Barrons Subscription said China’s Wealthy Shoppers Are Back

Barrons Subscription corroborates that whales aren’t just returning the gaming tables, they’ll be hitting the shops too, argues HSBC analyst Erwan Rambourg, who upgraded LVMH Moët Hennessy Louis Vuitton MC +1.21% (LVMUY) and Cie. Financière Richemont CFR +2.24% (CFRUY) to Buy from Hold, given that he believes the “reopening of mainland China is a game changer for the [luxury] sector.”

Rambourg writes that China isn’t the only reason he’s more optimistic, noting that “winter has not come in Continental Europe as many industry managers and ourselves were expecting…and North America growth could start picking up in the spring.”

However he argues that everywhere will see the benefit of the return of Chinese shoppers, finally ushering in a period of “revenge buying” that was previously delayed by restrictions.

Barron’s has written previously about how wealthier Americans have been able to keep spending despite inflationary pressures pinching the budgets of their lower-income countrymen; the problem for some U.S. retailers has been the ongoing prioritization of experiences that were on hold during the pandemic over goods, which means they’ve getting less of that spending.

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Nonetheless the ultrahigh-end of the market continues to see robust demand, perhaps not surprising given that the toniest customers don’t have to choose between splurging on trip or tchotchkes, but simply indulge in both. That mind-set could play out in China as well, Rambourg writes, particularly as shopping is a popular vacation pastime for many tourists.

“Feedback we are getting from luxury managers based in Paris, Milan, Tokyo, Singapore, and Bangkok is along the lines of: ‘we wonder how we will be able to welcome back Chinese tourists appropriately given the already elevated sales levels with locals and other tourists,’” he writes. “This seems like a good problem to have.”

As for LVMH specifically, his upgrade comes as he sees near-term headwinds as more transitory, while Richemont—the most exposed to Chinese shoppers—should benefit from their return as well as ongoing strength with Western clientele.

Moreover, with some economists thinking the U.S. can avoid a recession just as signs of growth and stabilization appear in China’s manufacturing and housing sectors, respectively, the stage seems set for luxury to keep its luster.