Luxury shopping rebounds in China

The luxury sector can continue to rely on the Chinese market. Globally, demand for high-end goods remained generally very solid during the summer, supported especially in Europe by the spike in tourism, but pleasing analysts was China's rebound in the third quarter. A recovery that Bofa - Bank of America  and Barclays experts were able to observe directly on the ground. «Feedback from our trip confirmed that mainland China's luxury demand rebounded strongly in the July-August period,» the authors of the 49th Bofa global luxury demand indicator explained.

According to the Us investment bank, after the industry's revenues fell by 35% in China in the three months between April and June, a year-on-year normalization would constitute a 10% advantage over European luxury revenues in the second half of 2022, while positive growth would imply an even greater advantage. This compares with the consensus that predicts a significant slowdown in the second half of the year. «In China, revenues for brands such as Oriental watch grew by 30-40% annually in the June-July period, Emperor grew by about 20% between July 1 and August 15, and Chow tai fook reported a single-digit increase in the July-August period,» BofA analysts explained. «Hong Kong, which we believe is one step closer to reopening, saw an improvement in local demand in July, with retail at +4% versus -1% in June. Watch and jewelry sales rose to 28% versus +2% in June. Luxury spending in Korea remains robust, with +29% in July versus +20% in June and +22% in the second quarter».

Barclays experts, who in August and September visited four of the main Chinese cities for luxury consumption —namely Shanghai, Beijing, Hangzhou and Nanjing— talking with 30 companies and about 70 stakeholders including brands, shopping malls, e-tailers, social media platforms, investors and consultants, also stated that they feel more secure about the domestic market’s strength despite adverse winds. However, the British investment bank identified Gucci’s weakness in particular. «We were surprised by the magnitude of the weakness of Kering’s flagship brand in China and therefore we declassified the stock from overweight to equal weight,» the analysts explained. «Our analysis and conversations with workers have suggested a drop in the brand’s desirability and a potential positioning problem in the country. We think that disruptions in store traffic will continue to delay Gucci’s chances of recovery in China, while its younger, middle-class consumer base may be exposed to an above-average risk of selloff».

Polarization keeps on going and high-end brands register better performances thanks to the support from upper-middle class customers. High-end brands, including Hermès, Louis Vuitton and Lvmh’s Dior, benefit from a trusting and wealthy client base with an above-average spending power. Competition among brands to acquire and retain these customers has intensified, with an increasing number of initiatives such as exclusive high jewelry events and vip-only salon launches. «Our studies also suggest that pragmatic Chinese customers increasingly prioritize high-end brands that are able to maintain their value. Therefore, we continue to prefer Hermès and Lvmh stocks, both of which are rated overweight,» Barclays continued. «We see a potential weakening in Prada’s surge due to aggressive price increases that may have pushed some loyal customers away. However, in this phase we remain overweight because we like the recovery we are seeing and believe the short-term volatility deriving from the brand’s elevation should be manageable. Moncler (overweight) has benefitted from a huge traffic in August and September despite its propension for winter clothing, reflecting the high desirability of the brand,» the analysts concluded. (All rights reserved