Berenberg analysts have signaled the end of a three-decade boom for the luxury sector, downgrading LVMH and Kering amid concerns about structural demand problems. This assessment coincided with LVMH experiencing its biggest stock surge since 2001. The analysts, led by Nick Anderson, suggest the industry is at an inflexion point, facing challenges that extend beyond mere supply-side issues. LVMH is a global leader in luxury goods, offering a diverse portfolio of brands including fashion, leather goods, wines and spirits, perfumes and cosmetics, and watches and jewelry. Kering specialises in luxury fashion, leather goods, jewelry and watches.
Anderson highlighted pressure in China, income constraints among aspirational consumers, and changing preferences among younger shoppers as key factors reshaping the luxury market. He noted that the landscape has shifted significantly since the 2010s, a period characterised by exceptional growth fuelled by surging Chinese demand and robust US spending. Berenberg anticipates a medium-term demand growth of 2-3 per cent per year, a stark contrast to the historical norm of approximately 6 per cent.
According to Anderson, a clear divide exists between ‘absolute’ luxury consumers, driven by wealth, and aspirational buyers, driven by income. Aspirational consumers are facing increasing financial strain due to higher inflation, rising housing costs, uncertain tax burdens, and concerns about job displacement due to artificial intelligence. LVMH and Kering, according to Berenberg’s analysis, cater more to aspirational consumers compared to some of their competitors.
While increased spending by American consumers could potentially mitigate some of the weakness in Chinese demand, Anderson cautions that ‘the short-term outlook is complex and uncertain.’ Berenberg’s current positioning includes a short exposure to aspirational luxury, a long position in absolute luxury, and a long position in sporting goods.
