Speaker 1: You're listening to Asia Centric from Bloomberg Intelligence, the podcast
Speaker 1: that pulls back the curtain non global business so you
Speaker 1: can invest better across the Pacific rim. I'm Tom Corbett
Speaker 1: in Hong Kong.
Speaker 2: And I'm John Lee. China's economy resembles a high stakes
Speaker 2: tug of war with fear and greed finding for the
Speaker 2: hearts and minds of Chinese consumers.
Speaker 1: Its property crisis, its stock market swings and following prices
Speaker 1: have dealt a body blow to the confidence of its
Speaker 1: once freewheeling consumers, and shock waves from the spending pullback
Speaker 1: are shaking up some of the world's biggest luxury brands, Apple, Gucci.
Speaker 2: And Tesla At some of the names feeling the pinch.
Speaker 2: But is the new Chinese frugality here to stay or
Speaker 2: will that big spending ways returned With avengeance.
Speaker 1: Let's go deep on China's new consumer austerity with Catherine
Speaker 1: Limb's senior cons humor analyst with Bloomberg Intelligence in Singapore.
Speaker 2: And Debrah Aitken, senior Luxury Brands analyst with Lundberg Intelligence
Speaker 2: in London.
Speaker 1: Catherine and Deborah welcome both Asia Centric.
Speaker 3: Hello, nice to be.
Speaker 4: Here, Thanks for having us, Tom John Catherine.
Speaker 2: How is China's economic words impacting confidence and their ability
Speaker 2: to spend?
Speaker 4: Well, we've actually seen the negative wealth effect weighing in
Speaker 4: on spending for the first two months of twenty twenty four,
Speaker 4: and notably this should have actually been two strong months
Speaker 4: because of the lunar New Year's celebrations. Unfortunately, we continue
Speaker 4: to see retail sales missing market estimates and we are
Speaker 4: now expecting that there will be further downwards revisions to
Speaker 4: market expectations for retail sales in China this year.
Speaker 2: And on a previous podcast, we had how long Economists
Speaker 2: that Grow Investments discuss how Chinese consumers are downgrading their
Speaker 2: habits the foregoing overseas trips in favorite domestic travel. Are
Speaker 2: we seeing these in terms of the numbers, Well, in.
Speaker 4: Terms of the travel numbers itself, we are definitely seeing
Speaker 4: more of them traveling domestically within mainland China, going for
Speaker 4: shorter trips and specifically traveling within the region in Asia. Now,
Speaker 4: there could have actually been flight constraints, capacity constraints, and
Speaker 4: perhaps some of these safety concerns lingering post COVID, but
Speaker 4: that said itself, we do see that even the travelers
Speaker 4: are tightening their spending budgets as they go planning for
Speaker 4: their travels.
Speaker 1: Deborah Aiken in London. We've seen some amazing sales figures
Speaker 1: for some of the luxury brands. Widely reported Gucci sales
Speaker 1: down nearly twenty percent for the first quarter, Asia Pacific
Speaker 1: leading the way. That's a report from Bloomberg News. We
Speaker 1: watch exports to China down twenty five percent in February.
Speaker 1: What's your take on all this? How long could it last?
Speaker 1: These numbers are a far cry from the free wheeling
Speaker 1: spending patterns of the past.
Speaker 3: Hi, Tom, I think, well, several things here. So if
Speaker 3: we look at what happened, particularly with Gucci, they're due
Speaker 3: to have results come through and they guide for around
Speaker 3: a twenty percent negative iss. You say on Gucci predominantly
Speaker 3: linked to Asia and particularly China, but I feel you
Speaker 3: know that that's quite standalone, or that there are a
Speaker 3: couple of other brands Gucci, Berbery and Salvatore for Agamo.
