Richemont Confirms China’s Diminishing Role in Luxury Retail

China, once hailed as the savior of the luxury sector, is no longer providing the same support as before, at least for now. The industry had relied on a revival in China to offset the sluggishness in the U.S. market. However, this lifeline is no longer sustainable, as sales in the sector continue to weaken, presenting challenges for industry participants.

Richemont led the decline in luxury-goods stocks due to concerns about decelerating demand in the industry’s two largest markets, the U.S. and China.

During the three-month period ending in June, the Swiss owner of Cartier unexpectedly experienced a decline in revenue from the Americas. Although Richemont witnessed an increase in sales from Asia, China’s slower-than-anticipated economic growth on Monday raised concerns about a potential reduction in consumer spending.

Richemont encountered its largest intraday decline in over a year, with a drop of up to 10%. Similarly, LVMH fell up to 5%, while Hermes fell as much as 5.3%.

Recent reports from Burberry Group also indicate a softening in the low-end luxury market in the U.S., further complicating the industry’s outlook.

However, Richemont announced a 19% increase in overall sales. The company’s jewelry revenue grew 24%, and the specialist watchmaker division grew 10% at constant currencies.

China’s Peaks and Valleys

In February, Kering revealed that it ran into headwinds during its fourth quarter.

During the quarter ended on Dec. 31, the group reported a 7% year-over-year (YoY) decline in sales. Gucci, responsible for half of its revenue, fell 14%.

Kering attributed its slowdown — and especially that of Gucci — to the COVID-related restrictions that were still in place in China during the quarter.

In terms of full-year 2022 performance, Kering’s group revenue increased 9%.

Read more: Kering Says China’s COVID Restrictions Slowed Luxury Sales

In April, L’Oreal announced its acquisition of the Australian luxury brand Aesop from Natura & Co. This move was aimed at strengthening L’Oreal’s position in the high-end skincare market and enabling further international expansion, particularly in China.

Read more: L’Oreal Sets Eyes on Chinese Consumers, Buys Luxury Brand Aesop

Soon after, reports emerged that Germany’s Mytheresa was also hoping to court shoppers in China’s busy luxury space.

CEO Michael Kliger mentioned that the upscale eCommerce company will be implementing personal shoppers and organizing in-person events in an effort to establish a presence in a market dominated by companies like Alibaba, Reuters reported on Monday, April 17.

“The company [globally] has grown 20%-plus in recent years, and our expectation from China in coming years is double that,” Kliger said, per the report. “Because we are so small here, this doesn’t even mean we are going against the big guys, it’s still a very special customer we focus on.”

Kliger noted that Mytheresa has the potential to attract “mature” luxury shoppers in China. He shared with Reuters that the top 3% of Mytheresa’s customers account for 35% of the total sales.

“The luxury customer that just starts a love affair with luxury that is looking for her or his first piece, it’s probably not the target that we have in mind,” he said.

Read more: Mytheresa Hopes to Carve Space in China’s Luxury Market

During the same month, Valentino reported an increase in sales, primarily driven by its directly owned stores.

“Geographically speaking, Europe, North America, and the Middle East lead the way, while Greater China was still shaky tied to COVID,” the company said, per Reuters.

Read more: Valentino Sees Sales Climb 10% Despite ‘Shaky’ China

Then in May, PYMNTS reported that Estée Lauder retained its optimism regarding the Chinese market, despite revising its sales outlook for the third consecutive quarter due to a slower-than-anticipated recovery in Asia.

On Wednesday (May 3), the company, which owns cosmetic brands such as MAC and La Mer, revealed that it expected a decline in sales for the year within the range of 10% to 12%.

Furthermore, the company reported a significant 45% decline in organic sales in global travel retail during the quarter. The decrease in net sales was primarily attributed to Asia travel retail in Hainan and Korea.

According to CEO Fabrizio Freda, “the shape of recovery from the pandemic for Asia travel retail” has become clearer and is proving to be more volatile and slower than initially anticipated in comparison to other regions.

Read more: Estée Lauder Lowers Outlook but Continues to Bet Big on Chinese Market

A month later, in June, PYMNTS reported that consumer spending in China was slowly but surely recovering from COVID.

“We’re seeing the incremental rebound from the Chinese consumer,” said KraneShares Chief Investment Officer Brendan Ahern in an interview with on Saturday (May 27).

Nevertheless, Ahern issued a cautionary note, emphasizing that the recovery was not a sudden, instantaneous event akin to flipping on a light switch.

According to the National Bureau of Statistics of China, retail sales have been steadily increasing since November of last year.

During the interview with CNBC, Ahern expressed his expectation that Chinese companies would witness improved quarterly earnings with each subsequent quarter. This anticipated trend might already be in motion, as evidenced by companies like Baidu and Tencent surpassing expectations during their fiscal first quarters.

“We’re actually hearing that for many of the companies … in the management calls, they’re speaking to how Q2 already is outpacing Q1, which outpaced Q4 of last year,” Ahern said.

Read more: China Enjoys ‘Incremental Rebound’ in Consumer Spending