Coach and Ralph Lauren are posting sustained growth thanks to a keen read on middle-class purchasing power. Coach's sales climbed 14% last quarter. The market has sent a challenging signal to European luxury titan Bernard Arnault: based on expected earnings, investors now value LVMH slightly below Ralph Lauren, a brand positioned at a more accessible price point. The underlying lesson is that European luxury houses face the difficult choice of cutting prices if they want to win back consumers.

Measured by forward earnings multiples, LVMH's valuation sits 3% below its American counterpart. The competitive edge once held by the group behind Louis Vuitton and Dior has long since faded. Historically, its shares commanded a hefty premium over the US brand, but that valuation gap has now completely vanished. The last time this occurred was over a decade ago, when consumers grew weary of logo-heavy designs and Louis Vuitton sales slumped. LVMH subsequently revitalized the brand and returned to a high-growth trajectory.

Building a successful luxury brand has traditionally been a European strength. Right now, however, American labels like Ralph Lauren and Coach have read the market correctly, precisely gauging the real purchasing power of consumers. Ralph Lauren CEO Patrice Louvet noted in a recent podcast that the brand deliberately spans multiple consumer tiers. "People often equate luxury with a $4,000 handbag," he said. "That's a lazy definition of luxury. We do sell $320,000 watches, but consumers can also buy a pack of tennis socks for $12."

This strategy is paying off handsomely. In the three months through June, Ralph Lauren's sales rose 13% year over year. Amid a largely stagnant luxury market, the brand has now posted growth of 10% or more for seven consecutive quarters. Meanwhile, Coach, the core handbag label under Tapestry, saw sales jump 14% last quarter, driven largely by younger consumers purchasing their first luxury bag.

The robust demand for Coach and Ralph Lauren proves that middle-class shoppers are still willing to spend on luxury. But the industry's aggressive price hikes in recent years have created millions of "abandoned luxury consumers" — people who once shopped at Louis Vuitton or Gucci but can no longer afford them. According to Bernstein estimates, over half of Louis Vuitton's revenue comes from middle-class consumers. These shoppers are shifting not only to American brands but also to the second-hand European luxury market. The RealReal, a US resale platform, is thriving, with sales up 17% in the latest quarter. Notably, Louis Vuitton was the most-searched luxury brand on the platform in 2025.

In contrast, Louis Vuitton's physical stores are seeing more subdued traffic, with second-quarter sales up just 1% this year. Although the public perceives the brand as catering to the ultra-wealthy, Bernstein calculates that more than half its business comes from middle-class consumers, defined here as those spending under €2,000 (about $2,300) annually on luxury goods. Two other brands even more reliant on middle-class shoppers — Burberry and Gucci — have already begun adjusting. Kering's new CEO, Luca de Meo, has cut prices on selected items at Gucci, the group's most important label, while introducing lower-priced new products. Bernstein analysis shows that the Generation Gucci handbags launched in April carry an average price of €1,750 (about $2,000), 27% below the average price of the brand's older bags.

By comparison, the vast majority of Coach and Ralph Lauren handbags are priced under $1,000, though Ralph Lauren does offer bags above $20,000. Burberry's new CEO, a former Coach executive, is also seeing early success with a rational pricing strategy. After multiple failed management overhauls, the British label known for its trench coats is finally turning a corner, with sales up 4% in the quarter through June.

But cutting prices is a delicate matter for luxury brands. For years, these houses have poured money into marketing to cultivate an image of exclusivity and high-end scarcity; an outright price cut can be read as an admission that the goods were never worth their original tags. Family-controlled groups like LVMH are unlikely to compromise brand equity for a short-term sales boost and continue to hold their pricing line. The risk for investors is that the industry may face a long wait before middle-class incomes catch up with luxury price inflation. Fed data shows that Louis Vuitton's popular entry-level bags in the US — the Neverfull GM and the Metis crossbody — have risen 50% since 2019, while the Nano Speedy is up over 70%. Over the same period, the median weekly wage, adjusted for inflation, has increased just 5%.

To be sure, more appealing new products might coax consumers into splurging on a big-ticket luxury item. A wave of newly appointed creative directors is working hard to generate buzz-worthy hits, but the impact is limited. Louis Vuitton may need to follow Gucci's lead and introduce a new lineup at lower price points.