American Consumerism Stalls as Chinese Luxury Spending Recovers

Global luxury firms have a lot less to worry about now that Chinese consumption is showing improvement on the tourism front.

Earlier this year, luxury firms such as LVMH noted that U.S. consumers weren’t buying as much high-end fashion and accessories. Many younger aspirational customers found inflation eating into their spending power. But the pullback might go deeper than that. A June report from the Federal Reserve Bank of San Francisco indicated that U.S. consumers might run out of the savings they stored up during Covid by the end of September.

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While that’s bad news for global luxury firms operating in the U.S., Asian consumers appear to be offsetting their American counterparts.

Moncler executive director Roberto Eggs said during a first half earnings conference call that the company has seen a “rebound” of Chinese mainlanders traveling first to neighboring regions like Hong Kong and Macau and also to Japan and Korea.

“In terms of regional spending for the Chinese cluster, the bulk of the sales contribution still came from Asia Pacific, given capacity limitations around long-haul flights, passports and visas,” HSBC’s global consumer and retail analyst group wrote in a research note. China’s Ministry of Culture and Tourism recently lifted a ban on group tours to more than 70 locations, including U.S., U.K., Australia, South Korea and Japan, in a move that should benefit luxury companies.

Citing data from Global Blue, the HSBC noted that Chinese spending last month on luxury in Asia Pacific and Continental Europe reached 100 percent and 40 percent, respectively, of July 2019 levels. Top destination markets in Asia were Japan and Korea, while Europe was led by Greece and France.

“The Chinese consumer will be a multi-year driver of luxury sector revenue growth and is not just a 2023 story,” Bank of America researchers wrote in a note last week on China and the luxury market. Chinese consumers “will likely progressively start spending more offshore,” a large shift that they expect to be a driver of incremental demand overall and one that is “still ahead of us,” they added.

With group tours back on, tourism to Europe could be “the single biggest area of upside potential,” BofA analysts pointed out. For now, spending recovery in France likely benefitted “Vuitton, Dior, Cartier and Hermes.” They expect that “full Chinese luxury demand normalization in Europe will still take time and is likely a 2024-2025 phenomenon.”

Shopping in Europe and Japan, which is closer to China, allows Chinese consumers to take advantage of attractive prices. “This incentive still exists today, with [an estimated] 20 percent cheaper retailer prices on soft luxury in Europe or [an estimated] 30 percent after the VAT refund,” according to BofA.

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