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Luxury shoppers in China still buying bags and wine, but not BMWs
CHINA'S luxury shoppers may be shunning pricey cars, but they're still finding an appetite for handbags and champagne as the trade war plays out unevenly across the country's high-end retailing landscape.
Report cards from LVMH, home of Louis Vuitton leather goods and Dom Pérignon champagne, as well as casino operators in Macau, offer signs that the trade fight with the US and the accompanying economic slowdown aren't entirely derailing the China-led boom in top-end retail. That has helping to offset gloomier scenarios in BMW and Mercedes showrooms and luxury real estate offices.
French giant LVMH said on Tuesday that its luxury retailer DFS performed especially well at the key Chinese tourist destinations of Hong Kong and the gambling enclave of Macau, while the company's wines and spirits business "grew rapidly" in China, too. LVMH said it did well in all its markets as it reported a 10 per cent jump in third-quarter sales.
Chinese demand is "intact", said Deborah Aitken, senior analyst at Bloomberg Intelligence in London. "LMVH is the first to confirm Asian markets are buoyant."
The economic standoff between the US and China escalated last month when President Donald Trump slapped a 10 per cent duty on US$200 billion of Chinese imports including handbags, and said the levy will jump to 25 per cent in 2019. China said it would retaliate with levies on US$60 billion worth of US goods. As retailers pass on the duties to consumers and Chinese markets sell off, the tit-for-tat spat has raised concerns that shoppers would rein in spending.
Chinese consumers make up the lion's share of growth for the luxury business as an increasing number of families cross the income threshold to become affluent.
Relief also showed up in Macau during the Golden Week holiday, which is often seen as a thermometer for China's economy. Chinese tourist arrivals in the world's largest gaming centre for the period that ended on Sunday jumped 14 per cent from a year earlier. High rollers bet 10 per cent more in the first six days of October than in the same period last year, according to Morgan Stanley.
Still, the casinos' robust performance isn't wiping out analyst concerns that the industry will grow at a slower pace in the next few months amid a weakening macro economy in China.
Other sectors of the luxury market were not so fortunate during Golden Week. While the holiday is typically a buoyant period for new-home sales, transactions this year were the lowest since at least 2014, according to China Securities Co. Official home sales data for October is due next week.
Chinese households are also balking at committing to other big ticket items. Jaguar Land Rover, the British marquee brand owned by Tata Motors Ltd, reported that sales in China slumped 46 per cent last month, amid uncertainty over import duty changes and trade tensions.
Fashion is holding up better. Chow Tai Fook Jewellery Group Ltd, the world's biggest jewellery retailer by revenue, notched double-digit sales growth in mainland China and Hong Kong for the three months ended June. Same-store sales in Hong Kong rose 26 per cent, helped by "improving local consumer spending and reviving mainland visitation".
LVMH reported its results after the European market closed on Tuesday. Its shares fell as much as 5.2 per cent in early trading on Wednesday as Morgan Stanley downgraded the luxury goods sector, citing slowing earnings growth. BLOOMBERG