STREAMING NOW: Watch Now

Luxury brands are already feeling the China burn

Chinese shoppers are buying fewer smartphones. Expensive handbags and watches could be next.European ...

Posted: Jan 3, 2019 1:30 PM
Updated: Jan 3, 2019 1:30 PM

Chinese shoppers are buying fewer smartphones. Expensive handbags and watches could be next.

European luxury stocks were hit Thursday after Apple (AAPL) said it sold fewer iPhones than expected in the final three months of 2018 because of a sharp economic slowdown in China.

Business and industry sectors

Business, economy and trade

Consumer products

Luxury goods

Asia

China

Continents and regions

East Asia

Leisure and lifestyle

Luxurious living

Apple Inc

Companies

Consumer electronics

Electronics

Mobile and cellular telephones

Mobile technology

Smartphones

Technology

Economy and economic indicators

LVMH

Shares in LVMH (LVMUY), which owns brands including Fendi and Louis Vuitton, were down 3%. Burberry (BURBY) stock plunged 5.8% and Gucci owner Kering (PPRUY) dropped 4%. Swiss watchmaking group Swatch (SWGNF) shed 3%.

Chinese luxury spending remained strong in the first half of 2018 despite a sluggish economy. But European fashion houses have not yet reported results for the end of the year, and investors are worried they main contain some nasty surprises.

If Chinese shoppers weren't willing to spend big on a new iPhone, the thinking goes, they may have also put expensive purchases of luxury goods on hold.

Some evidence of a luxury problem has already appeared.

The Federation of the Swiss Watch Industry said that the number of watches sold in China slumped in November.

The Swiss Economic Institute added to worries Thursday, saying the country's watch producers have significantly lowered their expectations for orders over the next three months.

"The issue is not whether there is a slowdown [of luxury sales in China] ... but rather the magnitude of it," said Flavio Cereda, an analyst at the investment bank Jefferies.

The Chinese market

European luxury retailers have come to depend on Chinese consumers in recent years.

Chinese shoppers are responsible for a third of global luxury sales, according to a report by the consultancy Bain and Italian luxury federation Altagamma. That translates to over $7 billion a year, according to McKinsey.

Bain predicts that Chinese shoppers will account for half of all luxury spending by 2025.

"China is key, hence the understandable volatility [in luxury stocks]," said Cereda.

The industry has been stung before by its reliance on China.

Chinese shoppers abandoned luxury brands during a government crackdown on corruption that started in 2012. The campaign made luxury products and watches off limits for Communist Party officials and corporate executives.

The big worry now, however, is weaker economic growth.

After decades of rapid expansion, the Chinese economy is slowing down. Growth in 2018 is likely to have been the weakest since 1990, and this year looks even worse.

Two reports published this week suggest the country's huge manufacturing sector is contracting. There are also concerns about the country's real estate market, and its ongoing trade war with the United States.

"Given the ongoing China-US trade tensions, consumer confidence is sliding off highs," said Helen Brand, an analyst at UBS.

UBS predicts that Chinese luxury spending grew around 10% in second half of last year. While that may seem high, it's a significant slowdown from the 16% growth recorded in the first half of 2018.

Brand said that a weaker Chinese yuan is causing shoppers to spend less abroad. Vacation shopping makes up as much as two thirds of total Chinese spending on luxury.

Oregon Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 32994

Reported Deaths: 547
CountyConfirmedDeaths
Multnomah7204138
Marion469594
Washington454060
Umatilla298741
Clackamas242061
Malheur163327
Lane123417
Jackson11615
Deschutes85212
Yamhill76213
Jefferson5418
Polk53215
Linn52213
Morrow5056
Lincoln48213
Union4462
Benton3146
Wasco2963
Klamath2802
Hood River2520
Douglas2334
Clatsop2170
Josephine1982
Columbia1791
Coos1570
Baker942
Crook621
Tillamook530
Lake330
Curry310
Wallowa311
Sherman180
Harney120
Grant100
Gilliam80
Unassigned00
Wheeler00

California Coronavirus Cases

Data is updated nightly.

Confirmed Cases: 812711

Reported Deaths: 15633
CountyConfirmedDeaths
Los Angeles2684556515
Riverside589321206
San Bernardino54482925
Orange534481216
San Diego46734776
Kern31994369
Fresno28441382
Sacramento22356406
Santa Clara21241314
Alameda21240406
San Joaquin20245441
Contra Costa16640206
Stanislaus16471356
Tulare15970263
Ventura12775150
Imperial11852317
San Francisco11195101
Monterey995372
San Mateo9897150
Santa Barbara9090113
Merced8872142
Kings765180
Sonoma7412122
Marin6730118
Solano640065
Madera453965
Placer358745
San Luis Obispo356229
Butte283344
Yolo281555
Santa Cruz23609
Sutter170511
Napa169013
San Benito134811
Yuba11537
El Dorado11304
Mendocino93418
Shasta88317
Lassen7400
Glenn5783
Tehama5735
Lake55511
Nevada5377
Colusa5316
Humboldt5088
Calaveras31714
Amador29616
Tuolumne2274
Inyo18815
Mono1662
Siskiyou1650
Del Norte1391
Mariposa752
Plumas500
Modoc270
Trinity160
Sierra60
Alpine20
Unassigned00
Medford
Clear
97° wxIcon
Hi: 97° Lo: 55°
Feels Like: 97°
Brookings
Clear
67° wxIcon
Hi: 73° Lo: 57°
Feels Like: 67°
Crater Lake
Clear
84° wxIcon
Hi: 86° Lo: 45°
Feels Like: 84°
Grants Pass
Clear
95° wxIcon
Hi: 96° Lo: 55°
Feels Like: 95°
Klamath Falls
Clear
84° wxIcon
Hi: 87° Lo: 41°
Feels Like: 84°
Hot and dry week, smoke returns
KDRV Radar
KDRV Fire Danger
KDRV Weather Cam

Community Events