China_Hong Kong Consumer_ Takeaways from call with expert on luxury retail

Summary of Key Points from the Conference Call on Luxury Retail Industry Overview - The conference call focused on the luxury retail sector in China and Hong Kong, highlighting current trends and consumer behavior in the luxury market [1][21]. Core Insights - Sales Trends: Luxury sales experienced a narrowing year-over-year decline of approximately -5% to flat in October-November, compared to a decline of over -10% in the first nine months of 2024. This improvement is attributed to a stock market rally in late September and promotional activities during October and November [1][21]. - Future Outlook: Sales are expected to weaken further in December 2024 compared to the same period last year, with a continued decline anticipated over the next 6-12 months due to limited signs of demand recovery [1][21]. - Consumer Behavior: There is a noticeable shift in consumer spending towards overseas markets, particularly Japan, driven by outbound travel recovery, favorable foreign exchange rates, and a more relaxed payment system [1][21]. - Price Sensitivity: Consumers are becoming more price-sensitive, leading to a shift in consumption budgets towards promotional seasons. Entry-level and middle-class consumers are experiencing lower purchase frequencies and longer decision cycles, impacting fashion luxury brands [1][21]. Category-Specific Insights - Ultra-Luxury vs. Fashion Luxury: Ultra-luxury sales remain resilient, while fashion luxury and traditional hard luxury categories have underperformed. For instance, kidswear sales are currently at only 50% of their peak levels in 2021 [1][21]. - Gold and Jewelry: Foreign hard luxury brands have seen double-digit year-over-year declines in ready-made jewelry sales over the past 2-3 years. Chow Tai Fook (1929.HK) has also faced a downward trend since 2023, focusing on higher-end gem-sets that are less favored by consumers. Conversely, demand for gold jewelry has increased, particularly for Laopu Gold (6181.HK), which has gained market share from traditional hard luxury brands [1][21]. Competitive Landscape - Market Share Dynamics: Despite Laopu Gold's strong same-store sales growth of over 100% in the first half of 2024, its sales are still only two-thirds of those of foreign hard-luxury brands, although it is outperforming Chow Tai Fook in the same locations [1][21]. Risks and Considerations - Potential Risks: The luxury retail sector faces risks from macroeconomic slowdowns, declines in disposable income, and intense competition in the gold products market in mainland China. Additionally, a decline in gold prices could negatively impact operating margins [4][21]. Conclusion - The luxury retail market in China and Hong Kong is currently experiencing a complex landscape characterized by narrowing sales declines, shifting consumer preferences, and competitive pressures. The outlook remains cautious, with expectations of further sales weakening in the near term [1][21].