“The Macau alarm”
Chinese consumers would rather obtain luxury products in Japan and Europe because of the euro and yen weaknesses.
More than a year ago, my friend Pablo Losada, established in NY with a major in civil engineering, told me he “followed the evolution of casinos in Macau, and the consumption of luxury in it, and I believe that in some years they will have problems. There is something going on in China”. One year later, the Chinese stock market is suffering one of its worst reforms in years, which has influences the luxury tourism in China.
In fact, the largest luxury hotels and casinos of the ancient Portuguese colony are changing the model of their businesses at a fast rate, becoming more similar to Las Vegas (family-friendly resorts which can be attended by the whole family), rather than Atlantic City. Macau has been the largest game-related industry worldwide until now. Last year, Chinese tourists spent $7,700 million in Macau, although this year, the income has decreased notably. Also, the MGM casino’s income has decreased by 33% in the first fiscal trimester of this year.
This is definitely going to have consequences. China has been considered the most important one in the worldwide luxury businesses in the last decade. The middle and upper classes have both dramatically increased, which now exceeds 100 million of millionaires who seek for products and luxury experience, which has been the golden goose during the global credit crisis.
There has been a radical expansion of luxury hotels in the southern area of Asia, such as luxury cruises companies or international fashion signatures. Norwegian Cruise already has a base in Hong Kong, meanwhile Carnival Cruises, is constructing two more cruises to add to its Chinese fleet, which already has four luxury cruises, and has also announced an inversion of 33 million euros to construct their second passenger terminal in the Barcelona Harbor.
Since the presentation period of the largest luxury multinationals started, they have all had a common denominator: although sales have increased, there is a compensation of benefits obtained in southeast Asia through other markets, such as the ones from the Middle East, Latam, or even the United States and Europe after their revivals.
There are two main reasons to why Chinese consumers have radically decreased their consumption of luxury products in the area: first, the monetary evolution which has penalized the corporate results; second, the policies against corruption enforced by the Chinese government, which have influence the results of this second trimester. Between these policies, there is the increase in taxes of luxury products, fighting against luxury gifts, which seemed like a very usual restraint. Also, the government-planned deceleration of Chinese economy is affecting the whole Premium/luxury sector.
Chinese consumers would rather obtain luxury products in Japan and Europe because of the euro and yen weaknesses. Also, authorities do not control their purchases, and taxes are lower. Some days ago, LVMH showed a 10% decay in the Chinese sales in Hong Kong and Macau in the presentation of their trimestral results, facing the same trimester of the previous year. LVHM has its second biggest Louis Vuitton shop worldwide in Canton Road, after the one in France.
Gucci and Burberry have both announced their wish to renegotiate the rent of commercial shops to make them lower in Hong Kong and Macau, since their sales have decreased. Gucci also intends to close some of their shops if the price of the rent does not decrease significantly. Audi, one of the leaders in the auto-making business, annunciated a profit warning in their sales in China for 2015. This previous May, they suffered their first decay in sales in China in two years, since China is the main worldwide market for Audi.
With this outlook, it does not seem ridiculous that the big brands will rethink their position and strategy in the last trimester of the year in China and the Far East- except for Japan, which is in one of their best economic moments, and facing the 2020 Olympic Games. In fact, Internet sales are still prosperous, since Alibaba announced a month ago an initial inversion of 100 million dollars for an internet luxury webpage, while Amazon has launched itself to sell luxury products.
Disclosure: El autor no se responsabiliza sobre las opiniones expuestas en el artículo. El texto ha sido escrito de manera libre expresando ideas propias, sin recibir ninguna compensación por ello. El autor no tiene ninguna relación de negocios con cualquiera de las empresas cuyas acciones se mencionan en este artículo.
