- Headwinds like affordability, value proposition and shifting preferences have weighed on the luxury retail sector with LVMH share price falling c.14% within 3 years1
- Amancio Ortega, founder of Zara parent company, Inditex, is thought to be the 12th richest person in the world with a net worth of c.$138.4 bn2
- Fast fashion contributes to nearly 10% of global carbon emissions and 20% of wastewater4
With Christmas just around the corner, this weekly article will discuss the macroeconomic headwinds that have affected luxury and fast fashion retail at a time when other areas of the market are at record highs. While companies such as Watches of Switzerland rebounded strongly after the initial pandemic sell off, their share price has since fallen.
Watches of Switzerland total return over 6 yearsÂ
Source: Alpha Terminal as at 12/12/2025
This can be attributed to a few factors. Firstly, luxury brands’ value proposition was arguably diluted during the pandemic in an effort to retain appeal within the lock-down rules. We saw mass broadcasting of usually highly exclusive fashion shows by brands like Dior and Louis Vuitton, as well as democratisation with brands such as Cartier featuring ‘entry-level products’ like their trinity ring on third party websites, as well as starting a TikTok page6.
Steep price increases have also been pushed through within the luxury space. This proved to be an uncomplimentary factor when many brands simultaneously decreased exclusivity, a main aspect for a luxury brand’s desirability. Not all brands though – with Hermes, well known for their leather goods, including the famous Birkin bag, retaining their ultimate luxury status whilst increasing prices by 6-7% annually, increases higher than their luxury peers5.
Furthermore, as we have discussed in multiple notes this year, Chinese consumer sentiment and spending remain subdued. Western luxury brands, having seemingly become aspirational to the growing wealthy middle class in China, have become dependent on a continuation of the trend to support earnings growth. In 2008, the Chinese consumer was responsible for c.12% of global luxury spending, whereas now that figure is estimated to be around 44%7. With such a vast portion of the consumer base still not spending at pre-pandemic levels, earnings growth in the sector has come under pressure8.
Louis Vuitton have notably gone to extreme lengths to attract Chinese consumers, with the opening of their ship shaped flagship store ‘The Louis’ in Shanghai earlier this year. Combining high-end retail with eateries and exhibition space, The Louis not only outperforms other Louis Vuitton flagships by daily sales, but 60% of its revenue comes from new clients according to research by CBRE9.
Fast fashion
The New York Times first coined the phrase ‘fast fashion’ in the 1990s to illustrate how quickly Zara was translating catwalk trends to the mass market at affordable prices. Since then, the global fast fashion market has grown at pace and was valued at $148.23bn last year10. The Asia Pacific region dominates market share with a concentration of 34.67% including brands like Shein and Uniqlo3. It is with such fierce price competition now in the market that European brands like Zara have recently reevaluated their strategy, unable to compete with ever cheaper alternatives, and changed tact to move towards the luxury space instead.
This is no straightforward task, with only few brands successfully navigating an increased price point while retaining customers. Brands that come to mind could be Porsche with their average cost tripling over 20 years and new car purchases requiring an official reservation to buy, or Dior ending its eyewear licencing agreement to reinforce its high-end exclusive luxury status
Bowmore Portfolios
We have very little exposure to the luxury retail sector within core portfolios. Our largest consumer cyclical exposure is currently by way of Marks & Spencer Group, owing to an increased allocation to our domestic market’s income style as well as Amazon, reflecting its dominant weighting in the US. As we spoke about in last week’s note, with such divergence in consumer spending we have concerns around luxury brand earnings, since consumers who can afford such brands haven’t had as much appetite for such goods generally since the pandemic eased.
The European equity market is well known to be home to a concentration of luxury brands. It is within this same market that we choose to allocate towards an actively managed blended strategy with overweight positions in industrials and financial services. Waverton’s European Capital Growth targets investment in businesses with strong competitive positions, robust balance sheets, and the potential for sustainable earnings growth. The fund has returned 21.6% in the past 12 months.
Source: AlphaTerminal, data as at 11/12/2025
The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a guide to future performance.
Sources:
1. Alpha Terminal, 2025
2. Forbes, 2025
3. Fortune Business Insights, 2025
4. Earth.Org, 2025
5. Vogue, 2025
6. Wavemaker, 2021
7. McKinsey & Co, 2017
8. CNBC, 2025
9. Reuters, 2025
10. Fortune Business Insights, 2025