcycle, as they have done on multiple occasions in the past,” she says.
Season of change
Higher prices and living costs have not reduced the desire for status and style. Instead of scaling back on luxury handbags or ready-to-wear, many aspirational consumers are turning to affordable mass-market and premium labels.
Pictet’s Reyl notes that post-pandemic pricing was a key trigger. From 2020 to 2023, luxury brands significantly increased their prices, helping sustain revenue growth as affluent clients proved willing to pay more. But that came at a cost. As top-income customers kept spending, “the more aspirational mid-high-income households retrenched from a sector they found over-priced” and “stopped spending in luxury to consider other categories such as premium sporting goods, beauty or entertainment”, she says, citing Bain figures that around 50 million customers exited the luxury category between 2022 and 2024.
Survey work collated by Morningstar points in the same direction. A Vogue Business poll of 1,000 consumers found the top reasons for cutting back on luxury were that items were “no longer worth the price”, spending was being redirected to other things, such as holidays, and products were “no longer affordable”. At the same time, 24% of consumers in 2024 said they would switch to less expensive brands, a slight decrease from 26% the previous year, while two-thirds reported being more likely to wait for discounts than they were before. Second-hand luxury has also expanded, with affordability cited as the main driver by 67% of respondents, underscoring that the desire for brands remains even as shoppers trade down in price.
These shifts have benefited a broad set of “mass” and adjacent players, from premium sportswear labels to beauty brands and entertainment platforms. In China, where luxury demand has softened, Euromonitor data compiled by Morningstar show domestic apparel and sportswear brands steadily gaining ground on Western competitors in their home market.
Bloomberg has also observed a similar trend, with Chinese consumers turning their attention to locally made premium brands such as Songmont, a minimalist leather goods label, and Laopu Gold, a homegrown jeweller. Laopu Gold has a store in Shanghai alongside Cartier and Van Cleef & Arpels, and its brand benefits from rising nationalistic sentiment, as younger affluent consumers increasingly seek culturally rooted luxury, says Ng Hui Min of financial insights platform Beansprout. “Heritage gold also appeals to buyers looking for both aesthetic value and wealth preservation during macro uncertainty,” adds Ng. Not only are locals taking notice, but international consumers are also snapping them up, with LVMH chairman Bernard Arnault himself seen buying these brands.
Demand is surging for Chinese “luxury” brands. Laopu Gold’s e-commerce sales have skyrocketed more than 1,000% in the first three quarters of this year versus two years ago, and Songmont’s online bag sales are up 90%. Meanwhile, Gucci has seen its Chinese sales plunge by over 50%.
Morningstar stresses that this “trading down” is not a sign that consumers have fallen out of love with true luxury. Its work finds that top European luxury brands still dominate in China and globally, with brand name recognition and status appeal remaining crucial to purchase decisions. The problem is affordability and perceived value rather than desirability per se.
Justin Koh, director at AlixPartners, warns that recent pricing and the search for cheaper options could chip away at brand equity over time. “A substantial portion of luxury market growth over the past few years has been driven by price increases,” he says. If brands fail to keep pace in creating iconic experiences around those higher prices, “it may hurt long-term brand equity” and limit the acquisition of future loyal customers who might otherwise “grow into the brand”.
He also flags that price hikes are fuelling a booming resale and rental market.
If not carefully managed, the brand’s promise and exclusivity may weaken as products reach consumers outside traditional channels, nudging some toward mass-market and off-price options.
For now, the evidence suggests that mass-market and premium brands are the short-term winners of the luxury reset, capturing spending from aspirational shoppers with tighter budgets.
A chance to buy
Even with weak current numbers, most experts stay positive on the luxury sector’s medium- to long-term prospects and view the dip as a chance to buy.
Morningstar anticipates the sector to resume growth of about 5% a year over the long run, driven by US and Chinese consumers and supported by strong brand moats and high barriers to entry. It argues that the recent pullback has more to do with normalisation after an exceptional post-pandemic boom than with a permanent reset in demand.
Morningstar also sees buying opportunities for LVMH, Richemont and Kering. Specifically on LVMH, Morningstar says: “As a diversified market leader, LVMH’s strength and scale advantages position it to outperform during the recovery. The market appears overly pessimistic, creating a potential buying opportunity.”
On Richemont, Morningstar is optimistic about its strong position in the resilient luxury jewellery space, thanks to its Cartier and Van Cleef & Arpels brands. “Richemont has performed well during the downturn and is exposed to a more affluent, less price-sensitive clientele,” says Morningstar.
Despite Gucci’s challenges, Morningstar still favours Kering, pointing to its global recognition and strong resources as a basis for long-term recovery. “For patient investors, Kering offers deep value at its current discount,” says Morningstar.
Reyl shares a similar view on the overall industry. “We believe that the luxury sector will continue to grow structurally,” she says, adding that after an adjustment phase “, the industry should return to a growth trajectory of around 5% per annum over the next decade”.
In her view, three drivers underpin that forecast: rising wealth in emerging markets, the ongoing expansion of existing luxury clients’ spending, and the ability of the leading groups to continue gaining market share through investment and consolidation.
However, the recovery is likely to be uneven across consumer segments and categories, according to the analysts. HNWIs, whose spending is more closely tied to portfolio wealth than to monthly income, are expected to continue buying.
Tunuguntla points to a shift among these clients towards “quiet, personalised and enduring luxury” and to a “portfolio” mindset that treats watches and high jewellery as a sort of alternative asset class. Koh adds that asset allocations among HNWIs have remained largely stable this year and that slightly lower cash balances “signal positive outlook and continued likelihood to spend on luxury goods”.
Execution will be critical in the short term, as after several years of heavy capex and marketing, these luxury groups are pushing harder on cost discipline and operating leverage.
Morningstar expects margins to recover as volumes stabilise and fixed cost bases are better absorbed, even if pricing becomes a less powerful growth driver than in 2019-2023. Balance sheet strength, effective inventory management, and control over distribution should become key differentiators during the next phase of the cycle.
The runways will continue to shine, and next season will bring even bolder trends to the catwalk. Regardless of market swings, that rhythm endures. As brands reset prices, reinvest capital and explore new markets and experiences, investors with patience could be rewarded for weathering the short-term turbulence.
