Overview
Bernstein analysts note that China's tentative luxury spending recovery is losing momentum, with early Q3 data indicating a sharp slowdown that could represent another “false dawn” for the sector.
Sales Performance
Luxury shopping‑mall sales data from mainland China show a 12% year‑over‑year decline in July, following essentially flat growth in Q1 and low‑single‑digit growth in Q2. The slowdown cuts across price points and categories.
Economic Context
Chinese consumer confidence remains depressed after a post‑pandemic decline, and weaker economic growth is weighing on middle‑class shoppers, especially after luxury brands raised prices during the post‑COVID spending surge. Falling property prices and persistent deflation have further dampened optimism. New tax measures and heightened scrutiny of offshore Chinese wealth, together with the prospect of tougher tax enforcement, are adding pressure on high‑net‑worth individuals, a segment that had previously been relatively resilient.
Forecast Adjustments
Bernstein reduced its third‑quarter industry organic‑growth forecast by 110 basis points to 4.9%, down from 6.3% in the second quarter. The full‑year 2026 estimate was trimmed by 40 basis points to 5.1%, compared with a 0.5% growth projection for 2025.
Brand‑Specific Performance
Performance diverges sharply among luxury houses. Richemont remains the preferred name, supported by resilient jewellery demand and stronger hard‑luxury growth. Zegna and Gucci also showed relative strength, whereas LVMH lagged. Gucci’s recent price cuts of 20%‑30% could bolster Kering’s near‑term performance but may erode brand equity over time. LVMH may need to adjust the product mix at Louis Vuitton to re‑engage middle‑class shoppers, indicating that the sector is becoming increasingly dependent on company‑specific turnarounds rather than a broad Chinese demand recovery.
Outlook
The combination of muted consumer confidence, deflationary pressures, property‑price declines, and tighter tax enforcement suggests that the luxury market’s revival may be short‑lived, with future growth hinging on individual brand strategies and possible policy stimulus.