Speaker 3: They're all going through strategy overhaul, luxury brand elevation and
Speaker 3: amidst new creative director change, so they're working with old
Speaker 3: product versus new and maybe they're not really sponsoring enough
Speaker 3: maybe they're not as active right now because there's not
Speaker 3: much product around from the new design, and consumers, particularly wholesalers,
Speaker 3: wholesale accounts, the boutiques, the department stores aren't willing to
Speaker 3: take on board those types of products and take the
Speaker 3: risk in the Chinese market in the downturn. But at
Speaker 3: the other end, this first half of twenty twenty four
Speaker 3: out of Asia faces particularly harsh comparables a year ago
Speaker 3: on the sales numbers. You know, there was big growth
Speaker 3: first half twenty twenty three after n twenty twenty two closures.
Speaker 3: So we get companies with deep heritage, very high level,
Speaker 3: high priced companies, brands like MS Brunello, Kushinelli and also
Speaker 3: prior to doing very well, and those kinds of demand
Speaker 3: levels are holding up. So it really is a mix,
Speaker 3: you know, in terms of what we're seeing overall.
Speaker 2: We recently spoke to Vincent Lamb, CEO of Gemini Private
Speaker 2: Concierge Singapore based Services, which caters to the indulgences of
Speaker 2: the rich. Many of Vincent's clients are from mainland China,
Speaker 2: and we asked him how Chinese spending patterns have changed post.
Speaker 5: COVID, the market change or our euy has changed a
Speaker 5: little bit. We're not getting as many calls and queries
Speaker 5: from China and we're getting a lot more calls from Singapore.
Speaker 2: I don't think that coincidence.
Speaker 5: I think there is definitely a shift in the market
Speaker 5: on how Chinese people in China are spending and what
Speaker 5: they're doing with their money.
Speaker 3: Basically, if I.
Speaker 5: Kick you back pre COVID, that's sort of twenty nineteen
Speaker 5: and twenty eighteen times of period. The mainland Chinese is
Speaker 5: very active in their luxury spending. You see complete excesses
Speaker 5: in buying in jets and yachts, properties abroad, as well
Speaker 5: as luxury travel and luxury spending. And then come COVID
Speaker 5: two to zero. Obviously all those big ticket purchases dried up,
Speaker 5: especially with jets and yachts just nowhere to go, nowhere
Speaker 5: to part them. And then now we're in the post
Speaker 5: COVID period, people are beginning to travel again. I'm seeing
Speaker 5: a substantial drop in these sort of luxury items being
Speaker 5: purchased abroad.
Speaker 4: Now.
Speaker 5: I think that's not a lifestyle issue. That could be
Speaker 5: a currency issue and the florid exchange issue, where Chinese
Speaker 5: people just couldn't get their money out or couldn't convert
Speaker 5: into US dollars or euros, you know, to buy these
Speaker 5: things because of the exchange control. So again I think
Speaker 5: the government also tried to encourage you know, if you
Speaker 5: have made a lot of money in China, you should
Speaker 5: spend that money in China itself.
Speaker 2: Debra, we just heard from Vincent about the shift in
Speaker 2: Chinese spending patterns. In your view, which global brands could
Speaker 2: be the most exposed to a potential slowdown in Chinese spending.
