Is the Luxury Goods Market a Good Investment?

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While the luxury goods sector is complex, it also offers opportunities for those willing to navigate its nuances. In the words of Warren Buffett, "Price is what you pay. Value is what you get." 

Understanding market trends, key drivers, and valuations is essential for financial advisors and asset managers who want to help their clients make sound investment decisions. 

This analysis provides detailed insights into revenue and cost trends, challenges such as subdued demand and rising costs, and the unfolding opportunities within the industry. Discover the potential within renowned companies while gaining a clear understanding of the evolving influence of economic conditions and supply chain pressures. Download the Q1 2026 edition of our Luxury Goods Industry Pulse. 

Luxury shares have moved below Morningstar fair value following the late‑2025 sell‑off, after briefly converging with our estimates at the end of last year. Investor sentiment toward the sector has weakened amid lingering demand softness and heightened macro uncertainty, including concerns around geopolitical spillovers from the war in Iran.  

From a longer‑term perspective, we do not view the current downturn as structural. Based on the industry’s history over the past three decades, periods of subdued luxury demand have typically been cyclical and relatively short‑lived. Importantly, we believe the sector’s competitive advantages—particularly the strength of global brands and pricing power—remain intact, with fundamental demand drivers in the U.S. and China still supportive over time. 

Source: Morningstar, Pitchbook. Data as of April 2026. 

Luxury demand has shown only modest sequential improvement rather than a sharp rebound. After declining in the first half of 2025, sales recovered slightly in the second half, with momentum continuing into the fourth quarter. Even so, growth remains muted, and the industry is now lapping a second year of weak demand.  

While this has weighed on investor confidence, such conditions are consistent with prior cyclical troughs for the sector. In past downturns, periods of depressed growth have generally not extended beyond two years. As a result, we continue to view the current slowdown as part of a cyclical adjustment rather than permanent impairment to the luxury industry’s long‑term growth profile.

Source: Company reports, Morningstar. Data as of December 2025. Annual and half-year data for Swatch is due to reporting. Data for Burberry and Richemont correspond to calendar, not fiscal, quarters. 

1. Luxury Leather Goods
2. Luxury Jewelry

Clocking in at the largest luxury group based on their revenue, it might be a good time to find opportunities related to luxury leather goods with the LMVH brand. Its wide moat is supported by scale, exceptional brand recognition (like Louis Vuitton), pricing power, and full distribution control.

These companies combine strong brand portfolios, competitive advantages, and financial resilience, positioning them to navigate near‑term pressures while benefiting from a cyclical recovery over the longer run. The investment case rests less on an imminent rebound in demand and more on the market’s overly pessimistic view of normalized earnings power.

Source: Company reports, Morningstar. Data as of March 2026. 

Chinese real estate prices remain an important driver of luxury demand, given the high share of household savings tied to property. Prices have continued to decline through 2024 and 2025, reinforcing historical patterns in which weakness in the property market has coincided with softer global luxury sales.  

While policy easing could eventually help stabilize the environment, we expect any positive impact on luxury consumption to be gradual rather than immediate. That said, once sentiment improves, China’s substantial accumulated savings still represent a meaningful long‑term opportunity for the sector. 

Travel flows continue to support luxury demand, particularly for purchases made abroad, but patterns have shifted since the pandemic. Chinese international travel has recovered above pre-pandemic levels, yet luxury consumption remains predominantly domestic. In 2025, overseas purchases accounted for roughly 35% of Chinese luxury spending, well below the approximately 70% seen before COVID‑19.  

Meanwhile, U.S. outbound travel to Europe is still growing, although momentum softened in 2025, partly due to currency dynamics. Together, these trends suggest that travel remains a tailwind for luxury sales, but not to the same extent as in prior cycles.

Source: Morningstar, CAAC, International Air Transport Association. 

In addition to shifting sales trends, rising costs have added to the challenges faced within the luxury goods sector. These escalating operating costs pose a challenge to maintaining margins for luxury firms. The luxury industry has a high share of fixed costs—selling costs such as rental and employee expenses are largely fixed. Due to this, luxury companies continue to face margin pressure as weak sales volumes have limited operating leverage. Despite efforts to control costs, this has kept profitability well below historical levels. 

Although margins stabilized somewhat in 2025, a meaningful recovery will likely depend on a sustained return to sales growth. Until then, cost discipline can help limit downside but is unlikely to fully offset subdued demand. 

Source: Morningstar, Cushman & Wakefield, Comex, company data. Profitability and balance-sheet items are provided semiannually. Latest available data as of March 2026. 

Every industry experiences global economic shifts, and the luxury goods sector is no exception. Sales and margins have been under pressure due to a combination of declining consumption, rising fixed costs, and operational hurdles. In these challenging times, the sector looks fairly valued as investors already incorporate the eventual recovery into their assumptions. However, we still see potential in certain stocks that look undervalued. 

Despite the apparent obstacles, recent data shows that there are still investment opportunities, with a number of stocks now trading at an attractive discount. A key point for investors to consider is the enduring strength of the industry's top players. Brands with wide economic moats, such as LVMH and Richemont, have proven their resilience and ability to maintain pricing power.  

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