Luxury brands in China take hit on low consumer confidence as economy slows

China’s slowing growth has begun to weigh on luxury brands such as LVMH and Chow Tai Fook, as consumers in the world’s second-largest economy tighten their belts amid economic uncertainty.

LVMH, the world’s largest luxury group with brands such as Louis Vuitton and Dior, saw sales in Asia, excluding Japan, decline by 13 per cent in the first half of the year, according to its earnings report released on Tuesday.

“An unfavourable market environment in China” has also contributed to a 15 per cent decline in the sales of champagne and other wines in the region, excluding Japan, where China is the largest market for such goods.

Local jewellery brand Chow Tai Fook took a severe hit in the second quarter, reporting a 20 per cent slump in retail sales, amid intensifying economic headwinds. Mainland China sales fell 19 per cent. Combined sales in other markets, including Hong Kong and Macau, plummeted 29 per cent, the company said in a filing on Tuesday.

“Mainland, Hong Kong and Macau recorded negative same-store sales growth as macro challenges continued to impact consumers’ spending,” Chow Tai Fook chairman Henry Cheng Kar-shun said in the company filings. The high volatility in gold prices also caused “hiccups” in gold jewellery demand in the three months ended June, he added.

These disappointing sales figures underscore broader concerns about Chinese consumer spending, which has remained weak amid a slowing economy, lower income growth and elevated unemployment levels.

That may not be enough to move the needle, as the rate cut was “more symbolic in nature” and there is limited scope for further efforts that would be large enough to significantly impact China’s growth outlook, analysts at BCA Research said in a note on Tuesday.

Authorities are likely to tread carefully to avoid triggering rapid devaluation of the yuan, which could spark panic in financial markets, undermine consumer and business confidence, and delay economic recovery, although the challenges facing the economy warrant further rate cuts and stimulus, they said.

“There are no quick policy fixes to China’s slow pace of household consumption growth,” economists at Rhodium Group said in a report last week.

“The imbalances in China’s economy have widened for several years, and only a complete restructuring of the economy, the fiscal system, and a government-led redistribution of income will change that pattern,” they said.