Slowdown In China Spending Could Impact Luxury Goods Providers

Research firm Sanford C. Bernstein says affluent Chinese consumers are not indulging on luxury and non-essential goods, Bloomberg reported on Saturday (Nov. 9).

Bernstein luxury goods analyst Luca Solca said the lowered interest by affluent Chinese customers could reduce the capabilities of premium companies. She indicated that “political monetary policy intervention” was needed amid the “lack of progress” in U.S.-China trade talks.

The firm’s two-week trip to China concluded that luxury spending might have plateaued. Solca also pointed to the effects of the Hong Kong protests and said it would likely continue into the first half of 2020.

He said he expects that a “polarization” among brands will probably continue, and anticipates that LVMH brands like Louis Vuitton and Christian Dior would be among those maintaining “the upper ground.”

The slowdown of spending could also have a negative impact on stocks that have had a strong run.

French multinational luxury goods conglomerate LVMH is among the top performers on Europe’s Stoxx 600 Personal & Household Goods Index, Business of Fashion said, reporting a 56 percent increase.

LVMH’s finance chief made his views on Amazon clear in 2016 when he said that “the existing business of Amazon doesn’t fit with luxury, full stop.” The idea of being listed along with batteries and windshield wiper fluid is not one that attracts luxury brands.

Valentino, Bottega Veneta and Burberry can all be found in the Luxury Pavilion section of Alibaba’s Tmall site. Participation in the site is growing every year, and in 2018, 26 percent of tracked luxury fashion brands had a store on Tmall, an increase of 7 percent from 2017.

The move is partly due to China’s shopping habits, as many Chinese consumers prefer third-party sites that offer a multitude of brands. This approach can be challenging for luxury brands, which prefer to sell through their own platforms.

Shoppers in China also like to use apps, and Alibaba and JD.com are on the cutting edge with their technology. There is also a huge growth opportunity for luxury brands in the country, as only 5 percent of luxury purchases are made online in China.