Stock market: Chinese consumption slows down the luxury sector

The Chinese economy is slowing down and the economic results published this week are rather alarming. Some stock markets are worrying and the luxury sector is suffering, with Kering, Hermès and LVMH in particular, with a decline from 2 to 3%.

 

picture: Dior

The Chinese consumer, who was previously a reliable example of growth, is under pressure, threatening to accelerate the general slowdown in the Chinese economy that is shaking global markets. This economic slowdown is a huge risk for luxury groups that have become very dependent on Chinese customers, who, according to the estimates of the research firm Bain & Co, account for more than 30% of the sector’s sales.

Consumers have reduced their spending, their confidence has weakened because of the difficult situation of the national economy and the trade war with the United States on imports. In addition, they feel trapped by already staggering increases in housing prices and inadequate education and health systems. As a result, people are delaying major purchases and limiting their non-essential expenses. In addition, the country’s manufacturing activity deteriorated at the end of 2018 despite a slight improvement in production, according to the independent Caixin index. Soo we can suppose that there will be a slowdown in purchases by Chinese tourists and a decline in sales of luxury products.

 

The impact is global as China has become the largest market for many consumer, luxury and durable goods. The expanding middle class is demonstrating the strength of its purchasing power. Now, its new constraints are affecting the world’s second largest economy and have repercussions worldwide, affecting oil producers, electronics manufacturers, travel operators and a host of other sectors.

Apple is the latest company to have given the alert, noting a sharp drop in turnover due to a slowdown in the Chinese economy.

Indeed, the brand, whose sales represent a good barometer of global growth and a leading indicator of consumer behavior, has revised its billing forecasts for the first quarter downwards. The giant now forecasts only $84 billion (€74 billion) in revenues, compared to an initial forecast of $89-93 billion and an analyst consensus of $91.5 billion.

This is the first time since the launch of the iPhone in 2007 that Apple has issued a revenue warning before publishing its quarterly accounts. Tim Cook’s group blamed the slowdown in iPhone sales in China, whose economy is suffering from uncertainties related to trade tensions with the United States. Some analysts also point to the brand’s high-end positioning on smartphones, with prices considered excessive by Chinese consumers.

 

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The editorial team
Thanks to its extensive knowledge of these sectors, the Luxus + editorial team deciphers for its readers the main economic and technological stakes in fashion, watchmaking, jewelry, gastronomy, perfumes and cosmetics, hotels, and prestigious real estate.

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