What: LVMH and Hermès have each fallen 40% this year to their lowest valuations in 12 years, as weak Chinese demand, rising interest rates and fading pricing power delay the luxury sector's recovery.

Why it is important: Analysts expect luxury demand to keep concentrating among top-tier clients while middle-income spending weakens, which reinforces the case for department stores to invest in VIC services and a broader price ladder.

The MSCI Europe Textiles Apparel and Luxury Goods index is down 25% this year and almost 40% from its last record high, the sector's largest drawdown since the GFC. Subdued Chinese demand, geopolitical tension, rising interest rates and weaker pricing power have derailed hopes of a recovery, and 2026 price increases are set to be the lowest since 2019.

LVMH and Hermès are both down 40% this year, at their lowest valuations in 12 years. LVMH trades at a record 30% discount to the sector, with a forward P/E below 16, while Hermès' premium has shrunk from 100% to 22% in 18 months.

UBS views the downturn as cyclical and favours Richemont and Watches of Switzerland. Morgan Stanley sees little room for multiple expansion over the next 12 months, citing luxury fatigue, second-hand growth and wellness spending. Berenberg calls China's challenges structural, while Goldman Sachs sees 2027 as a turning point with mid-single-digit organic growth. Chanel's 16% first-half sales growth is an encouraging sign, and LVMH reports third-quarter results on Monday.

IADS Notes: The valuation reset described by Bloomberg follows a pricing correction already visible in earlier coverage. The Wall Street Journal in August 2026 reported that LVMH trades at a discount to Ralph Lauren after years of price increases pushed middle-income shoppers away from Louis Vuitton and Gucci and towards Ralph Lauren and Coach. WWD in July 2026 showed LVMH's fashion and leather goods division returning to 1% organic growth after seven consecutive quarters of decline, while watches and jewellery rose 11%, which confirms that the recovery is selective. Demand is also concentrating at the top: Wall Street Journal in September 2026 cited Bain figures showing that just over 2% of luxury shoppers generated 45% of purchases in 2024, and that the customer base had shrunk by about 50 million since its 2022 peak, with Prada investing in its biggest spenders as middle-class demand weakens. On China, Jing Daily in May 2026 documented the closure of Galeries Lafayette's Beijing flagship amid prolonged weak demand and more selective shoppers, a move mirrored by Lane Crawford and Harrods. Xinhua in October 2026 reported that foot traffic and revenue at 78 major shopping districts rose 3.4% and 5.3% from 1 to 3 October, with holidaymakers favouring longer trips and experience-oriented spending.

European luxury stock bulls have to wait longer for a revival