Luxury Goods Experts Predict Weaker Outlook for China as Protests, Taxes, & Trade War Weigh on Results

The protests in Hong Kong have, rightly, taken centre stage in the world's media the last few weeks. With street closures, travel disruptions, escalating US-China trade tensions and recent increases to luxury taxes levied by the Chinese government it's inevitable that business will be impacted. 


"We're seeing about a 25% [sales] decline this quarter with footfall down 36%" said one professional working in a Luxury Goods store in China. "Average spend is down too probably because of the higher luxury tax rate that has been levied by the Chinese government this year". 


The world's most famous luxury goods brands, despite most residing in Europe, have a lot riding on China and have the most to lose from any slowdown.  Research from UBS suggests that Hong Kong on it's own accounts for roughly 1-in-12 units sold globally for luxury power-house brands with Cartier-owner Richemont, Omega-owner Swatch, and Burberry the most exposed. 




"The protests have had a huge impact on our performance this quarter" explained one Luxury Goods manager in Hong Kong. "We've seen a significant reduction in mainland China tourists coming to the store and it's a big deal as more than 50% of our revenues come from Chinese travellers" she said. 


The continued political movement sweeping Hong Kong is clearly having an impact on foot traffic given the swathes of street closures and travel disruptions that are making accessibility an issue or causing shoppers to avoid visiting affected locations.   




"Sales are 6% lower in June versus the same time last year and that's mainly down to the protests here" said one manager at a Luxury Goods store in Hong Kong. "It's not just us, most of the other luxury goods stores are seeing similar drops in performance and judging from last time there were protests against China it might take a while for things to return to normal". 


Other luxury goods experts  we interviewed this quarter have suggested even more reasons to be worried about the prospects for the sector. 


"We've seen sales of our men's category perform about 30% worst than targets this quarter" reported one Luxury Goods sales person in Macau. "The main reason is a large decline in the number of male gamblers from mainland China to bet in casino's here. It's been a trend for more than two years now as part of a new political campaign to combat corruption in the public system" she said. 




Add into the mix escalating US-China trade tensions, unfavourable weather, FX rate changes and less tourism to core Asian markets and it's plain to see there's lots of reasons to be cautious on the outlook for luxury goods brands as we approach Q3-2019 earnings season.


"Our sales is down roughly 10% this quarter and that's largely down to less tourists" said a Luxury Goods store manager who accredited the decline to current fiscal tensions between China and the US. "Out of the 8 stores in our area, we're probably in the top 3 at the moment so it's not just us" 




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This article summarises choice quotes and insights from more than 230 interviews with luxury goods experts since 1st March 2019 that suggests further troubles for the global luxury goods market China-US trade tensions, Hong Kong protests, higher tax levies start to drag on results ahead of Q3-2019 earnings season. 


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