Speaker 3: In terms of brands, we have a list on our
Speaker 3: boards which shows some companies have up to forty percent
Speaker 3: plus of their sales across the Asia area and brands
Speaker 3: in particular on slowdown. So we saw Gucci. So it's
Speaker 3: brands which aren't at the forefront of the consumer first off,
Speaker 3: brands that are in transition. So the three that I named,
Speaker 3: for example, Ferragamo has a large footprint in Asia, big
Speaker 3: exposure to China. Birbury is building itself in China. Gucci
Speaker 3: had a big market in China. So they are all
Speaker 3: exposed and they're all struggling. If I look to the
Speaker 3: lower end too, though in particular, perhaps the US brands
Speaker 3: and how we're watching those quarter by quarter. So we
Speaker 3: can think about names like Michael Kor's Steward Advisement Coach
Speaker 3: Kate Spade, where they're builting their way within the Tapstreak
Speaker 3: Capri combined deal which would take place this year, but
Speaker 3: where those two companies in particular, and some of the
Speaker 3: brands that they have at entry level are perhaps struggling
Speaker 3: a little bit. And then also there are some other
Speaker 3: brands and some other categories actually wear an LVMH, for example,
Speaker 3: with its seventy five brands, one of the categories it's
Speaker 3: built over the last several years has been perfume and
Speaker 3: cosmetics within that area, and we think of that as
Speaker 3: entry level into their brand portfolios. Then Lorel, for example,
Speaker 3: with some of its high end brands biersed off with
Speaker 3: La Prairie este l order. They've all ended up in
Speaker 3: China being overexposed, some of them with more inventory in
Speaker 3: Hainan and others, and that's only just starting to normalize.
Speaker 3: So there for now and through the rest of twenty
Speaker 3: four for me are the brands which will take time
Speaker 3: to come back, and that it's a second half recovery
Speaker 3: and we need to be watching them quarter by quarter.
Speaker 2: Vincent also claimed that European luxury makers maybe getting worried
Speaker 2: not only from weak cyclical demand, but also a growing
Speaker 2: preference amongst Chinese consumers for local brands.
Speaker 5: I think China trying to push that technology and craftsmanship.
Speaker 5: For example, the iPhone versus Samsung and then the Huawei.
Speaker 5: You know, you might think in the Western world iPhone
Speaker 5: and Samsung has the majority of market, but in China,
Speaker 5: China brands are very strong. You know, you sell me
Speaker 5: and your Huawei. They have really top end models that
Speaker 5: the pricing is not far from your iPhones and your Samsong,
Speaker 5: and there's a very strong following. People generally opt for
Speaker 5: the China products because a lot of them are very good.
Speaker 5: The same as wine. You know, some of the China
Speaker 5: wine can be hundreds of thousands of dollars. It's the same
Speaker 5: level as your Opus one and your Cato Marco and
Speaker 5: so on. And you look at cars, yes, you have
Speaker 5: your Tesla, Mercedes and new cars, but China electric cars
Speaker 5: are coming. I would expect in the next ten years
Speaker 5: China will try to develop a bigger domestic luxury market
Speaker 5: than the last ten years.
Speaker 2: Catherine Vincent just mentioned that Chinese consumers are starting to
Speaker 2: look at local brands. Do you think geopolitical tensions are
Speaker 2: making Chinese consumers more nationalistic?
Speaker 4: I think the drivers for Chinese consumers towards the national
Speaker 4: brands started a couple of years ago. If we take
Speaker 4: a step back, when the controversy over the usage of
Speaker 4: Shinjiang cotton first occurred, and that impacted the lights of
Speaker 4: Nike and Adidas, as well as fast retailings Unicloe. That
Speaker 4: prompted the shift towards some of the local sports brands
Speaker 4: like Anta and Leaning. And then with the rise of
Speaker 4: the influence from social media itself, we've seen a shift
Speaker 4: not just towards national sportswear, but also a shift towards
Speaker 4: national brands in cosmetics as well. We've actually seen more
Speaker 4: of the Chinese companies being able to better leaverage on
Speaker 4: the rise of the social media influence, to be to
Speaker 4: create and package their products. And I must say that
Speaker 4: again their ability to package the value for money proposition,
Speaker 4: along with some of the examples that I've seen that
Speaker 4: they come from the same factory as the international brands, etc.
Speaker 4: They are just as good, you know, with a fraction
Speaker 4: of the price itself. Chinese shoppers are.
Speaker 1: Buying in Deborah Aiken in London and Catherine Limb in Singapore.
Speaker 1: Is it possible that this consumer retrenchment in China is overstated?
Speaker 1: Could it be that this is just a matter of
Speaker 1: the Chinese consumer having money but just not feeling rich
Speaker 1: enough to spend it.
