Shifting tastes in China signal new era for luxury: Barclays

Investing.com -- Barclays said shifting consumer behavior in China is signaling a new era for luxury goods, with the country moving away from being the industry’s most reliable growth driver.

Following a two-week trip across Hong Kong, Beijing and Shanghai, the brokerage reported that Chinese consumers are showing less appetite for luxury goods. 

Analysts cited reduced social pressure to display wealth, a sense of saturation among repeat buyers, and rising interest in wellness, travel and dining. 

Barclays said the market has matured, with brands facing tougher conditions than in past decades.

Domestic brands are also challenging the dominance of European houses. Jewellery maker Laopu Gold, for example, posted revenue growth of 251% in the first half of the year and now shares about 80% of its customer base with Cartier, Hermès and Louis Vuitton. 

The company’s rapid ascent suggests barriers to entry for local players are no longer as high, Barclays said.

The analysts described China as a battleground for market share, with brands needing to strengthen storytelling, product offerings and in-store experiences to maintain relevance. 

Luxury malls are adapting by adding wellness and lifestyle concepts, and by incorporating Chinese labels such as Songmont alongside international names.

Barclays adjusted its stock views based on on-the-ground feedback. Burberry’s price target was lifted to GBP1,360 from GBP1,250, with fiscal 2026 EPS raised 5% to £0.21, after stronger performance driven by merchandising changes and refreshed collections. 

Moncler’s target rose to €56 from €55, with EPS nudged up 1% to €2.18. Hermès, however, was revised lower as growth in Asia Pacific lagged. 

The brokerage cut its fiscal 2026 EPS forecast 2% to €51.02 and lowered its price target to €2,510 from €2,640. 

LVMH’s €530 target was maintained, with Louis Vuitton showing improvement from marketing campaigns in China while other divisions stayed weak.

The sector remains polarized. Hermès recorded double-digit sales growth in the third quarter of 2025, while Gucci’s sales were down nearly 19%. 

Watches continued to post strong double-digit declines. Burberry and Moncler showed modest growth. 

Overall, organic growth across the sector averaged -2% in the first half of the year and was still negative in the third quarter.

Margins reflect these dynamics. Hermès leads with EBIT margins above 40%, while Burberry is projected to recover from 1.1% in 2025 to 13.8% by 2028. 

Moncler maintains margins near 29%, and LVMH is expected to stabilize at around 22%. By contrast, Kering is forecast to post 12–14% margins, reflecting Gucci’s slump.

Stock performance has tracked this divergence. Burberry has risen 27% year to date, Prada 8%, while Swatch and Ferragamo are down 32% and 25% respectively. The sector’s forward P/E multiple stood at about 23 times, broadly in line with the 10-year average.

Macroeconomic pressures are compounding the slowdown. Housing prices continued to fall, weighing on household wealth, while consumer confidence and employment remain subdued. 

Barclays estimated Chinese luxury spending dropped 11% in the first half of 2025 and forecast a 10% decline for the year. 

Between 2026 and 2030, growth is projected at 5%-6%, below the double-digit rates of earlier years. To sustain overall sector growth of 6%-7%, U.S. demand would need to rise 9%-10%.

Barclays maintained a neutral stance on the sector, saying the era of easy expansion in China is over. Luxury brands must now work harder to compete in a more mature market where value, experience and innovation carry greater weight.