Global Luxury Goods and China macrofinancial outlook: Bernstein sees China’s weak consumer backdrop becoming the new normal for global luxury

Overview

Bernstein combines a China macrofinancial discussion with luxury-sector analysis to argue that depressed Chinese consumption is likely to remain a structural constraint rather than rebound quickly. The institution lowers selected growth and earnings assumptions and emphasizes affordability, jewellery exposure, geographic positioning, and execution as differentiators.

Core views

Bernstein’s central conclusion is that the anticipated U-shaped recovery in Chinese consumption increasingly looks like an L-shaped outcome. Its alternative activity measures suggest conditions are materially weaker than headline GDP growth of 4.5-5.0% implies: capital expenditure is contracting at double-digit rates, property remains deeply depressed, and the report’s three-month Autonomous Economic Activity Composite places real growth near recession territory. Retail-sales growth slowed to +0.4% year-on-year in August, the fifth straight reading of 1% or less; pressure extends beyond traditional retail to e-commerce and spans major consumer categories. The report links this weak demand to a damaged household balance sheet and labor market. Property prices have fallen around 40% on average since 2021, eroding a key household retirement asset. Property new starts fell 30% in August, sales remained down double digits, and investment was down 26%. Tier 1 city prices have stabilized modestly, but the report notes that these cities cover less than 10% of China’s population while prices elsewhere continue to fall. High-income wealth creation in real estate and finance has weakened sharply through the prolonged property correction, wage reductions, and bonus clawbacks. Youth unemployment reached 18.9% in the latest reading, while the core 30-to-50-year-old consumer cohort fell by 14.4 million from 2020 to 2025 and is expected to decline by a further 46.9 million, or 7.3%, by 2030. A further warning sign is that household savings are being drawn down without producing a consumption rebound. Bernstein interprets this as evidence that household budgets are tight and savings are being used to meet living costs rather than fund discretionary spending. Consumer-confidence measures remain below pre-pandemic levels and reportedly deteriorated again after the start of the Iran war. The report also sees automation from AI and robotics as a near-term risk to employment and wages, even if it may address China’s longer-term shrinking-workforce challenge. Bernstein does not expect a meaningful policy pivot toward consumption in the near term. Exports remain one of the few supports to activity, reducing pressure for a household-focused stimulus response. The report argues that authorities retain a preference for supporting companies and local governments rather than directly supporting households; a material consumption-led pivot would likely require a much more serious export deterioration, potentially involving EU trade restrictions and a slowdown in AI data-center-related demand. Until then, the institution expects incremental and temporary stimulus rather than a decisive recovery program. For luxury goods, this macro setting matters because Chinese consumers historically supplied roughly one-half to two-thirds of industry growth in the three decades before 2019, when the sector grew close to 8% annually. Chinese consumers remain an important share of spending for covered companies—roughly 15% to the high-30% range—despite stronger demand from the Americas, Europe, and the Middle East. Bernstein therefore argues that without a Chinese recovery, global luxury growth should be modeled closer to 4-5% than 7-8% over the next several years. The institution argues that affordability and perceived value are now strategic priorities. Consumers under pressure may trade down not only to cheaper handbags but also toward jewellery, experiences, local brands, accessible luxury, beauty, eyewear, shoes, and smart glasses. Bernstein says brands should avoid becoming perceived as unreachable products for someone else. It cautions that outright price cuts could harm brand equity, but argues that companies can broaden entry points through price, product mix, categories, and lower absolute-price offerings. Jewellery has been resilient in part because €3,000-€5,000 purchases appear more compelling relative to post-inflation handbag prices. The report sees differentiated company outcomes. Richemont remains Bernstein’s top pick because its Jewellery Maisons retain strong momentum, can address both ends of a polarizing consumer base, and have relatively low exposure to Mainland China. LVMH and Hermès have self-help opportunities, but Bernstein believes execution will take time: LVMH must improve entry-price value for Louis Vuitton, while Hermès can strengthen its position at the high end. Smaller luxury brands with excessive exposure to lower-tier Chinese cities face more difficult store-economics decisions. Closing stores can impair brand visibility, while keeping unproductive stores open weighs on profit; Bernstein expects careful pruning rather than broad closures. Forecast revisions reflect this view. Bernstein lowers LVMH Fashion & Leather Goods FY27E organic sales growth to +1.8% from +5.0%, below +3.8% consensus, because Louis Vuitton may face a softer China-led growth patch while it addresses value for money. LVMH Group FY27E organic growth is forecast at +3.6% versus +4.3% consensus; lower revenue assumptions and EBIT margins reduce FY27E EPS by 5.6%, leaving Bernstein 3.6% below consensus for FY26E and 7.3% below for FY27E. Its target price is revised to €480 using a 1.5x relative P/E multiple to MSCI Europe, equivalent to 21.5x NTM+1 P/E. For Hermès, Bernstein trims FY27E group organic growth to +7.0% from +7.6%, with Leather Goods at +9.3% versus +10.0% consensus, partly reflecting an expectation of more moderate price increases. EBIT-margin forecasts are broadly unchanged, but FY27E EPS falls about 1% and remains 5% below consensus. Bernstein retains a €1,750 target price, based on a 2.6x relative P/E multiple to MSCI Europe, or 33x NTM+1 P/E. Richemont’s revenue forecasts are unchanged; lower operating-leverage expectations reduce FY26E-FY27E EPS by 3-4%, yet estimates remain 4% and 6% above consensus respectively because of higher top-line expectations. Bernstein maintains its CHF240 target, based on 2.1x relative P/E to MSCI Europe, or 27x NTM+1 P/E.