Speaker 4: I think the negative wealthy fect is weighing on the
Speaker 4: propensity to spend. As I've mentioned, there are categories out
Speaker 4: there that select consumers are still willing to actually spend more,
Speaker 4: not just on consumer goods itself. Tom recall that you
Speaker 4: know we've actually seen some of the younger Chinese consumers
Speaker 4: spending on services such as concerts, domestic travels, etc. So
Speaker 4: I do think that once the overhang on the economy
Speaker 4: the job securities gets more stable, you will see the
Speaker 4: spending come through again, not in the same fashion as
Speaker 4: we have seen before COVID, but there will be a
Speaker 4: trajectory upwards in my view.
Speaker 1: Debrah aken any thought on that.
Speaker 3: Yeah, Actually, And if I bring it particularly to a
Speaker 3: luxury perspective and give you a couple of numbers, we
Speaker 3: so often hear China associated with the luxury market. The
Speaker 3: Chinese consumer back in twenty nineteen made of thirty three
Speaker 3: percent of personal luxury goods spending, and what we used
Speaker 3: to find at the time was just over a quart
Speaker 3: of that spend was on the mainland. The rest was elsewhere.
Speaker 3: It was Hong Kong, it was Japan, Macau, Hainan, outside
Speaker 3: of the main areas, and then also we would say
Speaker 3: it was further afield. So the Europeans felt the consumer
Speaker 3: protection of tourism in store, and that's what's missing still,
Speaker 3: as did the US. But if we look at the
Speaker 3: numbers overall, we actually see from twenty nineteen where we
Speaker 3: say around a quarter of that spend was in China,
Speaker 3: we actually now see that the Chinese mainland is sixteen
Speaker 3: percent of spend of the market, So actually the Chinese
Speaker 3: consumer is not spending as much globally, but they're spending
Speaker 3: more in China.
Speaker 2: There's been an interesting phenomenon in Hong Kong where we're
Speaker 2: seeing a lot less mainland tourists enter Hong Kong, but
Speaker 2: at the same time you're seeing a lot more Hong
Speaker 2: Kong residents travel to Shenzhen and neighboring cities, leading to
Speaker 2: some pundits calling Hong Kong the ghost town. During holidays
Speaker 2: and weekends, Tom Ran into one of these Hong Kong
Speaker 2: residents who's made we can travel to Shenzhend part of
Speaker 2: his personal routine. Thirty three year old Hugo Lee says,
Speaker 2: it just makes sense. Let's have a listen.
Speaker 6: You go to Shenjen how on like at least like
Speaker 6: two times in a month, and what's the draw? It
Speaker 6: wasn't always this way, right. I feel like because I've
Speaker 6: been living in Hong Kong for long enough and I
Speaker 6: tried a lot of things in Hong Kong ready, so
Speaker 6: then Sheenchin actually feels more refreshing to me. It's been
Speaker 6: a big trend in Hong Kong where a lot of
Speaker 6: hongkowners want to go to Chenchin over the weekend because
Speaker 6: the food is much cheaper with better quality, and then
Speaker 6: there are a lot of things that you can do
Speaker 6: in Chenchen as well. There are a lot of big
Speaker 6: shopping malls with different themes, and some of the shopping
Speaker 6: malls even have like specific themes of like some games
Speaker 6: that you can play in it. So I feel like
Speaker 6: it's a good place to get relaxed. Is it more
Speaker 6: for like older people younger people? A little bit of bout?
Speaker 6: I think before the pandemic period. Maybe for the younger
Speaker 6: generations we do go to Hingin from time to time,
Speaker 6: but for now I think it's it's across all generations.
