Why Luxury Goods Companies’ Revenues Are Forecast to Climb

Summary

• Goldman Sachs Research forecasts a 7% revenue increase for a basket of large, publicly traded luxury-goods makers in 2027, up from an expected 6% growth in 2026.
• Luxury stocks saw market capitalization rise in 2022 following the pandemic-induced market swoon, driven by exuberant spending before a period of aggressive price hikes \& slower innovation.
• Share prices \& earnings estimates for luxury makers have fallen over the past three to four years, resulting in valuations that are neither particularly attractive nor stretched.
• Sales momentum, rather than valuation alone, is viewed as the primary catalyst for future investor activity in the sector.
• Multiple factors weighed on spending decisions, including China's property slump, US tariffs in 2025, jittery equity markets, midterm elections, higher rates, \& geopolitical tensions in the Middle East.
• Strategic inertia among luxury brands is attributed as the main constraint on recent performance, alongside price hikes estimated at around 60% between mid-2019 \& mid-2026.
• Aggressive price increases \& limited innovation led to diminished consumer interest \& reduced store traffic, though new CEOs \& creative directors have begun presenting collections.
• Consumer recognition of new brand directions is expected to take three to four collections.
• The US is considered an emerging market for luxury goods as American consumer appetite has picked up strongly since the pandemic, despite a historical disconnect between high wealth \& low demand.
• South Korean demand growth remains fragile due to its link to the country's volatile tech-heavy equity market.
• Hong Kong's importance has diminished over time, but the market shows signs of recovery supported by local consumers \& visitors from mainland China.
• Luxury goods companies covered by Goldman Sachs have recorded average top-line growth of 6% annually over the past 25 years.
• Sales levels currently exceed what a 6% compound annual growth rate would have implied since before the 2019 pandemic.
• A long-term growth framework includes seven Cs: clout, categories, consumer caliber, creativity, consistency, codes \& icons, \& corporate considerations.
• Bigger brands tend to secure better locations \& benefit from lower rent as a percentage of sales.
• Jewelry is identified as having better growth potential than beauty products.
• High-net-worth consumers are noted for their relative resilience, making high-end brands more resilient.
• Corporate considerations include the fact that many luxury-goods companies are partly owned \& run by family members.