China’s Economy May Look Drab, But Its Luxury Market Still Glimmers

China’s Economy May Look Drab, But Its Luxury Market Still Glimmers
Paul Allison, CFA

25 days ago2 mins

Mentioned in story

What’s going on here?

China’s drab economy might not be much to look at, but the country’s glimmering luxury market proved that it can still grab shoppers’ attention.

What does this mean?

China’s everyday shoppers haven’t been biting, even as retailers continue to pull their prices lower. After all, the wobbling housing market has undermined confidence in their single biggest asset. International trade partners have been more cautious with their cash, too, bringing in less money than China’s export industry made the year before last. But one group is still spending big: the country’s personal luxury market made 12% more money last year than the one before, according to Bain & Company. That’s partly because the well-to-do haven’t been jetting off to Paris, London, and New York as much, so they’re stocking up on thousand-dollar neckerchiefs and cashmere socks within China’s borders instead.

China luxury market
Source: Bain & Company

Why should I care?

For markets: Luxe is living.

LVMH reported that sales in China were 30% higher in December than the same time the year before. Not just that, but the French luxury firm told investors that there are now twice as many Chinese shoppers with a penchant for the finer things than there were in 2019. That’s a lot of pent-up demand waiting to be released, and it could line LVMH and other high-end peers’ pockets.

LVMH stock
Source: Google Finance

The bigger picture: Thrift shopping is coming back.

Investors clearly don’t have the desire to go bargain hunting right now, leaving Chinese stocks on the floor instead of snapping them up for less. But that might change now that there’s proof of a pocket of spending, which could signal the start of a slow recovery. Case in point: LVMH’s newest results have already lifted the shares of other luxury firms higher. And with major US firms like Nike and Estée Lauder reporting results in the coming weeks, there could be more pick-me-ups to come.

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