Berenberg’s sell rallies call rests on a structural slowdown: reports cite 2%–3% annual medium term luxury demand growth versus a historic 6%, and 25%–35% valuation downside. The main pressure points are constrained Chinese spending, squeezed aspirational consumers, weak Gen Z engagement, and resale or dupe alternat...
What are Berenberg’s main reasons for urging investors to sell rallies in European luxury stocks, and how do issues like slowing luxury demaAI-generated editorial illustration of luxury storefronts and market pressure.
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Berenberg’s warning on European luxury stocks is best read as a demand call, not a fashion call. The bank argues that rebounds in names such as LVMH and Kering are vulnerable because the sector is adjusting to weaker underlying growth, not simply waiting for new designers, brand resets or pricing adjustments to reignite the old cycle .
Key takeaways
Berenberg says the luxury supercycle is over after three decades because the sector faces a structural demand problem; reports citing the note say medium-term demand growth may slow to 2%–3% per year versus roughly 6% historically .
The bank identifies constrained Chinese consumption, a sustained squeeze on aspirational spending, and weak Gen Z engagement as defining headwinds for the 2020s .
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What is the short answer to "Berenberg’s Bear Case for European Luxury Stocks"?
Berenberg’s sell rallies call rests on a structural slowdown: reports cite 2%–3% annual medium term luxury demand growth versus a historic 6%, and 25%–35% valuation downside.
What are the key points to validate first?
Berenberg’s sell rallies call rests on a structural slowdown: reports cite 2%–3% annual medium term luxury demand growth versus a historic 6%, and 25%–35% valuation downside. The main pressure points are constrained Chinese spending, squeezed aspirational consumers, weak Gen Z engagement, and resale or dupe alternatives to full price luxury [4][53][56].
What should I do next in practice?
Prime luxury rents are still rising in parts of Europe, which signals scarce flagship space but can pressure margins if sales growth disappoints [33][37].
The countercase is a 2026 recovery: HSBC upgraded LVMH and Kering on expectations that Chinese consumers will become more engaged, while UBS projected 5% organic sales growth for European luxury in 2026 .
1. Berenberg thinks the problem is demand, not supply
Berenberg’s central point is that luxury’s downturn is not mainly about product execution. Investing.com reported that the broker argued optimism around creative resets and pricing adjustments misses the core issue: demand, not supply . FashionNetwork reported that the team led by Nick Anderson cut LVMH to hold from buy and Kering to sell from hold while saying the industry faces a structural demand problem and that the luxury supercycle is over .
That is why the bank says rallies should be sold. If investors still value luxury groups against the growth and valuation backdrop of the past cycle, a lower-growth regime implies more downside. GuruFocus reported that Berenberg sees average valuation downside of 25%–35% compared with levels from the past nine years . The bank also noted that 2025 was set to mark only the third time in three decades that global luxury revenues decline for two consecutive years, after the dot-com bust and the global financial crisis .
2. China is still the swing factor
China is the biggest uncertainty in the call. Berenberg says the 2020s will be shaped partly by constrained Chinese consumption . MarketScreener’s coverage of a Berenberg note said the bank viewed China as central to the 2026 luxury outlook and compared the pressure on Chinese households to a balance-sheet recession after property-market weakness .
The evidence is not one-way. Reuters reported that LVMH’s third-quarter 2025 sales rose 1% year over year, with the domestic Chinese market turning mid- to high-single-digit positive, a result that sent LVMH shares up 14% and sparked a broader sector rally . But FashionNetwork cautioned that investors betting on a fast China rebound may be disappointed because many Chinese consumers are still dealing with housing-market stress, youth unemployment and weak confidence .
3. Aspirational buyers are where price power is being tested
Berenberg’s worry is especially acute for aspirational spending, which it describes as under a sustained squeeze . Reuters-linked coverage ahead of LVMH results said investors wanted more action to win back shoppers alienated by hefty price increases . That matters because the sector’s post-pandemic playbook relied heavily on price increases and trading-up behavior; if entry-level or occasional luxury buyers push back, revenue growth becomes harder to sustain.
