Markets have an uncomfortable message for Europe's top luxury tycoon, Bernard Arnault. Shareholders now value his company LVMH at a slight discount to Ralph Lauren, which sells less expensive luxury goods.

The takeaway is that European luxury brands have to make difficult decisions to cut prices if they want to win back shoppers.

LVMH's stock is 3% cheaper than the American brand as a multiple of expected earnings. The owner of Louis Vuitton and Christian Dior has been losing its edge for a while. Its shares used to trade at a big premium to the American label, but the valuation gap has evaporated.

The last time this happened was more than a decade ago, when Louis Vuitton's sales were sluggish because consumers had grown tired of logoed designs. LVMH gave the brand a refresh and returned it to strong growth.

Building successful luxury brands has traditionally been Europe's strength. Right now, it is U.S. brands like Ralph Lauren and Coach who are reading the market correctly and have a grasp of what consumers can actually afford.

Ralph Lauren Chief Executive Patrice Louvet said on a recent podcast that the brand deliberately targets a range of consumers. "Luxury has often been defined as a $4,000 handbag," he said. "That is a...lazy definition of luxury. We just sold a $320,000 watch but you can also buy a $12 pack of tennis socks."

The approach is working. Ralph Lauren's sales rose 13% in the three months through June, compared with the same period of last year. The brand has grown by 10% or more for seven quarters in a row, in an otherwise stagnant luxury market.

Meanwhile Coach, which is Tapestry's main handbag brand, increased sales by 14% last quarter. Most of the brand's growth is coming from younger consumers making their first luxury handbag purchase.

Healthy demand at Coach and Ralph Lauren shows that middle-income shoppers still want to buy luxury goods. But steep price hikes in recent years have created millions of "orphaned" luxury consumers who formerly shopped at Louis Vuitton or Gucci and can no longer afford to.

Besides going for American labels, they are also buying European luxury goods second hand. Business is booming at The RealReal, a U.S. resale website that reported 17% sales growth for its latest quarter. Notably, Louis Vuitton was the most-searched-for luxury brand on The RealReal in 2025.

But business is sluggish in Louis Vuitton's own stores. In the second quarter of this year, sales rose 1%. Contrary to popular perception that it is for the rich, the brand gets more than half its business from middle-class consumers, according to Bernstein estimates. This group of shoppers is defined as those who spend less than 2,000 euros (equivalent to $2,300) a year on luxury goods.

Two competitors that are even more reliant on middle-class shoppers, Burberry and Gucci, are already taking their medicine. Luca de Meo, the new chief executive at Gucci owner Kering, has cut prices on a handful of goods at Gucci, which is the company's most important luxury brand.

He is also introducing new products at lower price points. The average price of a handbag from the Generation Gucci collection, which was launched in April, is 1,750 euros (about $2,000), or 27% below the brand's older handbag designs, Bernstein analysis shows. By comparison, most of the bags at Coach and Ralph Lauren are priced below $1,000, although some of Ralph Lauren's purses sell for $20,000 or more.

Burberry's boss, an American who previously worked at Coach, is also starting to see results from charging reasonable prices. After years of unsuccessful makeover attempts by previous management teams, the British luxury trench coat brand appears to be turning a corner and increased sales by 4% over the three months through June.

Reducing prices is tricky for luxury brands who have spent years, not to mention billions of ad dollars, cultivating an exclusive image. Cuts could be perceived as an admission that the goods were never worth what the brand was charging in the first place.

Family run companies like LVMH won't do anything that could damage a luxury brand for the sake of a short-term sales boost. So far, they are holding the line on prices.

The risk for investors is that the company has to wait a long time for middle-class incomes to catch up. For American consumers, the prices of popular Louis Vuitton entry-level handbags, such as the Neverfull GM and the Pochette Métis, are up 50% since 2019. The Nano Speedy bag is more than 70% costlier. Adjusted for inflation, median weekly wages have risen 5% over the period, data from the Federal Reserve shows.

True, more-exciting products might tempt shoppers to dig deep for a special purchase. A wave of newly hired creative directors is working hard to come up with buzzier designs. But they can only do so much. Louis Vuitton probably needs to follow Gucci's lead and release new products at lower price points.