Speaker 6: So consider the fact that let's say, for like one
Speaker 6: hundred KD, like if you spend in Hong Kong, what
Speaker 6: can you get in terms of food? Maybe the quality
Speaker 6: and the service will not be good, right, But then
Speaker 6: is engine you can enjoy much better quality of service
Speaker 6: and food, So why not hu you get more for
Speaker 6: your money in Ginin? Exactly? Is it all about money
Speaker 6: or does it go beyond that? I think it's what
Speaker 6: Money is definitely one of the factors that drive people
Speaker 6: to go to Ginin a lot. The other thing is
Speaker 6: like it's more spacious. Obviously, what do you see in
Speaker 6: the future. Is this a permanent change? Is this a
Speaker 6: temporary thing? This Jin popularity. To be honest, I don't
Speaker 6: have a crystal ball. I can't tell how it's going
Speaker 6: to be in the long term, but at least for
Speaker 6: the short term medium term, I think that the trend's
Speaker 6: going to proceed back ten years to the way it
Speaker 6: used to be. People from Shenjin would come to Hong
Speaker 6: Kong for weekends, for shopping for entertainment. Now the tables
Speaker 6: have turned. Does that surprise you? I don't see it
Speaker 6: as a surprise. I feel like back then, when a
Speaker 6: lot of mainland Chinese people would like to come to
Speaker 6: Hong Kong because they trust the quality, the products are real.
Speaker 6: In Hong Kong, they can buy a lot of famous
Speaker 6: brands with a cheaper price. But now they can actually
Speaker 6: get the same sort of my price with the same
Speaker 6: products in Jin.
Speaker 2: Yeah.
Speaker 4: I think the high speed.
Speaker 6: Rail was a game changer.
Speaker 1: Shinjen is more accessible now.
Speaker 6: Yeah, yeah, definitely.
Speaker 2: So that's a real life example of what motivates Hong
Speaker 2: Kong is to travel to Shenzhen. Catherine, what's driving this
Speaker 2: trend and what's the impact for Hong Kong retail?
Speaker 4: Do you know what, John, Absolutely, the ties seems to
Speaker 4: have turned for Hong Kong being the de facto shopping paradise.
Speaker 4: It's going the other way now for the Hong Kong residents.
Speaker 4: And part of that is because two things. Firstly, of course,
Speaker 4: let's take into consideration of d Weeker yun. That has
Speaker 4: made it more affordable for Hong Kong residents to actually
Speaker 4: spend on basic goods in China. The underlying driver for
Speaker 4: that is that in the last five years, if you
Speaker 4: look at the quality of the offerings the merchandise array
Speaker 4: that we have seen in China, particularly nearby Chinese cities
Speaker 4: like Shanjin, we are looking at malls which are like
Speaker 4: three or four times the size of that in Hong Kong.
Speaker 4: The whole shopping experience has been elevated. I can totally
Speaker 4: see why Hong Kong residents would want to go shopping
Speaker 4: in Shinjin right now now, not with standing of course,
Speaker 4: with the underlying demand from one point four billion population,
Speaker 4: there is a lot more merchandise on the table to select,
Speaker 4: and Hong Kong residents are also now more open towards
Speaker 4: some of these Chinese merchandise, particularly when it comes to
Speaker 4: the basic goods, namely electronics, whether it's Sumi or even
Speaker 4: Huawei or Pu, some of the Chinese brands and the
Speaker 4: local household care products. Hong Kong residents are willing to
Speaker 4: actually spend on these items now.
Speaker 2: And some of the numbers coming out staggering. I read
Speaker 2: that during the Easter period, mainland tourists into Hong Kong
Speaker 2: was something like forty five percent below pre COVID levels
Speaker 2: on the other hand, I think Hong Kong residents going
Speaker 2: overseas and in particular to mainland China was up ten percent.
Speaker 2: Is Hong Kong retailer getting worried.
Speaker 4: Well, I think we will start to actually see the
Speaker 4: numbers coming through. I would say that speaking to some
Speaker 4: of my contexts to things one, they definitely think that
Speaker 4: there is very limited room for landlords to actually increase
Speaker 4: shop rentals, which is a good news for them. Now.
