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Markets were rocked in the first quarter, as global uncertainties kept investors on edge, especially those hoping for a rebound in luxury demand this year.
But despite a bumpy stock market period, due in part to war in the Middle East, analysts predict that luxury’s Q1 will see a slight improvement on last quarter. HSBC anticipates a 5.5% increase in global luxury sales in Q1 2026, after a 5% increase in Q4. “The key theme is the contrast between Europe and the Middle East — both expected to be weak in Q1 — and China, which is gradually improving, and the US continuing to be solid,“ says Erwan Rambourg, HSBC’s outgoing managing director.
“For luxury, the year has started on a high note, even if war in the Middle East has brought a dark cloud of uncertainty,” Bernstein luxury goods analyst Luca Solca says. “Importantly, the Chinese have seemingly continued on a recovery path initiated in mid-2025. If confirmed, this would be a significant relief for the sector.”
The impact of the Middle East conflict
The conflict in Iran that began on February 28 rapidly escalated into a regional war. How this will impact the luxury sector is expected to be a major topic during the Q1 earnings calls. LVMH, the bellwether for the sector, saw its shares plunge 28% in the first quarter.
Exposure to the Middle East for key luxury groups averages at around 5%, according to HSBC. Some are more exposed, like Swatch or Richemont (10% and 9%, respectively), while others are less so, such as Moncler and Burberry (both at 2%). “Overall, the region’s weight is not huge, but it’s very clear that it’s going to decline quite drastically,” Rambourg says. HSBC has revised its full-year organic growth forecasts downward for the Middle East, from 6% to -5%.
Has Europe captured the lost demand? Not enough to transform the region into a growth driver, analysts say. HSBC has revised its organic growth forecasts for the full year downward for Europe, from 4% to 2.5%.
Galeries Lafayette Haussmann, whose sales surpassed €2 billion last year, offers a useful benchmark. Its sales were flat in Q1, after 4% growth for the 2025 full year. The slowdown can be credited to a decline in Asian tourist spend in Q1, confirming a trend that emerged at the end of last year. During a press conference on April 8, Galeries Lafayette CEO Arthur Lemoine partly attributed it to the Middle East crisis, as some Asian travelers pass through the region en route to Europe, while higher jet fuel costs are pushing up long-haul airfares. However, the Boulevard Haussmann flagship store in Paris saw a 14% uptick in shoppers from the Middle East in March, coinciding with the Ramadan period. “We remain vigilant,” Lemoine said.
Beyond revenues, consumer sentiment hangs in the balance. “If the conflict lasts for months, what will really suffer is the so-called ‘feel-good factor’, or the idea that you don’t buy luxury goods just because you have money, but because you feel good about yourself,” Rambourg says. “If the conflict drags on for months, consumers will face inflationary pressures and an anxiety-driven environment, so that feel-good factor will be affected.” HSBC has lowered its growth estimates for the sector in 2026, from 7% to 5.9%.
The impact of rising resource costs might also play out, especially in gas. “Middle lower income [consumers] will suffer with gas expenditures going up, and this could slightly impact discretionary spending depending on duration and severity,” says TD Cowen analyst Oliver Chen. “Gas surcharges will not necessarily impact luxury so quickly, but there are a lot of risks to consider based on the performance of the S&P500, the related wealth effect, and volatile consumer confidence factors, which are generally important drivers of luxury spending in the US.”
US holds up and Asia begins to improve
Brunello Cucinelli, which kicked off the earnings season on April 9, reported sales up 14% in Q1, led by the US and Asia, following 12% growth in Q4.
A slow recovery is underway in China, analysts say. “2026 appears to have started sequentially better than Q4, with single-digit growth, albeit with pronounced divergence across categories, cities, and brands,” UBS luxury analyst Zuzanna Pusz wrote in a note.
Galeries Lafayette, which has three joint venture stores in China — Shanghai, Beijing, and Shenzhen — has seen no improvement and is therefore reviewing its operations in the country. “The global context leads us to observe structural changes in the market, and requires us to adjust our China model,” Lemoine said at the press conference. “Market activity has contracted, with a shift toward more local brands at the expense of international ones.”
Rambourg highlights South Korea’s positive momentum, partly fueled by Chinese tourists shifting from Japan amid tensions. Brands are ready to welcome them: both Dior and Louis Vuitton opened Seoul flagships in 2025.
The US market is expected to have held up in Q1, despite stock market volatility, with HSBC projecting around 10% organic growth in 2026. “The US has a major store openings theme,” Rambourg notes. Moncler is opening what will be its largest store in the world in the second half of the year, in the General Motors building at 767 Fifth Avenue. Louis Vuitton has ongoing, large-scale retail projects in Beverly Hills and New York. Hermès confirmed plans to open a bigger flagship on Rodeo Drive. In August, Dior opened a New York flagship, while a Rodeo Drive store in LA featuring a restaurant by three-Michelin-star chef Dominique Crenn opened last fall. “There aren’t many openings globally, but in the US there will be quite a few — and that will help,” Rambourg says.
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Consumers respond to newness
Product trends will continue to be a key topic. “We have seen a strong jewelry cycle and a weaker handbag cycle,” Chen notes. TD Cowen recommends buying Richemont stock in the large luxury cap. “We are pretty bullish [on Richemont], notably due to greater supply chain agility and innovation at Cartier and Van Cleef & Arpels, partly offset by gold inflation increasing product costs.”
Meanwhile, fresh creativity may help revive the soft luxury sector, despite a challenging macroeconomic backdrop. Analysts are optimistic about the reboot of Dior under new creative director Jonathan Anderson. His first products arrived in stores on January 2. Despite the gradual rollout, HSBC estimates growth of 6% at Dior in the first quarter, with further acceleration expected throughout the year. This positivity is welcome after HSBC estimates that the house registered a high-single-digit decline in 2025. (LVMH’s fashion and leather goods division should be up 1% in Q1, driven notably by 12% growth at Loro Piana, while its largest house Louis Vuitton is anticipated to drop 2%, per HSBC estimates.)
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Chanel typically publishes its annual earnings in May, when management will likely comment on the early response to Matthieu Blazy’s first collectsion in stores. The lines outside Chanel boutiques in various markets, including France and the US, bode well. Can this level of enthusiasm be sustained?
All eyes will also be on the potential reboot of Gucci. It’s still early days: the first looks by new artistic director Demna were released in a limited run in Q1, likely accounting for just a small portion of sales. The Primavera collectsion, presented in February, is expected to hit Gucci stores in July. Parent company Kering will publish its earnings on April 14, followed by its Capital Markets Day on April 16, during which CEO Luca de Meo will present his strategy for the group. HSBC expects group sales to be up 1.5% in the first quarter, a return to growth for the first time since Q2 2023.
