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 Buffet, "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. 

Explore the intricate landscape of the luxury sector with our consolidated "Luxury Goods Industry Pulse" Q3 2025 report. This comprehensive analysis provides detailed insights into revenue and cost trends, challenges such as subdued demand, rising costs, and margin pressures, as well as the unfolding opportunities within the industry. Discover the potential within renowned companies like Kering, Swatch, Pandora, and LVMH while gaining a clear understanding of overvaluation and undervaluation areas and the evolving influence of inflation and supply chain bottlenecks from pandemic times.  

To read the full research report, download a copy. 

2025 is showing a more subdued demand year for luxury goods than previous years. Luxury share valuations have experienced significant fluctuations over the past few years. During 2022-23, these valuations oscillated between being attractive and overpriced as markets assessed the effects of inflation on consumer demand, the duration of lockdowns and the pace of economic recovery in China and questioned whether the strong post-pandemic demand in Western countries could be sustained. 

While demand has softened, it's important to view this within a historical context. Based on the industry's performance over the past 30 years, periods of subdued demand typically do not last more than two years. The current cyclical downturn is not seen as a long-term trend, offering a positive outlook for a potential rebound. 

The most recent research on luxury brands pinpoints some undervalued names in the luxury sector, including Kering, Swatch, Pandora, and LVMH. But as far as what investors may be interested in specifically from each of these brands, there are three key product areas to explore: 

1. Luxury Leather Goods 

2. Luxury Watches
3. Luxury Jewelry

Clocking in at the second-largest luxury group based on their revenue, it might be a good time to find opportunities related to luxury leather goods with the Kering brand. Despite its popular flagship brand, Gucci, experiencing slower momentum, the brand has access to extensive marketing resources, over 90% control of its distribution, and well-established name recognition. They are a competitive option in the luxury goods sector with a high rating and fair valuation.

Luxury apparel brings even more options as far as branding goes, with a well-known name like Pandora taking center stage. Pandora has a potentially interesting future. Pandora is a premium jewelry brand and the market leader in the charm bracelet category. Its valuation is very appealing with a 40% upside to our fair value estimate. Notably, Pandora’s scale and strong marketing budget position it well to outperform the broader industry. In addition, its pricing power, supported by its exposure to the gifting segment, positions it well to outperform. Another area of the luxury market to consider is luxury watches. This industry has seen steady growth over the years, with consumers willing to invest in high-quality timepieces as a symbol of wealth and status. Brands like Swatch’s Omega, Richemont’s Cartier, and Rolex dominate this sector with their reputation for precision, craftsmanship, and exclusivity.  

The importance of a strong digital presence is becoming increasingly evident. Richemont’s Cartier and Prada have demonstrated strong performance on Tmall, an increasingly vital distribution channel. This success underscores how digital platforms are becoming key drivers of growth and brand visibility in the luxury space, particularly in the Asian market.  

Taking a closer look at luxury sales trends, it's evident that there are regional nuances. While the fourth quarter of 2024 saw some improvement in sales for many players in the luxury market, that trend hasn’t continued in early 2025. In the second quarter of 2025, sales in the Americas returned to growth, declines in Asia (excluding Japan) moderated, and Europe remained steady. 

In 2024, sales in the Americas and Europe were up slightly, while sales in Asia, excluding Japan and China specifically, came under pressure. The Chinese share of purchases on mainland China decreased to 60%-70% toward the end of 2023 and beginning of 2024 from virtually 100% in 2022 but remains above 30%-40% prepandemic levels of domestic purchases. 

The behavior of Chinese consumers remains a critical factor for the luxury sector's health. The latest data shows a recovery in luxury spending by Chinese nationals while traveling abroad, alongside a gradual stabilization of domestic purchases. This trend highlights their essential role in driving the market forward as global travel flows continue to improve. 

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. 

What’s also there to consider are the fixed costs of the luxury markets. The luxury industry has a high share of fixed costs— selling costs such as rental and employee expenses are largely fixed. Due to this, and the need for some brands to invest more in marketing to boost brand heat (for example, Kering’s Gucci), luxury margins came under strong pressure in 2024 as sales were marginally up or declining. Most companies experienced margin declines in 2024. Luxury margins could continue being under pressure this year due to likely continuing cyclical weakness in demand and fewer tailwinds from pricing compared with prior years, not fully offset by cost-control measures. 

Two specific cost drivers are creating significant headwinds. First, rental cost inflation has unexpectedly accelerated, with the most pronounced increases in European capitals like Milan and Paris, as well as Tokyo. Second, a rally in gold and silver prices is potentially weighing on the margins for jewelers like Richemont and Pandora, who may not be able to pass on the full cost increase to consumers in the short term. 

Every industry experiences global economic shifts, and the luxury goods sector is no exception. Sales and margins have been under pressure due to declining luxury consumption. This in turn has led to an increase in fixed costs. However, even in this challenging climate, the sector remains fairly valued, suggesting potential for careful investors. Armed with this data, financial advisors and asset managers can help clients make informed investment decisions. 

Despite the apparent obstacles, recent data shows that there are still investment opportunities in the luxury sector, with a record number of stocks now trading at an attractive discount. Companies like Kering, Swatch, Pandora, and LVMH offer diversified investment options within the luxury goods sector. 

A key point for investors to consider is the enduring strength of the industry's top players. The fundamental growth drivers of the luxury sector remain intact. Brands with wide economic moats, such as LVMH and Richemont, have proven their resilience and ability to maintain pricing power. This long-term strength makes them compelling considerations despite short-term market challenges. 

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