2025 Outlook: “Luxury fatigue” weighs in

Not just a cyclical downturn but also “demand fatigue"

Over the past year plus, luxury goods stocks’ valuations and estimates have come down significantly, thus reducing the downside risk as we head into 2025. However, we believe it may be too early to turn optimistic given we see limited scope for a significant re-acceleration in the organic sales growth (OSG) needed to drive valuations and earnings higher. Signs of "luxury fatigue", with consumers increasingly questioning the value for money offered by some brands, suggest to us that a potential recovery may come only in 2026. 

What will matter in 2025?

We expect the following themes to matter in 2025: (1) Chinese demand amid the recent stimulus and the significant slowdown in sales to Chinese nationals in 2024; (2) pricing across the companies and various product categories following years of elevated pricing; (3) FX moves given the sector benefits from EUR weakness; (4) potential store closures in China given recent sales slump, especially for some brands; (5) American demand, which the sector's 2025 growth heavily relies on but so far is evolving only in line with expectations.