Retail

Chinese Consumers Drive Sales Growth For Luxury Goods

As shoppers around the world headed out to purchase those internationally-known, little blue boxes, Tiffany & Co. posted a strong second quarter. The jeweler booked an increase in global sales of 12 percent, arriving at $1.1 billion. At the same time, same-store sales growth beat analyst estimates of 6.6 percent in a Consensus Metrix poll, clocking in at 8 percent.

The retailer found that its growth was buoyed by its efforts in Asia, with China as a particularly strong driver behind the change. Total net sales in the Asia-Pacific region, it noted in an earnings press release, increased by a sizable 28 percent and arrived at $301 million in the first quarter. In the announcement, Tiffany & Co. management said the growth was “largely due to higher spending by local customers and, to a lesser extent, spending by foreign tourists.” By comparison, total net sales in the Americas grew by only 8 percent, to $475 million, and total net sales in Europe increased by 5 percent to $121 million.

As sales in the region grow, Tiffany & Co. is expanding its brick-and-mortar efforts in China. To further grow its store base in the country, it opened new shops in Changsha and Hefei. With those expansions, the retailer now has 34 locations in China. In addition, the company relocated two of its stores in the cites of Harbin and Nanjing.

In terms of eCommerce, Tiffany & Co. plans to work with Tmall’s luxury retail platform, Luxury Pavilion. That move comes on the heels of a digital popup the retailer conducted with WeChat in the country. Tiffany & Co., however, is not the only luxury brand to operate on WeChat: In 2016, Cartier unveiled a WeChat storefront, which is an important move to reach Chinese consumers.

“Chinese consumers are so digitally native and mobile that it is crucial for brands to get their strategy straight,” Asia-Pacific research firm L2 editor, Liz Flora, told The Financial Times. “A lot of old heritage brands from Europe are very careful with their reputations, and they shy away from eCommerce, but you’re looking at a whole different type of market, and brands that don’t have a strategy will fall behind their peers.”

The Market For Luxury Goods In China

Sales of luxury goods in China between 2016 and 2017 skyrocketed by around 20 percent to 142 billion yuan ($22.07 billion), Bain & Company said in a report in January. As the biggest spenders on luxury products in the world, Chinese consumers made up a sizable 32 percent of the €262 billion spent in the global market last year. Their spending, in turn, has fueled sales at France’s LVMH, Burberry and Gucci owner Kering. And, due to the affinity of these consumers for high-end brands, the luxury retail market experienced a global recovery last year.

Capitalizing on the trend, French fashion retailer Louis Vuitton, which is part of LVMH, launched an eCommerce website in China in 2017, which offers items from leather goods to shoes. The brand is no stranger to the Chinese market: It opened its first store in Beijing in 1992,. The popularity of these kinds of luxury brands with Chinese consumers is also shaping the payment industry in the U.S. Alipay, in one case, announced in January that it had entered into a partnership with French apparel brand Lacoste, which will enable Alipay acceptance in select U.S. stores

In the United States, however, the devaluation of the Chinese yuan may impact spending when Chinese tourists come to visit.

“Recent shifts in global currencies could impact the buying power of Chinese tourists in the U.S.,” Oppenheimer wrote in August. If the Chinese yuan is worth less against the dollar, then it takes more yuan to buy a dollar. That means fewer dollars upon conversion here, which, in turn, means fewer dollars in tourists’ pockets. High end goods? Well, those take some dollars.

According to Euronews, those hoping to make money off of Chinese consumers can fault the trade war. The latest back and forth of tariff mongering between the U.S. and China may have its victims beyond soybean farmers, automakers and whiskey distillers. The fact remains that many other verticals rely on consumer spending beyond U.S. shores. How big an impact will the trade war have on luxury brands? That remains to be seen. Overall, luxury goods are experiencing a strong start to 2018 in North America. Beyond Tiffany & Co, luxury goods company Kering S.A. noted a 45 percent rise in revenue in the first half of 2018 from last year.

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