Luxury Sector Volatility Amid Macroeconomic Headwinds: Is Kering Overvalued in a Downturn?

The luxury sector, long a barometer for global wealth and consumer confidence, has entered a period of turbulence in 2025. Macroeconomic headwinds—ranging from inflationary pressures to shifting trade policies and regional demand imbalances—have exposed vulnerabilities in companies overly reliant on aspirational luxury consumers. Kering, the Paris-based conglomerate home to Gucci, Yves Saint Laurent, and Bottega Veneta, finds itself at a crossroads. Despite a stock price that has outperformed its European peers in a weak market, Berenberg's recent downgrade to a “hold” rating and a slashed price target to €160 raises critical questions: Is Kering's valuation resilient enough to weather the storm, or is it trading at a premium to fundamentals in a structurally challenged segment?

Macroeconomic Sensitivity: A Double-Edged Sword

Kering's fortunes are inextricably tied to aspirational luxury demand—a segment defined by consumers spending less than €5,000 annually on luxury goods. This group, once the lifeblood of the industry, has shown signs of fatigue in 2025. A 35% pullback in spending among aspirational buyers, driven by inflationary fatigue and a shift toward savings and wellness, has hit Kering harder than its peers. The company's first-half 2025 revenue fell 16%, with Gucci's sales cratering 26% as reported. By contrast, LVMH and Richemont—whose portfolios skew toward ultra-luxury clients—have fared better, leveraging pricing power and exclusivity to buffer against macroeconomic volatility.

Berenberg's analysis underscores Kering's structural weakness: high operating leverage. The company's cost structure amplifies the impact of revenue declines on profitability, a risk magnified by currency swings and China's uneven post-pandemic recovery. While Kering's first-half earnings exceeded forecasts due to cost cuts, analysts have revised 2026 revenue projections downward by 7%, citing weak global momentum. The firm's EV/EBITDA of 10.65 and a lofty P/E of 36.39 suggest investors are pricing in a recovery that may not materialize.

Market Share Dynamics: The Aspirational Segment's Fragility

The aspirational luxury segment's decline is not just a Kering problem—it reflects a broader industry recalibration. Brands like Gucci, which once thrived on accessibility and scale, now face a paradox: they must balance mass appeal with the exclusivity that defines true luxury. Kering's recent repositioning of Gucci under creative director Demna (formerly of Balenciaga) aims to tap into the “quiet luxury” trend, but early results remain mixed. Meanwhile, LVMH's focus on heritage-driven brands like Louis Vuitton and Dior, and Richemont's dominance in high-margin jewelry and watches, have allowed these rivals to maintain pricing power even as aspirational demand wanes.

Kering's financial strategy—aggressive cost-cutting, store closures, and a €750 million bond issuance—has stabilized its balance sheet, but it risks alienating a customer base that values experience over austerity. The company's free cash flow of €2.4 billion in H1 2025 is a positive, yet its 12.8% recurring operating margin lags behind LVMH's 22% and Richemont's 20.9%. This gap highlights Kering's struggle to convert cost discipline into margin resilience.

Valuation Resilience: A Tale of Two Strategies

Comparing Kering's valuation metrics to its peers reveals a stark divergence. LVMH trades at an EV/EBITDA of 9.88 and a P/E of 21.4, reflecting a more conservative multiple for a company with robust free cash flow and a diversified portfolio. Richemont, with an EV/EBITDA of 17.20, commands a premium for its ultra-luxury focus, but its valuation is supported by strong cash flow generation and a 9.6x forward P/E. Kering, by contrast, is priced for growth in a segment where growth is no longer guaranteed.

Strategic Opportunities Amid the Downturn

While Kering's challenges are clear, the company's long-term potential hinges on its ability to execute a dual strategy: repositioning Gucci to align with Gen Z's preference for understated luxury and leveraging its diverse portfolio to pivot toward higher-margin segments like Kering Beauté and Eyewear. The appointment of Luca de Meo as CEO in September 2025 signals a shift toward operational rigor, a trait that has historically underpinned LVMH's success.

For investors, the key question is whether Kering's current valuation reflects a temporary setback or a fundamental shift in consumer behavior. A P/E of 36.39 implies earnings growth expectations that may not materialize in a prolonged downturn. However, Kering's market share in aspirational luxury—though shrinking—remains significant, and its agility in adapting to trends could create asymmetric upside if the sector rebounds.

Investment Thesis: Caution and Selectivity

The luxury sector's volatility in 2025 demands a nuanced approach. Kering's valuation appears stretched relative to its peers, particularly given its exposure to macroeconomic headwinds and the aspirational segment's fragility. Investors seeking downside protection may prefer LVMH's diversified model or Richemont's ultra-luxury focus, both of which have demonstrated superior resilience.

That said, Kering's strategic overhaul—led by de Meo and bolstered by Gucci's repositioning—offers a compelling case for long-term holders. For those willing to tolerate near-term volatility, the company's current valuation could represent a discounted entry point if its turnaround gains traction. However, the path to recovery will require more than cost cuts; it demands a cultural shift in how Kering defines and markets luxury in an era where exclusivity trumps accessibility.

In a fragmented market, patience and selectivity are paramount. Kering's story is far from over, but its next chapter will be written against a backdrop of macroeconomic uncertainty—and the luxury sector's most resilient players will be those who adapt, not just endure.