China's Luxury Spending Shows Signs of Life as European Fashion Houses Cautiously Optimistic

European Luxury Brands Spot Early Signs of Recovery in China

Europe's leading luxury conglomerates are beginning to express cautious optimism about the Chinese market, as early indicators suggest consumer spending in the world's second-largest economy may be finding a floor after a prolonged slump.

A Fragile but Notable Shift in Consumer Behavior

Bloomberg Intelligence analysts Simbarashe Gumbo and Laurent Douillet note that Chinese household consumption appears to be stabilizing, with select categories — particularly high-end cosmetics — showing genuine signs of a rebound. This shift in momentum is improving overall sentiment across the luxury sector, even as significant headwinds remain.

The picture isn't entirely rosy, however. Sales across the 25 largest luxury labels in China fell by more than 10% in July, as Beijing's continued efforts to curb capital outflows and tax offshore wealth continue to suppress spending among the country's wealthiest citizens.

Brand-by-Brand Breakdown

Kering (KER.PA), the Paris-based group that owns Gucci, faces some of the steepest pressure. TD Cowen analyst Oliver Chen described China as "the primary source of pressure across the portfolio, though trends improved notably through the quarter." Consensus estimates suggest Kering could return to sales growth in the China region as early as the fourth quarter of 2026. CEO Luca de Meo has designated China a "top strategic priority" for the group.

Burberry Group (BRBY.L) delivered a more encouraging report, posting a 9% increase in retail sales in Greater China during its most recent quarter, fueled in part by demand from Gen Z consumers. CFO Kate Ferry pointed to localized marketing efforts — including a documentary produced in partnership with Chinese National Geography magazine — as key drivers of the outperformance. CEO Joshua Schulman described conditions in China as "actually very positive," adding that product and marketing initiatives continue to resonate in what he called "one of our largest and most important markets."

LVMH (MC), the world's largest luxury conglomerate, is also showing improvement. Analyst Chen noted that China "appears to be stabilizing after several quarters of deterioration," with the company flagging better trends for its cognac business and beauty retailer Sephora.

Hermes International (RMS) is expected to see growth in the China region accelerate, maintaining its reputation as the most consistent performer among luxury peers. Meanwhile, Moncler (MONC.MI), the Italian maker of high-end puffer jackets, has attracted positive attention from Citi analyst Thomas Chauvet, who raised his price target on the company, citing untapped opportunities in both the U.S. and Chinese markets as potential long-term growth drivers.

Rounding out the picture, Swiss luxury group Compagnie Financière Richemont SA is benefiting from tourism activity in Hong Kong and Macau, while Danish jeweler Pandora A/S is expected to see its rate of decline in the region slow over coming quarters.

The K-Shaped Recovery Problem

Perhaps the most important nuance analysts are watching is the uneven nature of this spending revival. The current uptick appears to be concentrated among high-net-worth individuals, creating what observers describe as a K-shaped recovery — where the wealthy resume spending while middle-income consumers remain cautious.

The central debate in luxury circles is whether improving sentiment can eventually broaden beyond the affluent tier to include a wider base of aspirational shoppers. Without that broader participation, the recovery's durability remains an open question.

Global Headwinds Complicate the Outlook

The tentative Chinese recovery is unfolding against a challenging global backdrop. Inflationary pressures are squeezing discretionary budgets in key markets worldwide, and ongoing conflict in the Middle East is dampening demand in shopping destinations like Dubai while also restricting tourist flows into European retail hubs.

Deutsche Bank analyst Do-Hyun Yoo offered a measured assessment: "Without a more meaningful improvement in consumer confidence and stronger import flows into China, the path to reacceleration remains uncertain."

What to Watch

For investors tracking the luxury sector, the key metrics to monitor include the breadth of China's consumer recovery, quarterly regional sales growth figures from major houses in Q4 2026, and any shifts in Chinese government policy around offshore wealth taxation or capital controls. How quickly — and how widely — spending sentiment spreads beyond ultra-high-net-worth consumers will likely determine whether the green shoots observed today can grow into a sustained industry recovery.