Speaker 4: On the sales fronts, we actually look at some of
Speaker 4: the companies here in Hong Kong, most have diversified or
Speaker 4: set up operations in China, so the incremental impact to
Speaker 4: them from lower sales in Hong Kong will be marginally
Speaker 4: less significant than what it was before. What they are
Speaker 4: focusing on right now is to actually adjust the merchandise
Speaker 4: mix so that in the case of jewelry, for instance,
Speaker 4: they will have the pricier items here dedicated exclusive to
Speaker 4: the Hong Kong market only that differentiates them from what
Speaker 4: is available for mainland China. So they are making adjustments,
Speaker 4: you know, what they are offering to the consumers with
Speaker 4: bearing in mind that they are probably facing consumers with
Speaker 4: shifting needs as we speak.
Speaker 1: And Catherine, is your impression that this shift we have
Speaker 1: seen between Hong Kong and shen Zen as a retail destination,
Speaker 1: is this the future? Is this a structural shift or
Speaker 1: do you see it as something temporary and fleeting that
Speaker 1: perhaps currency shifts could up end.
Speaker 4: I think structurally. We don't have the actual numbers, clearly,
Speaker 4: the authorities have not released these two publicly. But if
Speaker 4: you look at the mix of the population in Hong Kong,
Speaker 4: I would say that because of the multiple talent schemes
Speaker 4: whereby they have attracted mainland Chinese to be residents in
Speaker 4: the city, the composition of mainland Chinese within the Hong
Speaker 4: Kong population has actually increased tremendously versus pre COVID levels.
Speaker 4: So there is hence a natural inclination for them to
Speaker 4: also shift back to China for their purchasers, whether it
Speaker 4: is for basic goods or maybe for something a little
Speaker 4: on the higher and or even for services, whether it's petticure,
Speaker 4: you know, medicure or hair washers. But that's what is
Speaker 4: driving the trend over the borders into Shenjin and the
Speaker 4: neighboring Chinese cities.
Speaker 2: And Catherine, for the listeners who are not based in
Speaker 2: Hong Kong. Can you give some type of examples of
Speaker 2: how much cheaper it is to buy certain items over
Speaker 2: the border in Shenzhen versus buying it in Hong Kong.
Speaker 4: I'll take Bubble Tea and clearly you know there is
Speaker 4: a Bubble Tea craze in Asia, and I'm sure maybe
Speaker 4: Debra will add to that that there is that crazy
Speaker 4: in London too. So Bubble Tea, for instance, you are
Speaker 4: probably getting at least double the selection in chin Jen
Speaker 4: and suggestion gen alone right, double the selection at about
Speaker 4: thirty percent cheaper than what you get in Hong Kong
Speaker 4: if you are in a position to actually download discount
Speaker 4: vouchers on your apps in China, and clearly lots of
Speaker 4: the Bubble Tea shops now have apps they're offering instore
Speaker 4: discount coupons thanks to platforms like mit one as well
Speaker 4: as Ali Baba's Alama, etc. With the right discounts and
Speaker 4: means three percent cheaper will be the basic items in China.
Speaker 1: Our guests have been Catherine Limb's senior consumer analyst with
Speaker 1: Bloomberg Intelligence in Singapore, and Debra Aitken, Senior Luxury goods
Speaker 1: analyst with Bloomberg Intelligence in London. It's been a fascinating
Speaker 1: and insightful discussion about shine Up, consumer spending, luxury goods,
Speaker 1: Hong Kong's new retail competition, and the road ahead. It's
Speaker 1: been our pleasure having you both as our guests.
Speaker 3: Thanks Top, Thanks John, thanks for having us.
Speaker 1: I'm Tom Corbett in Hong Kong and I'm John Lee.
Speaker 2: This podcast was produced by Clara Chan and you've been
Speaker 2: listening to the Asia Centric podcast