PARIS — The Chinese consumer is still going strong — just not in China.
Chinese tourism spending jumped 87.8 percent in June, despite a slowdown in South Korea as a result of the MERS scare, and Chinese consumers continue to scour the world for bargains, according to Global Blue figures quoted in a Barclays research report.
Chinese spending on leather goods in Europe rose by 93.7 percent last month, reflecting continued high premiums in soft luxury between Mainland China and Europe, Barclays analysts Laura Levy and Julian Easthope said in the report.
The figures were supported by Hermès International’s solid second-quarter results. The maker of Birkin bags and silk scarves on Tuesday posted revenues of 1.17 billion euros, or $1.3 billion, during the three-month period, up 9.7 percent when stripping out the effect of currency fluctuations. This compared with growth of 8 percent in the first quarter of 2015 and with a 12 percent increase in the same quarter last year.
On a reported basis, sales jumped 22.2 percent in the second quarter as all major regions recorded gains.
Revenues in Asia-Pacific, excluding Japan, rose 6 percent during the period, despite what Hermès called a “difficult context” in Hong Kong and Macau. Japan posted a 26.5 percent increase, while the Americas logged a 10.9 percent gain. Sales in France were up 6.8 percent, while the rest of Europe recorded a 10.9 percent increase.
The French luxury house said it was maintaining its guidance for a sales increase of 8 percent at constant exchange rates in the medium-term. The company is scheduled to publish full results for the first quarter on Aug. 28.
“As a result of the weaker euro, the operational profitability should be down slightly in comparison with the first half of 2014,” it said.
Meanwhile, Swiss watch exports bounced back in June as sales in Europe compensated for continued weakness in Asia, especially China.
Foreign sales of Swiss timepieces rose 3.3 percent to 1.93 billion Swiss francs, or $2.07 billion, according to the Federation of the Swiss Watch Industry. This tipped the cumulative result since January back into positive territory, with sales up 0.4 for the year so far.
But the sector continues to suffer from the Chinese government’s anticorruption crackdown and the drop in the number of Mainland Chinese visitors to Hong Kong and Macau. Sales to Hong Kong fell 21.2 percent in June, marking the fifth consecutive month of decline in the world’s top market for Swiss timepieces. Meanwhile, exports to China were down 9.2 percent.
However, the United States recorded a 4.7 percent increase and Europe was up 15.7 percent overall, with sales jumping 34.8 percent in the United Kingdom, 24.9 percent in Italy and 24.4 percent in France.
Both ends of the price scale contributed to the upturn. Watches costing less than 200 francs, or $215, recorded a rise of 8.1 percent in the number of units sold, corresponding to a 0.5 percent rise in value terms. Exports of timepieces costing more than 3,000 francs, or $3,220, were down 1.1 percent in volume terms but rose 4.5 percent in value terms, the federation reported.
“The pressure continues in Hong Kong although the bleeding appears to be slowing,” Luca Solca, managing director at Exane BNP Paribas, said in a research note.
“Good volume developments in the entry segment, on the one hand, and improvements at the high-end of the spectrum, on the other, should incrementally support sentiment behind both Swatch and Richemont,” he added.
Put off by ongoing pro-democracy protests in Hong Kong, growing numbers of Chinese tourists are heading to Japan instead, drawn by the weak yen and tax-free shopping opportunities. Burberry reported earlier this month that the high-margin Hong Kong and Macau markets posted 10 percent to 20 percent declines in comparable sales in the three months to June 30.
“Japan is indeed cheaper than China and the regional destination for Chinese wanting to save,” Solca told WWD. The weak euro is also boosting their spending power in Europe. “I think there is a lot of Chinese demand emerging in Europe and a lot of grey market activity,” he noted.
Chinese tourism spending in Europe was up 87.7 percent in June, compared with 81.7 percent in May, according to the Global Blue data reported by Barclays. It rose 88 percent in the rest of the world, “driven, we believe, by high volumes of middle class Chinese spending in Asia, in particular Japan,” the report added.
This was below the exceptional increases of 122 percent in May and 110 percent for the year to date, mainly because of a 45 percent decline in tourism spending in South Korea, following a 53 percent increase in May.
But Chinese consumers continue to power global demand for hard and soft luxury. Chinese spending on watches and jewelry jumped 77.5 percent in June, while expenditures on leather goods rose 83.7 percent, Barclays reported.
“This suggests that there may be a slowing pace in the redirection of Chinese spending from Hong Kong to Europe in hard luxury,” it said. “We believe there is still some way to go in soft luxury with China still at an average 44 percent premium to Europe in June versus 59 percent in March.”
At Hermès, leather goods and saddlery remained the principal drivers of growth, rising 14.9 percent at constant exchange rates in the second quarter as the French luxury goods firm continued to increase production capacity.
The company said Monday that it plans to hire 150 people at its small leather goods workshop in the Euro region, which will move into new premises at the end of 2016. Hermès will relocate its glove-making plant in the Haute-Vienne region in early 2017 and hire 70 more workers there to expand output to small leather goods.
Sales of ready-to-wear and fashion accessories rose 6.4 percent in the second quarter, silk and textiles grew 3.2 percent, perfumes progressed 6.8 percent and watches edged up 1.2 percent after several consecutive quarters of decline. Sales of other Hermès products, which include jewelry and home wares, rose 15.2 percent.
Sales for the luxury house’s other divisions — including John Lobb shoes, Saint-Louis glassware, Puiforcat silverware, Chinese luxury brand Shang Xia and production activities for third parties — were down 5 percent in the quarter.
Shares in Hermès closed down 0.3 percent at 339.95 euros, or $377.15, on the Paris stock exchange on Tuesday.