Big luxury’s wealth-effect engine could backfire

LVMH Moet Hennessy Louis Vuitton SE

29/07/2026 11:30

The author is a Reuters Breakingviews columnist.  The opinions expressed are her own.
By Yawen Chen
LONDON, July 29 (Reuters Breakingviews) - Big Luxury increasingly has a similarly sizable driver. Kering PRTP.PA, LVMH LVMH.PA and Hermès International HRMS.PA all used their latest quarterly results to trumpet the role the U.S. consumer is playing in propping up their revenues. They'd be advised not to take that for granted. 
Kering's better-than-expected second-quarter results suggested investors may be becoming more willing to look beyond Gucci's long turnaround and China's persistent luxury slowdown. The $40 billion French group's strategy still lacks oomph. But its shares jumped 12% after quarterly sales returned to growth for the first time in around two years, Gucci's revenue fell less than analysts had expected, and operating profit comfortably beat forecasts.
In recent years, this would have been down to a reversal in the normal trends - China's economic weakness and its property slump. Kering, instead, emphasised that North America was Gucci's key growth driver. Barclays analysts estimate the group's North American sales grew 11% in the quarter, versus a 1.8% decline in Asia-Pacific. LVMH and Hermès pointed to a similar trend, with the U.S. faring particularly well. 
The data helps explain why. Bank of America card figures show U.S. spending on "soft" luxury goods - like leather goods and fashion clothing - rose 14% from a year earlier in the second quarter, with the strongest growth in the United States and South Korea. Investors increasingly appear to believe luxury's next recovery will depend less on a rebound in China than on rising U.S. household wealth.
Whether that proves a safer bet is another question. Hermès Chief Executive Axel Dumas said on Wednesday that stock market gains rather than GDP growth now drive luxury purchases. Goldman Sachs analysts flag that most of these equity gains have been driven by a relatively small group of companies building AI infrastructure. In a scenario in which AI-related stocks grow by 55% and other stocks rise by 20% over the next year, Goldman reckons wealth effects would boost U.S. consumption growth by 0.7 percentage points. In a downside scenario in which AI-related stocks decline by 40% and other stocks decline by 15%, a 0.3 percentage point drag on consumption growth would ensue.
The semiconductor sector illustrates both the opportunity and the risk. The VanEck Semiconductor ETF SMH.O climbed roughly 70% between the end of March and the end of June before giving back about a fifth of those gains on AI capex concerns. Shares in memory-chip maker Micron Technology MU.O more than tripled over the same period before retreating sharply. Despite sharp share price declines this year, most leading luxury groups still trade at well above 20 times expected 12-month forward earnings. But if the companies driving today's AI investment boom were to suffer a sharp market reversal, luxury's new growth engine would quickly go into reverse.
     
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CONTEXT NEWS
Gucci owner Kering on July 29 reported second-quarter sales that rose 2% from a year earlier, marking its first quarter of growth in about two years. Gucci's sales fell 2% from a year earlier, a smaller decline than analysts had expected according to Reuters. Kering's shares were up 12.2% as of 0915 GMT on July 29. 
Hermès International reported 6.7% year-on-year sales growth in the second quarter on July 29. Chief Executive Axel Dumas said, "What drives purchases today is the real estate market in a country. And the stock market, more than the growth of GDP." He added that China's property downturn had weighed on consumer confidence and spending.
French luxury group LVMH reported 3% year-on-year organic sales growth in the second quarter on July 27. Asked whether the industry had become too dependent on wealthy consumers, Chief Financial Officer Cécile Cabanis said: "Wherever there is wealth creation, which we have seen in the U.S., which we have seen in Korea, there is a strong appetite for luxury and a strong appetite for our goods all across clienteles."

(Editing by George Hay; Production by Streisand Neto)
((For previous columns by the author, Reuters customers can click on CHEN/yawen.chen@thomsonreuters.com))