China’s Economic Recovery Spurs Luxury Buying
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China’s recent recovery in luxury spending may boost sales of department-store operators and high-end retailers in the country, according to global ratings agency Fitch.
Reports from international brands such as Coach (NYSE:COH), Swatch (OTCMKT:SWGAY) and LVMH (OTCMKT:LVMHF) suggest luxury spending in China is beginning to pick up after a few difficult years caused by China’s anti-corruption campaign and weak consumer sentiment, according to Fitch.
Coach recently reported its Greater China local-currency sales rose 6% in Q- of Y 2016, while Swatch spoke of “very good growth” in sales on the Chinese mainland during November and December 2016, and January 2017.
The Fitch report said that the stronger sales were driven by a wealth effect caused by higher property prices in China, a narrower gap between domestic and international prices and a decline overseas purchases.
Brick-and-mortar retailers in China have had difficulties in recent years as both offline and online competition intensified and spending patterns changed, with consumers choosing experiences over shopping.
The signs of recovery in luxury spending could provide some relief for Chinese mid and high-end retailers such as Golden Eagle and Hendgeli, Fitch said.
The report pointed out that prices of most luxury goods remained higher in China compared with the rest of the world, but the price gap had shrunk since the government had cut taxes on certain product categories, and major brands adjusted prices to narrow regional price differences.
A weaker Chinese yuan and tighter government restrictions on “daigou” buying on behalf of a 3rd-party for a fee. also made overseas purchases less attractive to Chinese luxury-goods shoppers.