Luxury is back in fashion

LUXURY brands are heading towards a stronger growth phase as improving consumer appetite, fresh creative leadership and renewed demand in key markets begin to support sales.

After several years of lacklustre performance, the sector is expected to regain momentum, although the pace of recovery is likely to vary between brands and product categories.

Goldman Sachs Research forecasts revenue growth for a basket of large, publicly traded luxury-goods makers to accelerate to 7% in 2027, from an expected 6% in 2026, signalling a gradual recovery from the prolonged slowdown.

“We view this as a solid recovery for an industry that has faced a prolonged period of sluggish performance,” Erwan Rambourg, head of Europe Luxury and Lifestyle at Goldman Sachs Research, writes in a recent report.

The improved outlook comes after luxury stocks enjoyed a strong run in 2022, following the market downturn triggered by the Covid-19 pandemic.

The sector benefited from exuberant consumer spending, but the subsequent years brought aggressive price increases and a slower pace of product innovation, eventually weighing on demand.

Luxury shares have since declined, alongside earnings estimates, although valuations are neither particularly attractive nor excessively stretched.

Rambourg argues that valuation alone is unlikely to determine investor appetite, with sales momentum becoming a more important factor in the next phase.

“But we think valuation alone is rarely a catalyst for investors to buy or sell shares in the sector,” he writes.

“Instead, it is more a function of sales momentum, which we see picking up soon.”

Several external factors have contributed to weaker discretionary spending, including China’s prolonged property slump, US tariffs in 2025, volatile equity markets, higher interest rates and geopolitical tensions, including the ongoing Middle East conflict.

“There have been many reasons for consumers to cancel or delay purchases of discretionary products,” Rambourg writes.

However, he believes broader economic uncertainties are not the primary reason behind the industry’s disappointing performance.

Instead, luxury brands have struggled with a degree of strategic inertia, particularly in their pricing strategies and ability to sustain consumer interest through innovation.

Rising prices

Prices across traditional high-end luxury brands are estimated to have risen by around 60% between mid-2019 and mid-2026.

The sharp increases have created opportunities for more affordable luxury labels to attract consumers who increasingly question whether established brands offer sufficient value for money.

“As a direct impact of elevated price points and a value proposition that became less compelling across many brands, it appears that many target consumers decided to pass on purchasing luxury goods,” Rambourg writes.

The combination of higher prices and limited product innovation has also weakened store traffic and consumer engagement.

However, the arrival of new chief executive officers (CEOs) and creative directors at several luxury houses offers a potential catalyst for renewed interest.

Many of these executives began presenting their collections last year, although the impact on sales may take time to emerge as consumers become familiar with their new creative direction.

“We believe that it likely takes three to four collections for consumers to recognise – and possibly buy into – the change,” Rambourg writes.

Geographically, the United States is emerging as an increasingly important growth market.

Despite its considerable household wealth, the country has historically underperformed in luxury consumption relative to its economic standing.

Rambourg describes this as “a surprising disconnect between wealth in the US (high) and luxury demand among American consumers (low)”, with a combination of a perceived guilt factor and outlet-shopping culture potentially holding back demand.

Behaviour shifts

Consumer behaviour has started shifting since the pandemic, however, with American shoppers showing a stronger appetite for high-end products.

Luxury brands are responding by expanding their retail presence, with store openings multiplying across the country.

“The appetite of American consumers for luxury goods has picked up strongly,” Rambourg writes.

“While it may sound counterintuitive, we still think the US is an emerging market for luxury goods,” he adds.

Elsewhere, South Korea presents a more mixed picture, as luxury demand is closely linked to wealth generated through its technology-heavy and volatile equity market.

This makes spending growth potentially fragile when financial markets weaken.

Hong Kong, meanwhile, is showing signs of recovery despite becoming less important to luxury brands over the years.

Both local shoppers and visitors from mainland China are contributing to improving sales, providing another source of support for the sector.

Beyond the near-term recovery, Goldman Sachs Research believes the industry’s longer-term growth prospects remain intact.

Luxury companies under its coverage have delivered average annual revenue growth of 6% over the past 25 years.

Although recent growth has been pedestrian, current sales levels remain above what a 6% compound annual growth rate since just before the pandemic in 2019 would have implied.

“In other words, the bear argument that the sector may have gone ex-growth for an extended period is not one we agree with,” Rambourg writes.

Seven C’s

To assess the longer-term prospects of individual companies, Goldman Sachs introduces a benchmarking framework built around seven Cs, covering the structural characteristics that could determine which luxury brands are better positioned to grow.

The first is “clout”, reflecting the advantages enjoyed by larger brands.

Rambourg argues that “big is beautiful” in the luxury industry, as established players generally have better access to prime retail locations and benefit from lower rental costs relative to sales.

The second is “categories”, which highlights differences in growth potential across product segments.

Jewellery, for instance, is considered to have stronger growth prospects than beauty products, making a brand’s product mix an important consideration.

The third is “consumer calibre”, referring to the resilience of high-net-worth individuals, whose spending tends to be less vulnerable to economic fluctuations. Brands with greater exposure to wealthier customers may therefore enjoy more stable demand.

“Creativity” is another key consideration, although it is difficult for equity analysts to quantify.

The ability to develop distinctive products, refresh collections and maintain desirability remains central to sustaining consumer interest.

The remaining factors are “consistency”, which examines the clarity of a brand’s positioning; “codes and icons”, referring to recognisable design elements, patterns and discreet symbols that distinguish products to knowledgeable consumers; and “corporate considerations”, which take into account the influence of family ownership and management structures at many luxury groups.