Luxury stocks are on sale. But is anything actually cheap?

Key takeaways

• China is not disappearing as a luxury market, but consumers are becoming more selective about where they spend.

• Years of price increases have tested the limits of what aspirational customers are willing to pay.

• Falling shares improve valuations, but Hermès, LVMH, Kering and Richemont offer very different investment cases.

European luxury shares have come under pressure, reflecting weaker growth, more cautious consumers and high expectations built up over previous years. Lower share prices do not automatically create opportunities, but they are making the investment question more interesting. 

China is spending, just not like before

For years, the luxury formula looked straightforward. Rising Chinese wealth created millions of new aspirational consumers, who wanted their first Louis Vuitton bag, Gucci belt or luxury watch.

That engine has not disappeared. It has changed gears.

China's personal luxury market shrank between 3% and 5% in 2025, according to Bain, after a much steeper decline in 2024. Bain expects modest growth this year, but the recovery remains uneven.

More importantly, Chinese shoppers are becoming selective. Recent research found 37% of affluent consumers planned to increase spending on prestige beauty, compared with just 4% for leather goods. L'Oréal says premium beauty is growing strongly in China, while LVMH described Chinese spending in the first half as broadly flat.

The logic is simple. A premium moisturiser can feel like an affordable indulgence. A handbag costing several thousand euros is easier to postpone.

Yet there are important exceptions. Richemont, owner of Cartier and Van Cleef & Arpels, reported 24% growth in jewellery sales last quarter and double-digit growth in Greater China. Jewellery can offer something handbags increasingly struggle to provide: perceived lasting value alongside status.

Moncler and Brunello Cucinelli also continue to report solid Asian growth. China is therefore not simply "weak". Brand, category and customer matter more than ever.

Pricing power has met a price ceiling

Luxury companies spent years proving they could raise prices without losing customers. Eventually, they decided to test that proposition rather enthusiastically.

Bain estimates the global luxury customer base fell from around 400 million people in 2022 to roughly 340 million in 2025. It argues that repeated price increases pushed many aspirational customers away while also frustrating some wealthier buyers.

This matters because pricing power is valuable only when customers remain willing to pay.

Hermès sits at one extreme. Scarce production, waiting lists and exceptionally wealthy customers protect demand. First-half sales still grew 6% at constant currencies, while its recurring operating margin remained an extraordinary 41%.

LVMH faces a broader challenge. It owns around 70 brands, including Louis Vuitton, Dior, Tiffany and Bulgari. That diversification offers protection, but its crucial fashion and leather goods division is recovering only gradually. First-half organic group sales rose 2%, while management continues to see only limited improvement in Chinese spending.

Kering faces the hardest version of this test. Gucci remains central to profits and its recovery. Second-quarter Gucci sales fell 2% on a comparable basis, much better than earlier quarters, but mainland China remained challenging. The good news is that momentum is improving. The less comfortable news is that a turnaround still needs to become sustained growth.

Four stocks, four different labels

This is where lower share prices become useful rather than automatically attractive.

Hermès offers the strongest economics but also the highest expectations. Even after its decline, the shares trade at roughly the mid-30s times trailing earnings. Investors are still paying substantially more for each euro of profit than at LVMH.

LVMH offers diversification at a more subdued valuation. Its shares trade at roughly 20 times trailing earnings. The investment case depends less on perfection and more on whether Louis Vuitton, Dior and other major brands can restore healthier growth.

Kering is a turnaround. Current earnings are depressed enough that simple price-to-earnings comparisons are less useful. The key question is whether Gucci can rebuild desirability while Kering improves margins and keeps debt under control.

Richemont offers a different exposure. Cartier and Van Cleef & Arpels put it closer to resilient branded jewellery than fashion-led luxury. That has supported stronger growth, but also means investors already recognise much of that quality.

What could keep the markdown going?

The first risk is that China's recovery remains weak or shifts permanently away from traditional European brands. Watch Chinese sales trends, particularly for leather goods.

The second is creative execution. Luxury products are unusual assets because yesterday's bestseller can become tomorrow's unsold inventory. New collections at Gucci, Dior and other major houses need to translate attention into purchases.

Finally, weaker currencies, tourism flows and economic confidence can squeeze sales and margins even when the underlying brand remains healthy.

Investor playbook

• Separate share-price weakness from business weakness. Falling prices help only if long-term earning power remains intact.
• Track customer mix. Brands serving ultra-wealthy buyers may behave differently from those relying heavily on aspirational consumers.
• Compare valuation with expectations. A wonderful company can disappoint if its share price already assumes wonderful results.
• Watch evidence, not recovery stories. China sales, margins, new-product demand and cash generation provide better signals than hopeful headlines.

The label matters more than the discount

Luxury investing used to look easy because several powerful forces moved together: Chinese wealth expanded, aspirational shoppers joined the market and brands repeatedly raised prices. Those forces now pull in different directions.

That makes the sector harder, but also more interesting for investors. Hermès still demonstrates what exceptional scarcity can achieve. LVMH offers breadth and a lower starting valuation. Richemont shows the resilience of jewellery. Kering offers greater recovery potential, but also greater execution risk.

The useful lesson extends beyond handbags and watches. A great company is not automatically a great investment at every price, just as a falling share price does not automatically create a bargain. When the entire luxury shelf gets marked down, investors still need to read the labels.