Why did the post-pandemic luxury boom fade?

  • Consumers released pent-up demand after the pandemic, and the global luxury market grew by approximately 22% from 2020 to 2023, far above the approximately 9% growth rate in the 20 years before 2019. The industry subsequently entered a correction, and profit margins returned to pre-pandemic levels.
  • Bernstein attributes the correction to three forces: a prolonged cyclical downturn in Chinese demand, excessive price increases by leather goods and fashion brands, and longer-term pressure on middle-class consumers who aspire to buy luxury goods.

How long will a recovery in Chinese consumption take?

  • Chinese consumers were once one of the industry's most important growth engines. Their share of global personal luxury goods spending rose from near zero at the beginning of the century to 33% in 2019, before falling to 24% in 2025. Following the property market correction, wealth and consumer confidence will take time to recover.
  • Recovery signals are mixed: Bernstein has observed rising home prices in Hong Kong and a bottoming out of prices in Shanghai; but prices in lower-tier cities are still falling. From 2022 to 2026, median real disposable income per capita in China grew at an average rate of 5.1%, below the 9.3% recorded from 2014 to 2019.
  • LVMH data show that Chinese consumer demand for its fashion and leather goods business fell by approximately 15% in the third quarter of 2026, including a decline of more than 10% in domestic demand. Drawing on past experience following property market crashes, Bernstein believes Chinese consumers may need more than three years to regain confidence in spending.

Why have leather goods price increases helped jewelry outperform handbags?

  • Bernstein believes post-pandemic price increases for leather goods far outpaced inflation, raising brand gross margins and the multiple of selling prices to manufacturing costs, while also weakening middle-class consumers' willingness to buy. By contrast, despite a sharp rise in gold prices, price increases for hard luxury goods such as jewelry were more restrained, and jewelry consequently grew faster than handbags over the past three years.
  • In the French market, for example, the price of a medium Lady Dior rose from 3200 euros in 2016 to 5900 euros in 2024. Assuming a gross margin of 90% in 2016 and subsequent manufacturing cost increases in line with Italian inflation, Bernstein estimates that the multiple of the selling price to manufacturing cost rose from 10 times to 15 times.
  • Brands are trying to lower entry prices: Chanel's new maxi-flap is priced below the classic model; Bernstein expects LVMH to address price accessibility in fiscal 2027. The firm believes leather goods and fashion price adjustments could bring jewelry's exceptionally rapid growth back toward normal over the next 12 to 24 months, but directly cutting prices of existing products could damage brand equity.

Which consumers will drive long-term growth?

  • Bernstein expects deglobalization and AI adoption to squeeze the pay and employment of white-collar middle-class workers over the next 5 to 10 years, further polarizing consumption. It therefore judges that growth is more likely to come from the high and low ends than from the middle-class customers who drove industry expansion over the past three decades and more.
  • There are already signs of this divergence: US household wealth data cited in the report show that the wealth share of the richest 1% of households rose from 22.7% in 2022 to 25.2% in 2026; in the global luxury industry, the growth advantage of jewelry brands and Coach over the industry has also widened since 2024.
  • Bernstein believes high-end specialist brands, jewelry brands and mass-market fashion retailers each have opportunities; but viewing the industry solely through the lens of long-term AI pressure could mean missing the cyclical improvement brought by a recovery in Chinese consumption and pricing adjustments by major brands.