Shopping spree to show what’s up with China economy

Bloomberg

China’s consumers have cut back on purchases of everything from Apple Inc.’s iPhones to Swiss watches as the trade war with the US hits the economy.
Landing just days after hundreds of local companies issued profit warnings and multinationals sounded the alarm about softening demand, the week-long Lunar New Year holiday will provide the next litmus test of the resilience of the Chinese shopper.
The seven-day period sees hundreds of millions of people travel within the country to see relatives, fly overseas to take vacations – and open their wallets to buy gifts. In 2018, Chinese spent $137 billion at restaurants and stores ringing in the Year of the Dog. This year’s celebration is the first to take place during a trade war with the US. The trade fight has dragged on China’s stock and property markets, and GDP in the final quarter of 2018 rose at the slowest pace since the global financial crisis.
Companies selling to middle-class consumers will be the most vulnerable this holiday as wealthier Chinese continue shopping but the more budget-conscious cut back, said Adam Xu, a partner in Shanghai with consulting firm OC&C, who advises retail and consumer companies on their China strategy. “The slowdown in growth is happening and most likely in the mass part of the market,” Xu said. With Chinese consumers in the global spotlight, here’s the outlook for some industries that count on them spending to ring in the New Year holiday.

Buying Bling
Demand for jewelry has traditionally climbed during the holiday because gold is seen an auspicious gift from older generations to younger ones. These days, it’s not just the weak economy that has the bling industry feeling the holiday blues. Nikos Kavalis, London-based director of research firm Metals Focus Ltd., said buying “will not be what it used to be 10 years ago because a lot more Chinese consumers nowadays choose to travel abroad rather than go to their hometown.”
Hong Kong’s Chow Tai Fook Jewellery Group Ltd., is expecting no sales growth this year compared with the New Year holiday in 2018, according to Managing Director Kent Wong.
Luxury Litmus Test Many of the big luxury brands say that China’s rich are still shopping hard. French fashion giant LVMH on January 29 reported strong demand for its spirits and leather goods from Chinese consumers. “The trend of last year continues in January because Chinese New Year is very close now,” Chief Executive Officer Bernard Arnault said in an interview with Bloomberg Television. Premium goods are popular purchases during the festive season, and the week-long holiday will be an indication of just how resilient the biggest spenders are. There have already been pockets of weakness. Exports of Swiss watches to China slumped in December and Swatch Group AG reported January 31 that China contributed to a slowdown in the fourth quarter.

Duty-Free Boom
Chinese consumers account for a third of global duty-free spending, and the economic slowdown has weighed on travel companies.
The Lunar New Year could be key to turning things around. More than 400 million Chinese tourists are likely to travel domestically during the holiday, about 4 percent more than last year, according to Citigroup. Seven million Chinese will head to overseas destinations, an 8 percent rise from last year.
With the yuan down over the past year, tourists may be heading to more affordable destinations in Asia. Duty free operators like Japan Airport Terminal Co. could benefit, according to a Bloomberg Intelligence report published January 22.