Europe’s beleaguered luxury sector could be set for a turn in fortunes this year, as early indicators point to improved consumer spending and a pivot away from China. Luxury shares shot up in trading last week after Cartier owner Richemont reported its “highest ever” quarterly sales in the three months to December, indicating a rebound in consumer demand over the festive period, which analysts say could be set to continue into 2025. The Swiss luxury stock gained 16% on the day, while the European Stoxx luxury index added 6.9% as positive sentiment filtered through to fashion powerhouses LVMH , Hermes , Kering , Moncler and Burberry . The earnings beat is considered a positive initial signal ahead of wider fourth-quarter releases from a sector that has been plagued by waning consumer spending, particularly within the all-important China market. “There is an element to the Richemont numbers that is definitely down to an improved cyclical demand environment,” Luca Solca, managing director and sector head of global luxury goods at Bernstein, told CNBC over the phone Friday. “This is clearly going to be a tide that lifts all boats,” he said of improved macroeconomic conditions globally. “Expectations are now higher for other companies due to report this earnings season,” UBS said in a Friday note. However, the improved economic environment is unlikely to be a silver bullet for all firms, BofA Global Research said, describing the year ahead as a game of “snakes and ladders.” “2025 will see many ups and downs for the luxury sector,” the analysts wrote in a Thursday note. LVMH, Kering, Hermes in view Investors are now turning their attention to fourth-quarter earnings from Europe’s major luxury players. LVMH, owner of brands including Louis Vuitton and Moët Hennessy, will provide an important gauge of the handbags and leather goods segment, which has seen more acute price hikes over recent quarters. BofA said LVMH, which reports at the end of the month, was likely to emerge as one of the sector’s better performers, alongside Richemont, while UBS in a Jan. 2 note listed the stock as neutral. Bernstein’s Solca was less optimistic, however, pointing to “prolonged” issues at the company after it reported its first decline in quarterly sales since the pandemic in October. “LVMH’s numbers may be better than the third quarter, but definitely not as good as Richemont,” Solca said. MC-FR KER-FR,RMS-FR 1Y line European luxury goods stocks Kering, whose share price took a battering in 2024 over repeated profit warnings , is expected to continue to underperform its peers as it sets about a brand elevation strategy for its out-of-fashion Gucci brand . Bernstein highlighted challenges to the firm’s “Gucci metamorphosis” vision, particularly given Gucci’s reliance on the Chinese market. Meanwhile, Hermes is expected to remain an outperformer in the sector, having successfully cornered the top end of the market with continued demand for its exclusive Birkin handbags pushing third-quarter sales up 11%. Both UBS and Bernstein said they were positive on the stock, with the latter forecasting double-digit top-line growth in 2025. Pivot from China Significant shifts are underway in the luxury sector, with the once lucrative Chinese market losing steam amid a prolonged macroeconomic downturn, and the impact of recent stimulus measures yet to be seen. In its place, however, has emerged a new wave of wealthy U.S. consumers, whose gains from President Donald Trump’s election stock market bump, a stronger dollar and crypto’s rally helped fuel festive spending. Richemont’s U.S. growth rate doubled to 22% in the third quarter but fell 7% in Asia Pacific, led primarily by declines in China. The group’s 19% growth rate in Europe was also largely attributed to tourist spend from North America. Analysts say the North American market is now likely to be a key target for brands in 2025, with BofA forecasting U.S. shoppers to account for more than 50% of sector-wide revenue growth this year. Bernstein, meanwhile, in November moderated its outlook for Chinese luxury spend in the 2025 financial year to low single digits. “After 10 quarters in decline, there are (fragile) green shoots in American luxury spend,” BofA wrote. The threat of renewed U.S.-China tensions under the new Trump administration could accelerate that shift, with new tariffs likely to hit the Chinese economy hardest and fuel currency fluctuations. “If Trump introduces new tariffs, it’s going to remain challenging [for China]. That’s why luxury goods companies are definitely more interested in the U.S. than China,” Solca said. The return of creativity Meantime, analysts say luxury houses can also be expected to signal a return to more opulent aesthetics in their forward statements, after a period of understated “quiet luxury” styles led to a dilution of some brands. “[Quiet luxury] has created lower barriers to entry,” BofA wrote. “The industry should pivot back to creativity, fashion content and newness.” Solca agreed, noting that a period of “atonement” was required from certain brands that have alienated consumers over recent years with highly elevated prices and overly simple aesthetics. “We’re probably at the end — or towards the end — of this quiet luxury trend, but there will be a more joyous aesthetic prevailing soon,” he said.
Louis Vuitton store on Paris’ Champs-Elysees decorated for the Christmas season.
Nurphoto | Getty Images
Europe’s beleaguered luxury sector could be set for a turn in fortunes this year, as early indicators point to improved consumer spending and a pivot away from China.
