Sluggish Luxury Goods Purchases Further Evidence of China Slowdown—Looking to U.S. for Growth?

Purchases of luxury goods in Hong Kong by tourists from the mainland have, by all accounts, been disappointing during this week's Golden Week holidays. “Purchase of luxury goods by mainland visitors in Hong Kong is set to fall at least 10 percent from a year ago during this week's holiday, said Joseph Tung, executive director of the Travel Industry Council,” cited by

“The decline comes even as the number of tourists coming from China increases.” The number of tourists arriving in Hong Kong from the mainland during the first three days of Golden Week were up by 6 percent but reports from Hong Kong government officials and interviews with local retailers indicate that spending per tourist has declined, continuing a trend that started earlier this year. Tung is cited by Bloomberg as saying that average spending per tourist is expected to be HK$5,000 (US$645) to HK$6,000 (US$774) during this year's Golden Week compared to an average of HK$7,000 (US$903) to HK$8,000 (US$1,032) last year. “Golden Week sales this year so far are more or less the same as last year,” Joseph Chu, an executive director of Prince Jewellery & Watch which runs 13 stores in Hong Kong told Bloomberg. “The number of mainland shoppers didn't decrease but the average spending of each visitor has dropped.” There was an early indication of trouble in the China luxury goods market when Burberry Group plc

announced on September 11 that sales of its high-end apparel in China were slower than anticipated. Patrizio Bertelli, CEO of Italian fashion house Prada

reacted to investor nervousness over the Burberry comments by saying on a conference call quoted by

“I think we must stay calm and be less hysterical. I don't see such a dramatic market” and that he expects “good double-digit growth” this year. Several U.S. luxury brands have retail outlets in Hong Kong including Harry Winston Diamond Corporation

, which has one store inside Hong Kong's Peninsula Hotel, Coach

, which operates 20 retail outlets in Hong Kong, Kowloon and Lantau, and Tiffany & Co.

, which has eight shops in Hong Kong and Kowloon. None of these companies have yet commented on Golden Week sales in Hong Kong. Other US luxury goods retailers are looking to tap the Chinese market through online retailing. Closely held Neiman Marcus has invested $29.4 million in a Hong Kong-based ecommerce company, Glamour Sales, according to but after anticipating a December 2012 launch, the

reports that the launch of online sales in China has been delayed until July 2013. The slowdown of luxury goods sales in China may have an impact on the US equity market. Colin Welch, chief executive of Financo Europe, wrote for

that European fashion companies may look to the U.S. markets to list their shares. “From 2009 to 2011, a flurry of brands were considering a Hong Kong IPO, including L'Occitane and Prada'” Welch writes. “At the time, Hong Kong offered attractions that their home countries did not: a booming IPO market with valuations at a premium to Europe; a region boasting high economic growth; strong consumer interest; and high spending on consumer and luxury goods.This combination enticed companies already wary of the uncertain European market, especially those looking to expand in Asia, where sales and earnings were strong.” Welch argues that, as growth falters in Asia due to the slowdown in China, fashion companies looking to list their shares may look to the next growth market—the United States. “Hong Kong is about to face stiff competition from across the Pacific as European companies, particularly ones with US growth potential, are looking Stateside to list their shares,” Welch states. “The US has a strong history of institutional investors paying premiums for high-growth, premium-rated retail and consumer IPOs, something that doesn't exist in Europe. It also often offers a more direct comparable peer group for valuation purposes.” Welch continues, “Furthermore, the US buy-side investor base has a deeper knowledge of the US market, hence more confidence in its economy, as well as a better understanding of business models that are more prevalent Stateside. Some are already putting out feelers. Privalia Venta Directa, a Spain-based online private-Sales club, is exploring listing with Nasdaq.” Welch concludes, “After all, the US economy is gradually picking up, and the New York Stock Exchange and Nasdaq have experienced strong performance in recent months. As a result, 2013 could well be New York's year for IPOs, with European retailers and branded consumer companies among the first in line to list.”