SHANGHAI/PARIS听–听The听濒耻虫耻谤测听goods industry has relied heavily on听颁丑颈苍补听and North America for growth in recent years, but latest Chinese economic figures and a disappointing sales update from Cartier-owner Richemont聽CFR.S聽suggest both markets may be starting to slow.
Major听濒耻虫耻谤测听brands have invested millions to reach new customers in the two markets, venturing beyond traditional high-end shopping centers to open new stores in places like Wuhan and Zhengzhou, or Charlotte and Nashville.
A post-pandemic US splurge had already shown signs of flagging, leaving investors to pin their hopes on Chinese shoppers to sustain the months-long spending spree that has boosted the sector’s fortunes.
China‘s economy faltered in the聽, however, prompting banks J.P.Morgan, Morgan Stanley and Citigroup to聽聽for this year.
On Monday, Swiss-based Richemont announced sales for the three months to the end of June that聽, with sales in the Americas down 4% and those in Asia also disappointing.
Its shares closed down 10.43%, with Hermes dragged 4.21% lower, LVMH down 3.7% and Kering slipping 1.95%.
颁丑颈苍补听will “not be going through a V-shape demand recovery but rather a multi-year consumption catch-up at home and abroad,” analysts at Citi predicted following a call with Richemont executives.
First quarter earnings for companies including LVMH and Chanel had already shown North American growth slowing to single digits after double-digit quarterly expansions for much of 2021 and 2022. Kering聽and Ferragamo聽saw double-digit declines compared to the same period last year.
Whether听濒耻虫耻谤测听companies can offset that largely US slump will depend on how听颁丑颈苍补‘s recovery in domestic and tourist demand unfolds over the rest of this year, analysts say.
A COMPLEX COMEBACK
尝耻虫耻谤测听executives have been banking on听颁丑颈苍补‘s comeback to push the industry as a whole into positive territory in 2023 – likely around 5% according to Bain estimates – though some brands, such as Hermes and Chanel, will fare better than others. Their wealthier target consumers are better insulated against macroeconomic headwinds.
“The听濒耻虫耻谤测听industry seems to be outperforming the consumer market as a whole in听颁丑颈苍补, but you know, really, almost everyone you speak to, there’s a level of uncertainty,” said Agility’s managing director Amrita Banta.
“There’s a level of not feeling entirely comfortable with their future economic position that is really affecting almost everybody in听颁丑颈苍补.”
In听颁丑颈苍补, jewelry is emerging as the most in-demand product category, outpacing casual shoes, leather goods and clothing, with watches also seeing strong sales, consultants say. As for accessories and clothing, Chanel, Dior and Balenciaga saw the highest increases in purchases in the most recent quarter.
The spending slowdown in the United States largely reflects elevated prices, high interest rates and slowly deteriorating credit conditions. Those factors disproportionately affect “aspirational”听濒耻虫耻谤测听customers who can easily live without another Gucci bag or $900 pair of sneakers.
In听颁丑颈苍补,听濒耻虫耻谤测听consumers are younger than in the rest of the world with an average age of 28, according to BCG – something companies had seen as positive for future growth.
But rising unemployment among the younger generation –听颁丑颈苍补‘s youth jobless rate climbed to 21.3% in June from 20.8% in May, a new record high –听肠辞耻濒诲听spell trouble in recruiting new consumers, within听濒耻虫耻谤测‘s top-tier brands and outside.
“In the trends that I’m seeing in the US and also in听颁丑颈苍补, more aspirational younger consumers are feeling more of a pain,” Morningstar senior equity analyst Jelena Sokolova said.
Morgan Stanley data shows some听濒耻虫耻谤测听players, including Richemont, already generate around 40% of global revenues in听颁丑颈苍补, raising worries about over-reliance on one market, especially one widely seen as a future geopolitical flashpoint.
But according to HSBC’s Erwan Rambourg, one silver lining of the pandemic has been that European听濒耻虫耻谤测听brands have started to pay more attention to local clienteles, potentially making them less vulnerable to听颁丑颈苍补听risks than in 2019.
“This means the sector which used to be Japan-centric 25 years ago and听颁丑颈苍补-centric pre-COVID is now really more of a play on global wealth rather than just one nationality. This is very healthy,” Mr. Rambourg said.
“However, given the wealth creation in both听颁丑颈苍补听and the US and a cultural awakening to听濒耻虫耻谤测听recently in the latter, these two markets should continue to account for the bulk of incremental growth.” – Reuters