Bain’s broader market data supports a more subdued backdrop. The firm estimated that overall luxury spending totaled €1.44 trillion globally in 2025, down 1%–3% from 2024 at current exchange rates, with constant-currency performance ranging from a 1% decline to a 1% increase . That is not a collapse, but it is closer to normalization than to a rapid return to the old boom.
4. Gen Z is growing, but not necessarily buying luxury the old way
Gen Z is not irrelevant to luxury. McKinsey says Gen Z spending is growing twice as fast as that of previous generations and could surpass baby-boomer spending by 2029, helped by an estimated $15 trillion to $20 trillion wealth transfer to Gen Z and millennials . The problem for incumbent luxury brands is conversion: Berenberg explicitly flags a lack of engagement by Gen Z as one of the sector’s structural headwinds .
Alternative channels are scaling at the same time. BCG and Vestiaire Collective estimate the secondhand fashion and luxury market at $210 billion to $220 billion today, growing to $320 billion to $360 billion by 2030 at a 10% annual rate, roughly three times faster than the firsthand market . EY’s 2025 Luxury Client Index also found that in Mainland China, 50% of clients seek flexible payment options and 25% seek high-quality alternatives such as dupes; EY also found that 54% of surveyed clients would buy a pre-owned product directly from a luxury maison .
That does not mean young consumers reject luxury. It means some may prefer access, resale value, pre-owned goods or luxury-coded alternatives over paying full price for new products.
5. Share-price weakness supports the caution, but does not settle it
LVMH and Kering have already absorbed meaningful pressure. Reuters-linked coverage in July 2025 said LVMH shares were down nearly 27% since the start of that year and Kering was down 15%, while Hermès and Richemont were little changed . After a January 2026 Berenberg note, MarketScreener reported that Kering fell 3.74%, LVMH fell 2.81%, L’Oréal slipped 2.36%, Hermès fell 2.43%, Burberry lost nearly 4% and Richemont dropped almost 3% .
A falling share price does not prove the downside is over. Berenberg’s valuation argument is that stocks still embed too much of the old growth trajectory . At the same time, the sector is not uniform: the July 2025 share moves suggested that companies more exposed to wealthier clients, such as Hermès and Richemont, were holding up better than LVMH and Kering .
6. Prime retail rents are a double-edged signal
Luxury retail real estate is not behaving like a demand collapse. Cushman & Wakefield said European luxury-street rents continued to rise through 2024, with luxury-street rental levels at the end of 2024 averaging 3% above end-2018 levels, while non-luxury high streets remained 10% below . Savills research reported that around 50% of European prime luxury streets could see rental growth over the coming year .
But rent momentum is also becoming more selective. Savills reported that average prime headline rents across 27 core luxury destinations rose 0.9% in 2025, down from 6.6% growth in 2024 . For brands, that is mixed: scarce flagship locations protect visibility, but rising fixed occupancy costs become harder to absorb if Berenberg’s lower-growth demand view is right .
7. Why analyst forecasts diverge
The disagreement is over the speed and quality of any recovery. HSBC upgraded LVMH and Kering to buy in September 2025, saying Chinese consumers were likely to become more engaged and that both groups could return to decent, profitable growth in 2026 . UBS projected 5% organic sales growth for European luxury in 2026 after flat 2025 performance, with earnings per share expected to rise 12% after a 12% drop; UBS said the turnaround hinged on stabilizing Chinese demand .
Berenberg’s counterargument is that the old formula has weakened: China is no longer a guaranteed growth engine, aspirational shoppers are more price-sensitive, and Gen Z may not engage with legacy luxury in the same way as older buyers . Under that view, rallies are exit points rather than proof that the supercycle has restarted.
Bottom line
Berenberg’s sell-rallies thesis is strongest if China improves only modestly, aspirational consumers remain price-sensitive, and younger shoppers keep moving part of their spending into resale, pre-owned products or dupe alternatives . It is weakest if China’s recovery accelerates and leading brands restore full-price growth without renewed margin pressure .
The practical conclusion is not that every luxury stock is equally vulnerable. It is that the sector has become more selective: brand heat, customer wealth, China exposure, rent burden and valuation now matter more than simply buying any rebound as if the three-decade luxury supercycle were still intact .
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