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The great rotation in luxury markets

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Changes in US trade policy may have pressured luxury brand equities, but Flavio Cereda, Investment Director of the Luxury Brands strategy, sees performance emerging more selectively and expects any slowdown to be milder than feared.

11 June 2025

I was in Paris in May for the two big luxury conferences meeting 15 corporates and attending a dozen or so events and presentations. This is a yearly event and has proved to be very important in the past – was it this time?

Yes and no. Good stocks and bad stocks as ever.

So where are we on the key metrics?

We cut our fiscal year (FY) sector growth forecasts in April from 3-4% to 1-2% in the wake of US tariff announcements and related disruption, the issue being not tariffs per se but the possible impact on the US consumer cohort. After attending the Paris conferences, I see no reason to change this assumption. The mood was cautious, but exactly as expected.

Is US spend slowing down?

In luxury, it is mostly a matter of consumer quality and brand momentum. That said, we have seen some derating, because the market expects a slowdown which has not yet materialised.

In a way we are all ‘waiting for Godot’, which we think a slowdown will turn up, but it could be less ugly than feared. So yes, we expect some deceleration in US spend, but the magnitude remains uncertain. What is clear is that we favour quality names with momentum. We now forecast +2% growth for the American consumer cluster, driven by +4-5% growth in non-US spend. Given the volatility post-tariff disruptions, we have reduced exposure from 40% to 34% as we expect the lack of visibility to last for some time.

Is China improving?

Not quite yet, but the signs are turning more positive heading into H2. Recent conversations with brands and especially mall operators are mildly encouraging, and the comps are getting very undemanding. As a reminder, the issue here has been consumer confidence, not consumer capability. The Chinese consumer remains a wealthy cohort, with significant savings. The issue is when and where they will spend. There is no structural rethink going on, but there is a shift in demand. Economic uncertainty has reshaped perceptions of value, and for some brands, the proposition simply no longer resonates.

We continue to forecast 0% growth for the Chinese cluster (versus -5% last year), compared to -4 to -5% for China overall. We believe there could be upside here. Reflecting this, we have increased exposure back to 38%, in line with last summer, up from 33%.

What about Europe?

The European consumer is probably around flat to slightly negative this year. However, Europe will continue to benefit from tourist spend, which we estimate that could be up 3-5%, potentially more if US tourists flows remain strong. Price differential remains a key driver: you can save 30-35% buying in Milan versus New York, and over 40% if tariffs stay.

A word about tariffs again: In luxury, the concern is not the tariff per se. Existing tariffs were already around 15%, and the proposed additional 10% applies to the transfer price - not the retail price. Based on our estimation, that would translate to a 3-4% retail price increase, which many brands are already implementing. The real issue is the potential impact on consumer confidence, which underpins our continued cautious stance that we outlined earlier. Perhaps a weaker dollar is more of a concern to be honest.

How has our outlook evolved?

We have adjusted our view to reflect a more complex global backdrop. While some regions continue to face headwinds, there are encouraging signs of resilience, particularly among Chinese consumers, where momentum is beginning to build. We remain focused on identifying brands with strong underlying performance and the ability to navigate uncertainty, confident that quality and selectivity will continue to drive returns through the next phase of the cycle.



Flavio Cereda manages the Luxury Brands Equity strategy at GAM Investments.

Flavio Cereda

Investment Director
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