Angle: Luxury goods industry, China stalled expectations North America is also blocked | Reuters

2023-07-21 22:14:00

[上海/パリ 19日 ロイター] – The luxury industry has relied on China and North America in recent years, but the latest Chinese economic data and sales of luxury brand Richemont, which owns Cartier and others, suggest those markets may be starting to slow down.

The luxury industry has relied on China and North America in recent years, but the latest Chinese economic data and sales of luxury brand Richemont, which includes Cartier, suggest those markets may be starting to slow. FILE PHOTO: Wuhan, China, March 2020. REUTERS/Aly Song

Luxury brands are investing heavily to attract new customers in these two markets, opening new stores outside traditional luxury shopping centers such as Wuhan, Zhengzhou, Charlotte and Nashville.

Investors are pinning their hopes on Chinese shoppers as post-coronavirus “revenge spending” in the US is already waning.

But China’s second-quarter gross domestic product (GDP) was disappointing, prompting JP Morgan, Morgan Stanley and Citigroup to cut their growth forecasts for 2023.

Richemont reported lower-than-expected sales for the three months to the end of June on Monday. Sales in the Americas were down 4%, and sales in Asia were also disappointing.

“We cannot expect a V-shaped demand recovery in China.

Luxury brands such as LVMH and Chanel experienced slowing profit growth in North America to single digits in the first quarter. It posted double-digit quarterly growth for much of 2021 and 2022. Kering and Ferragamo posted double-digit year-on-year declines.

Whether luxury brands can offset the U.S. slump will depend on how China’s domestic and tourist demand develops, analysts say.

Executives at luxury brands hope that China’s resurgence will turn the industry positive in 2023. Bain expects growth to be around 5%.

“The luxury industry appears to be outperforming the Chinese consumer market as a whole, but in fact, if you listen to it, most people are worried,” said Agility managing director Amrita Banta. “There is uncertainty about the future economic position, and it affects almost everyone in China,” he said.

The slowdown in US consumption reflects rising prices, rising interest rates, and deteriorating credit conditions, but these factors have a greater impact on “high-end” luxury buyers.

According to BCG, the average age of Chinese luxury consumers is 28, younger than in other countries. This is why brands expect it to be positive for future growth.

But China’s youth unemployment rate hit a record high of 21.3% in June, a headwind for luxury brands attracting new customers.

“The trend we’re seeing in the U.S. and China is that younger, more upswing consumers are feeling the pain more,” said Jelena Sokolova, senior equity analyst at Morningstar.

Some luxury goods makers make about 40% of their global sales in China, according to Morgan Stanley. There is growing concern about over-reliance on one market, one that could become a future geopolitical hotspot.

Meanwhile, HSBC’s Erwan Rambourg said European luxury brands’ increased attention to local customers after the pandemic could make them less vulnerable to China risk in 2019.

“Twenty-five years ago this sector was centered on Japan and pre-coronavirus China, but now it’s about the wealth of the world, not just one country. “However, given the wealth creation in China and the United States, and the cultural awakening to luxury in the latter, there is no doubt that these two markets will continue to dominate growth.”

(Reporters Casey Hall, Mimosa Spencer)

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