It has been a fallow couple of years for the luxury goods sector. Economic fragility has meant shoppers in Europe, China and the US have been reluctant to splash their cash on handbags, watches and shoes. According to management consultancy Bain and the Italian luxury goods association Altagamma, global spending on luxury remained flat in both 2025 and 2024.

President Trump’s tariff trade war weighed heavily on sentiment. Since last July, European Union exports to the US have been subject to a 15 per cent tariff, impacting the luxury sector across the bloc, but especially the luxury groups based in France and Italy, such as LVMH and Kering.

One notable exception is Swiss conglomerate and Cartier owner, Richemont. Trump imposed a 39 per cent tariff on all imports from Switzerland, which isn’t in the EU, in August 2025, though this was later reduced to 15 per cent in November.

Easing tariff tensions towards the end of 2025 was good news for luxury stocks. The STOXX Europe Luxury 10 index had declined 4.5 per cent in the first six months of the year, but ended up posting an annual return of 7.5 per cent. The index tracks the performance of ten of the continent’s top luxury stocks, including Burberry, Kering, LVMH and Christian Dior.

The luxury market also entered 2026 on a strong footing. Bain and Altagamma project that the personal luxury goods market will see growth of 3-5 per cent this year. BNP Paribas has also forecast organic sales will grow 6 per cent. However, equity researchers at the French bank have warned that the outlook remains clouded because of concerns regarding global trade, the macroeconomic situation and currency fluctuations.

Uncertainty reared its head once again when Trump threatened eight European countries with a new tariff to try to pressure them to let the US take Greenland. In response, the EU put the approval of a trade deal between the bloc and the US on hold indefinitely. Just a matter of hours later, Trump backtracked on his threat.

While the Supreme Court has since ruled that many of Trump’s tariffs were unconstitutional, rendering them void as of February 2026, his antics saw luxury stocks temporarily drop to a three-month low across the board on 20 January. Meanwhile, according to Bloomberg, analysts at Bank of America think much of the sector’s recovery has already been priced into the stocks. This raises questions about how much further they could rise this year.

Creative resets and reshuffles

For investors looking to increase their exposure to luxury stocks, there are a few things they should bear in mind.

The Bain-Altagamma study found that as much as 40 per cent of all luxury goods were sold at a discount last year, hurting the sector’s profit margins. Fei Chen, founder and CEO of research investment platform Intellectia.AI and former managing director at Citigroup’s Asia-Pacific unit, advises investors to “pay attention to which brands are resisting the temptation to over-expand or over-discount, because long-term value in luxury is built on restraint.”

He adds: “Growth in luxury in 2026 will come from doing less, better. The companies that win will be the ones that protect scarcity and demonstrate pricing discipline and brand coherence – even if that means slower volume growth.”

Thomas McGarrity, head of equity portfolio management at RBC Wealth Management, believes “improved footfall trends from subdued levels” and “product innovation that drives consumer engagement” are going to be key to any recovery.

“With respect to this, there were numerous creative director changes among luxury brands last year,” points out McGarrity. Most noticeably, there was a major leadership reshuffle at LVMH, with creative director appointments at fashion houses Fendi and Loewe. They are part of a “creative renewal”, as LVMH CFO Cécile Cabanis put it on the luxury group’s third-quarter earnings call.

Other companies have looked to counteract sluggish sales with new business strategies. In November, Kering CEO, Luca de Meo, who was appointed in June and took the helm in September, reportedly argued that the luxury group needs to reduce its reliance on Gucci. In an internal memo, De Meo told senior employees that he plans to establish an investment arm, dubbed ‘House of Dreams’, to acquire and scale emerging brands.

McGarrity adds that “new collections that reignite excitement have the potential to drive a recovery in luxury trends as we move through 2026.”

All eyes on Chinese consumers

The extent of luxury’s recovery in 2026 is likely going to hinge on demand in China, where sales declined between 6 and 8 per cent last year, the Bain-Altagamma research shows. China’s luxury market slumped between 18 and 20 per cent in 2024 on the back of a 12 per cent growth rate in 2023.

This year could also be challenging. Europe’s luxury heavyweights are facing increased competition from local brands that Chinese consumers believe offer better value for money. “I do think Chinese demand is returning, but not in the same way as before. Spending is becoming more selective and more domestic. Indiscriminate luxury buying abroad is fading and being replaced by a focus on heritage, craftsmanship, and brands that still feel special,” says Chen. “This shift actually benefits the strongest houses.”

As for which luxury stocks could be ones to watch in 2026, Chen likes Hermès – the French firm has long limited production of its prized handbags, which has increased their scarcity and boosted exclusivity. LVMH “benefits from diversification”, he adds, while Richemont “is interesting where it leans into high-end jewellery rather than volume-driven fashion”. He is, however, cautious on luxury groups that “rely heavily on trend-led brands, where demand can turn quickly”.

Read more: How to invest in 2026