Is the Luxury Goods Market a Good Investment? Here’s the Latest Data

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.

In the latest Luxury Goods Industry Pulse, we dig into revenue and cost trends; challenges such as subdued demand, rising costs, and margin pressures; and the unfolding opportunities within the industry.

We explore the potential within brands like Kering KER, Swatch UHR, Burberry BRBY, and LVMH MC. The report also includes insights into overvaluation and undervaluation areas and the evolving influence of inflation and supply chain bottlenecks from pandemic times.

A Closer Look at Luxury Valuations

The year 2025 is shaping up to be a more subdued demand year for luxury goods than previous years. But in the past 30 years, periods of subdued demand for luxury goods have never lasted more than two years.

Luxury share valuations 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. They questioned whether the strong post-pandemic demand in Western countries could be sustained.

For now, luxury valuations are looking appealing after the first-quarter selloff, with a few pockets of overvaluation and undervaluation still popping up.

One significant finding in this area is the rise in earnings multiples due to eroding returns. In contrast, the sales multiples are lagging slightly behind the historical data.

Investor attention has sharpened around recent stock market signals, with two key questions dominating the conversation: whether US demand is rebounding or weakening and how quickly China’s market might recover.

At this moment, we believe that the luxury sector appears increasingly appealing, despite certain areas of overvaluation and undervaluation.

The current cyclical dip in demand is not expected to last, given that, over the past three decades, periods of damped demand have not persisted beyond two years.

Investment Opportunities for Luxury Brands: What Are the Top Picks?

The most recent research on luxury brands pinpoints some undervalued names in the luxury sector, including Kering, Swatch, Burberry, 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 apparel

Our top undervalued opportunities in the luxury sector right now include:

Luxury apparel brings even more options as far as branding goes, with a well-known name like Burberry taking center stage.

Burberry has a potentially interesting future. Despite slow growth recently, we believe that Burberry benefits from strong brand recognition, pricing power, and control over distribution, all of which reinforce its narrow moat. It has also recently benefited from marketing campaigns focused on select iconic products.

We see the current underperformance compared with the industry as both cyclical and operational. Creative director Daniel Lee’s collections were introduced at a premium price, which more price-sensitive consumers did not embrace. We think that performance can be enhanced by fortifying more affordable assortments and concentrating marketing efforts on iconic products, which the company is actively pursuing.

We also look at Google Trends to gauge consumer interest in different luxury brands. We notice that Prada 01913, after several months of stronger momentum, is starting to wane in popularity compared to Burberry, Ferragamo SFER, and Richemont’s Cartier CFR (thanks to the brand’s strong performance on Tmall).

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.

Luxury Sales Trends: A Mixed Bag

It’s also evident that there are regional nuances to luxury sales trends.

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. Sales in the Americas and Europe have seen a marginal increase, providing a silver lining amid the generally weak performance.

In 2024, sales in the Americas and Europe were up slightly, while sales in Asia (excluding Japan and China specifically) came under pressure.

Chinese consumer purchases were stronger than sales numbers in China might suggest, as sales to Chinese abroad increased. 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 30%-40% above the prepandemic levels of domestic purchases.

So far, 2025 started on a weak note too: Asia (excluding Japan) is negative, and Europe and the US are weaker.

The Impact of Rising Costs in the Luxury Sector

In addition to shifting sales trends, rising costs have added to the challenges faced within the luxury goods sector.

Increases have been witnessed notably in rental costs and raw material prices, such as gold and silver. These escalating operating costs pose a challenge to maintaining margins for luxury firms. The inflation in rental costs has been more pronounced in European capitals and Tokyo, subsequently affecting the profitability of the luxury sector.

Global prime real estate prices are still increasing amid expectations about interest rate cuts, but this growth remains below mid-single-digit long-term averages.

It’s also worth considering the fixed costs of the luxury markets. The luxury industry has a high share of fixed costs, including selling costs such as rental and employee expenses. For this reason, and due to some brands’ need to invest more in marketing to boost brand heat (for example, Kering’s Gucci), luxury margins came under intense pressure in 2024 as sales were marginally up or declining.

Luxury margins could continue being under pressure this year due to likely continuing cyclical weakness in demand and fewer tailwinds from pricing compared with previous years, not fully offset by cost-control measures.

In the longer term, we believe a cyclical rebound and some margin tailwind from the growing scale are to be expected for most competitively advantaged luxury players.

What to Watch in the Luxury Sector

The luxury goods sector has seen its sales and margins come 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 recent challenges, data suggests the luxury sector still holds potential. Undervalued names like Kering, Swatch, Burberry, and Louis Vuitton may offer attractive opportunities for discerning investors.

These companies, with their varying market caps, Morningstar Economic Moat Ratings, and Morningstar Uncertainty Ratings, offer diversified investment options within the luxury goods sector.