For the first time in years, analysts are feeling optimistic about luxury goods. Market players say the sector will finally return to growth next year, but companies’ performance will likely vary based on their level of exposure to different segments of their customer base, making stock selection key for luxury goods investors in 2026. JPMorgan predicts the sector will stabilize in 2026 after a difficult 2024 and volatile 2025, thanks to rising consumer confidence in China and improvements from product innovation. The luxury goods group has been battling significant sales declines over the past two years. After a post-pandemic boom, businesses struggled to gain momentum as consumers cut back on spending due to concerns about rising costs of living and job security. Despite popular belief, the luxury goods sector does not just refer to the ultra-wealthy shoppers who lived in London’s Mayfair or walked down New York’s Fifth Avenue. Equally important are so-called aspirational luxury shoppers, consumers who can afford some entry-level luxury goods but are not among the ultra-rich. “High-end jewelry and watches, hard luxury and ultra-luxury, are doing well, but the middle is falling, and the bottom is falling,” Michael Zakour, founder of 5 New Digital, said Friday on CNBC’s “Squawk Box.” “The aspirational luxury buyer has virtually disappeared,” Zakour said. “Soft luxury” items such as leather goods, handbags and clothing are in a tough spot because “aspiring luxury buyers who might have saved up for a long time to buy a $3,000 handbag are no longer buying it,” he said. JPMorgan analysts predict that rising macro volatility and a lack of awareness of the wealth effect (the idea that people spend more when they feel richer due to the rise in the value of assets such as real estate and stocks) will lead to polarized performance. Analysts’ top choice is Richemont, where its brands Cartier and Van Cleef are seen to have strong momentum. They also like Moncler, Ferragamo, LVMH and Prada. Like JPMorgan, UBS analysts are similarly hopeful that the worst is over for the luxury goods industry, predicting organic sales across the sector’s coverage will rise about 5% next year. This should be enough to drive improved profitability after two years of margin pressure, they noted in an analysis last week. UBS is cautiously optimistic about soft luxury brands, expecting their prices to rise in 2026, but expects jewelry, which typically relies on a more affluent customer base, to continue to outperform. The point of disagreement is Burberry, a British brand known for its unique plaid scarves and clothing. UBS favors Burberry, calling it an “important near-term turnaround story” and giving it a buy rating, while JPMorgan downgraded the stock to underweight last Friday. JPMorgan said in an analysis on Friday that the consensus was too optimistic about expected improvements at Burberry next year. “While Burberry has shown stable sales density over the past 12 months, we believe there will be higher execution risk going forward as a number of simple fixes have been implemented (such as strengthening scarves and outerwear, and improving marketing campaigns and brand messaging).” Risks Remain The wealth effect is currently supporting strong US demand, but it goes both ways. Therefore, demand could be at risk if the stock market corrects. That risk has become even more pronounced given recent market valuations and agitation over the AI bubble. China is another pressure point. The country’s consumers have shown signs of recovery, especially in recent earnings cycles, but many say it is too early to talk about a full recovery. Chiara Battistini, head of European luxury goods at JPMorgan, told CNBC in November that it was “too early to call it an upturn, a complete turnaround” and that the improvement defied easy comparison standards. Macro pressure from China could also make the economic recovery unstable. Looking ahead to 2026, companies are focusing on innovating their product lines, which is likely to further intensify competition in the fashion sector. Luxury goods could also begin to grapple with “consumer fatigue,” where customers face increasing fatigue with brands’ aggressive pricing post-pandemic without any improvement in quality.
