European Espresso: strategic shifts redefining the luxury goods market

Since January this year, LVMH is once again the largest company in Europe. And now that most luxury goods companies have reported, it seems timely to chat about what has been happening in the sector.

We think there are two key themes relevant for the sector in 2025. First the aspirational consumer, and second, the category divergence. On the aspirational consumer it is important to first look at what drove growth for these companies in the past few years. Since 2017, mix become a topic. Increasing mix means lifting the price architecture by introducing more expensive products. And more recently, since 2020, pricing also helped, driving strong organic growth for luxury names.

But then, in 2024, this higher-price architecture and higher pricing, coupled with a tough economic backdrop for the consumer, led to a disappearance of the aspirational consumer from the luxury stores.

So this raises the question of what luxury companies will do in order to gain back the aspirational consumer. We know that luxury goods companies cannot lower pricing, otherwise they would not be luxury goods. Price can only go up.

So they might decide to have negative mix – lower the price architecture – proposing more accessible products for the aspirational consumer. This would be important as if you lower mix you might risk underperforming your category, in terms of organic growth.

This brings us to the second theme – category divergence. A category that hasn’t nearly increased mix of pricing as much as leather goods is jewellery. The classic example (wrought by the market) is the one between Cartier and Chanel. If we think that back in 2013, you could buy a Chanel flap medium bag with one Cartier love bracelet, while in 2023, you would need one bracelet, one ring, and a Cartier watch in order to buy a Chanel flap medium bag.

In other words, this shows that the price value equation of leather goods is not as attractive as it is for jewellery. This is also what we noticed at Q4 results. If we take the two bellwether companies for the sector, Richemont and LVMH, Richemont in Q4 grew their jewellery Maison by 14 per cent, while LVMH grew fashion and leather by -1 per cent, like for like.

Another key takeaway of Q4 results was a sequential acceleration for the sector. And this acceleration was driven by the European consumer, but especially by the American consumer. This is supportive for the sector, which performed well recently in the market. But it will be interesting to see if this will sustain, or if it was more due to temporary effects, like a wealth effect driven by asset prices rising, or by a relief of a US Presidential election being over.

But all in all we think that these two themes – the aspirational consumer and a category preference for jewellery – will be themes that continue to drive performance in 2025, making this an interesting sector to own, and an interesting sector to look for the best positioned companies.

Glossary:

Pricing architecture: A strategy to position the price for a range of products, determined by a range of factors, such as customers’ ability to afford, intrinsic demand, availability or cost of production.