Luxury Shoppers in China Are Still Buying Bags, But Not BMWs

(Bloomberg) -- China’s luxury shoppers are becoming more selective as the trade war rattles the world’s second-largest economy, shunning big ticket items like pricey cars but continuing to snap up handbags and champagne.

That split has been on display this week, with Jaguar Land Rover saying it will shut down production at a U.K. factory for two weeks after reporting a 46 percent slump in China sales, coming after luxury carmakers BMW AG and Daimler AG issued profit warnings also on flailing Chinese demand. New home sales during China’s recent Golden Week holiday, too, were the lowest since at least 2014, according to China Securities Co.

Meanwhile, report cards from LVMH, home of Louis Vuitton leather goods and Dom Pérignon champagne, as well as casino operators in Macau offer signs that the trade fight with the U.S. isn’t entirely derailing the China-led boom in top-end retail -- at least for now.

Concern shoppers in China would rein in spending gained ground last month when the economic standoff between U.S. and China intensified, with President Donald Trump slapping tariffs on another $200 billion of Chinese imports and Beijing retaliating. The fight is dragging on China’s economy, with factory activity in retreat and the yuan sliding.

Golden Week

So there was relief in Macau during the Golden Week break, often seen as a thermometer for the economy, with Chinese tourist arrivals to the gambling enclave up 14 percent from 2017. High rollers bet 10 percent more in the first six days of October than in the same period last year, according to Morgan Stanley.

French giant LVMH also provided reason for optimism, saying Tuesday its luxury retailer DFS performed especially well at the key Chinese tourist destinations of Hong Kong and Macau, while the company’s wines and spirits business “grew rapidly” in China, too. LVMH said it did well in all its markets as it reported a 10 percent jump in third-quarter sales.

Chinese demand is “intact,” says Deborah Aitken, senior analyst at Bloomberg Intelligence in London. “LMVH is the first to confirm Asian markets are buoyant.”

LVMH Falls

But investors -- and Morgan Stanley -- aren’t so sure. LVMH stock slipped as much as 5.2 percent as trading got under way in Paris Wednesday. Analysts at Morgan Stanley cut the luxury-goods sector to underweight, saying the shares look stretched and Chinese consumer confidence appears to have peaked.

And while the casinos’ robust holiday performance was reassuring, it also isn’t wiping out analyst concerns that the industry will grow at a slower pace in the next few months as the economy weakens.

Fashion is holding up better. Chow Tai Fook Jewellery Group Ltd., the world’s biggest jewelry retailer by revenue, notched double-digit sales growth in mainland China and Hong Kong for the three months ended June. Same-store sales in Hong Kong rose 26 percent, helped by “improving local consumer spending and reviving mainland visitation.”

©2018 Bloomberg L.P.