Analysis framework

The report begins with an alternative assessment of Chinese activity, using retail sales, investment, property, labor, confidence, demographics, and household savings to explain consumer weakness. It then traces the effect through Chinese luxury demand, company exposure, product affordability, retail networks, earnings assumptions, and relative P/E-based target-price frameworks.

Methodology notes

• Industry AnalysisSupply-demand framework

  China consumer-demand assessment

  Bernstein evaluates consumption through retail sales, employment, wealth, savings, property, and policy conditions, then links these demand conditions to luxury-sector growth.

• Industry AnalysisVolume-price decomposition

  Growth and price-positioning analysis

  The report distinguishes organic-sales growth, pricing, product mix, affordability, and category substitution to explain how luxury brands may respond to weaker consumer wallets.

• Valuation methodsP/E and PEG Valuation

  Relative P/E valuation

  Bernstein values LVMH, Hermès, and Richemont using target relative P/E multiples versus MSCI Europe, expressed also as NTM+1 P/E multiples.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Richemont

  Bernstein’s top pick in global luxury

  Strengths

  Strong Jewellery Maisons momentum, dominance in jewellery, and relatively low Mainland China exposure.

  Weaknesses

  Lower EBIT-margin assumptions reduce FY26E-FY27E EPS by 3-4%.

  Comparison

  Bernstein expects EPS to remain 4% above consensus in FY26E and 6% above consensus in FY27E because of stronger top-line expectations.

  Risks

  Potential normalization of communications spending and weaker luxury demand.

• LVMH

  Covered luxury company exposed to China-led soft luxury weakness

  Strengths

  Self-help opportunity to improve Louis Vuitton’s entry-price proposition.

  Weaknesses

  Fashion & Leather Goods FY27E organic growth is cut to +1.8% from +5.0%, reflecting a potentially soft China patch and value-for-money challenge.

  Comparison

  FY27E group organic growth is forecast at +3.6% versus +4.3% consensus; FY27E EPS is 7.3% below consensus.

  Risks

  Execution risk in restoring affordability and continued weak Chinese consumer confidence.

• Hermès

  Covered luxury company with high-end positioning

  Strengths

  High-quality opportunity to become more effective at the top end; EBIT-margin forecasts are largely unchanged.

  Weaknesses

  FY27E group organic growth is trimmed to +7.0% from +7.6%, and Leather Goods growth to +9.3%.

  Comparison

  FY27E group growth is below 7.7% consensus and EPS is 5% below consensus.

  Risks

  Moderating price increases and softer Chinese demand.

Key data

• China retail-sales growth+0.4% y/y in AugustFifth consecutive month with growth of 1% or less.
• Average Chinese property-price declinec.-40% since 2021Reported as a significant hit to household wealth.
• Property activity in AugustNew starts -30%; investment -26%Sales also remained down double digits.
• Youth unemployment18.9%Latest reading cited by the report.
• Age 30-50 population-14.4 million from 2020-25; -46.9 million projected from 2025-30The latter represents a projected 7.3% decline versus 2025.
• LVMH Fashion & Leather Goods FY27E organic growth+1.8%Cut from +5.0%; versus +3.8% consensus.
• LVMH FY27E EPS revision-5.6%Leaves Bernstein 7.3% below consensus for FY27E.

Impact & implications

Bernstein expects sustained Chinese consumer weakness to lower global luxury growth and put greater weight on brand relevance, affordability, jewellery exposure, geographic diversification, and disciplined retail-network management. It sees companies with strong jewellery franchises or lower Mainland China exposure as better insulated, while brands dependent on soft luxury or lower-tier Chinese stores face tougher execution challenges.

Risks

• A more severe deterioration in Chinese employment, wages, property wealth, or consumer confidence could further weaken luxury demand.
• China’s exports may weaken as strong comparisons are lapped, trade tensions with the EU escalate, or AI data-center-related demand slows.
• Luxury brands risk losing relevance if consumers view their products as unaffordable, while indiscriminate price cuts could damage brand equity.
• Smaller brands with lower-tier China store exposure may face unsustainable store economics and difficult closure decisions.

What to watch

• China retail-sales growth, household-savings drawdowns, consumer confidence, and youth employment.
• Property activity and price trends outside Tier 1 cities, where the report sees continued weakness.
• Whether export support fades as comparisons toughen and EU-China trade tensions approach a mid-October decision point.
• Any shift from incremental stimulus toward direct household support and consumption-led policy.
• Luxury companies’ pricing, entry-level product initiatives, jewellery performance, and lower-tier China store optimization.