Luxury Recovery Exposes A Changing Hierarchy

Europe’s luxury sector is entering a more selective phase of recovery, with improving sales at some of the industry’s largest houses offset by weaker demand across key markets and sharper differences between categories. The latest pullback in luxury shares reflects a broader concern: the rebound is visible, but it remains uneven.

LVMH returned its fashion and leather goods division to organic growth in the second quarter for the first time in two years, while Kering reported its first quarterly sales increase in roughly the same period as Gucci’s decline eased. Yet Bank of America estimates industry demand slowed by around three percentage points in the third quarter, with weakness across the US, Japan, South Korea and parts of Asia.

The divide is becoming clearer inside the luxury basket. Jewellery continues to outperform, supported by stronger demand for pieces that combine emotional value with perceived permanence. Richemont’s jewellery sales rose 24 per cent in the quarter to June, while LVMH also recorded stronger growth in watches and jewellery. Fashion and leather goods, by contrast, are still working through price fatigue, softer aspirational spending and questions over product novelty.

China remains central to the recovery, but the old assumption of a broad rebound in Chinese luxury spending looks less secure. McKinsey has highlighted demographic pressure, youth unemployment and regulatory uncertainty as reasons for a more cautious outlook, particularly among younger consumers who have historically driven domestic luxury demand.

The result is a luxury market recovering by category, geography and customer tier rather than moving in unison. Houses with strong jewellery exposure, distinctive product and resilient high-net-worth clients currently have the clearer advantage. For the rest, the next stage will depend less on higher prices and more on restoring desirability.