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China’s tepid rebound has left luxury shops relying on US demand

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Feb 9, 2024

Just over a year after China ended its Covid-Zero policy, the expected bounceback in spending on high-end consumer goods has failed to live up to expectations.

Miu Miu – Spring-Summer2024 – Womenswear – Paris – © Launchmetrics

L’Oreal shares tumbled as much as 7.7% on Friday after the cosmetics group’s sales were hit by a sharp drop in North Asia. Hermes International, the French luxury group, topped earnings expectations but singled out Asia-Pacific excluding Japan as its weakest region.

In China, “the recovery we had hoped for at the start of 2023 failed to happen, as consumer confidence remains subdued,” L’Oreal Chief Executive Officer Nicolas Hieronimus told analysts and reporters Friday.

The results reinforce a trend reported by some other fashion houses that demand among Chinese shoppers at home and when traveling abroad — while improving — remains cooler than hoped. Instead it’s been other regions, notably the US and Japan, where luxury sales have in some cases shown surprising resilience. 

At Hermes, maker of the sought-after Birkin bag, sales in the Americas surged 22% last quarter at constant exchange rates, well above estimates. LVMH, the luxury powerhouse whose brands include Louis Vuitton and Christian Dior, also reported stronger-than-expected demand from the US.

“Hermes is yet another company to confirm reviving momentum of the American consumers, on the back of resurgent confidence and lower inflation,” Luca Solca, an analyst at Bernstein, said in a note Friday. 

L’Oreal’s performance in North Asia, which includes China and Korea, continued to suffer from a challenging travel retail market, which weighed in particular on its premium unit, L’Oreal Luxe. That division includes labels such as Lancome and the recently integrated Aesop, which L’Oreal bought last year.

Swatch Group failed to hit the sales record predicted by its CEO after the return of customers in China for brands including Omega and Longines disappointed.

Even so, there’s no indication firms will reduce their ambitions for Asia’s biggest economy.

“Yes, the near-term remains uncertain,” L’Oreal’s Hieronimus said. “But its sheer size alone makes the Chinese beauty market highly attractive. Even if it grew only in the mid-single digits — +6% to be precise — it would add half an Italy every year.”


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