A shopper surveys a Michael Kors store at a mall in lower Manhattan in New York City. As Chinese continue to slow their purchasing of luxury goods in the US, stores like Michael Kors are feeling a slump in sales. (Photo: AFP)
US luxury brands are feeling the pain from a fall in tourist spending from China because of the trade war, and they could face further challenges from European rivals in the Chinese market, an expert said on Thursday.
Tiffany & Co, the US luxury jeweler, attributed disappointing quarterly results to a sharp decline in sales to Chinese tourists, the company said last week. "The tourists in the US represent a low double-digit percentage of our total sales in the US and we have seen a sharp decrease to sales to tourists in the US in the range of 25 percent. Even sharper for Chinese tourists," Tiffany CEO Alessandro Bogliolo said on the company's conference call, according to CNBC.
The decline in luxury brands' sales to Chinese tourists is due to the drop in the number of Chinese travelers in the US, affected by the increasingly tense US-China relationship amid the trade dispute, Bai Ming, deputy director of the Ministry of Commerce's International Market Research Institute, told the Global Times Thursday.
"The trade spat is straining China-US relations, which makes a lot of Chinese travelers less inclined to visit," Bai said.
The number of Chinese tourists who chose to visit the US declined in 2018. According to figures released by the US National Travel and Tourism Office, in 2018, only 3 million Chinese travelers visited the US, compared with 3.2 million 2017, the first decline in 15 years.
On June 4, China's Ministry of Foreign Affairs issued a warning to Chinese nationals of the risk they may face when travelling in the US.
Apart from the drop in tourism spending, luxury brands from the US are also under pressure from the trade dispute as they face increasing pricing pressure within China. Higher import tariffs may make American luxury brands even weaker than European brands.
Jewelry and leather bags are among US imported goods subject to a 25 percent tariff after China retaliated in May with the announcement of higher tariffs.Consequently, the US brands have less room to lower prices compared with rivals from other countries.
"The tariff will weaken the competitiveness of US luxury brands in China," Bai said. "Although customers of luxury products are less price-sensitive, the US luxury brands still need a pricing advantage since they tend to be less popular than well-established European brands."
Some European brands have been reducing their prices to better compete with rivals in the Chinese market, including French luxury fashion brand Louis Vuitton and Italian brand Gucci. Both cut prices in China by about 3 percent in April, fashion.ce.cn reported.
"At this vital stage of gaining market share in the luxury business in China, the US brands will have a lot to do to bounce back from the trade war," Bai said.