Chinese tourism boom that propped up luxury brands faltering

Wilmington, Delaware

FOR the better part of a decade, wealthy Chinese tourists have been on a feeding frenzy for luxury brands, casinos and cruise lines. Now, there are doubts about how long the buffet will last.

From Tokyo's glitzy Ginza shopping district to Hong Kong, Macau and New York's Fifth Avenue, there are noticeable cracks in what has been the very bankable strategy of catering to throngs of newly affluent Chinese travelling the world. Explanations vary from China's slowing economy to the government's push to spur spending at home and fluctuations in currency values. Whatever the reason, the result is increasing worry across the globe.

"Luxury brands have gained a lot of traction and growth out of China, but the bloom is off the rose," said Pam Danziger, president of Unity Marketing Inc in Lancaster, Pennsylvania, which researches affluent shoppers. "You can't blame them because that's where the easy money was."

Over the past few months, executives have been hounded by questions about high-end Chinese shoppers, who Bain & Co says generated a third of global luxury sales in 2017 - mostly outside China's border. French luxury giants L'Oréal SA and LVMH have tried to ease concerns, saying travel sales remain robust. Meanwhile, jeweller Tiffany & Co, Capri Holdings Ltd - the owner of Michael Kors and Jimmy Choo - and Coach parent Tapestry Inc said spending by Chinese tourists in cities including New York and Hong Kong has weakened.

Cruise line operators are grappling with this, too. Many poured resources into catering to the Chinese traveller over the past few years only to have demand disappoint. In early 2017, Norwegian Cruise Line Holdings Ltd unveiled a ship "built for China" that included bigger rooms specifically designed for extended families. But the effort was a flop and the company is now spending US$50 million to revamp the ship for Alaskan cruises.

Casinos are feeling the pressure, particularly in Macau, the world's largest gambling hub, which includes properties from Las Vegas Sands Corp and MGM Resorts International. Chinese daily visitors from the mainland are still streaming in, spurred by the opening of a bridge linking to mainland China and Hong Kong. But the high rollers who have traditionally propped up casino receipts are staying away from the baccarat tables in the former Portuguese colony.

The Chinese tourists made a perfect target for luxury brands. Thanks to their homeland's rapid economic growth, they are newly wealthy, full of aspiration and hungry to display their elevated status. Timing also made them invaluable, with their conspicuous consumption taking off just after the financial crisis. As a result, China became the world's biggest spender in international tourism in 2012, according to data from the World Tourism Organization, a United Nations agency.

In Tokyo, they have been a common sight, with shoppers filling empty suitcases with high-end cosmetics in duty-free airport shops, and tour groups flooding jewellery stores. Marketing around the Chinese New Year has become the norm, with even the US catching on to the opportunity. SeaWorld San Diego and the Chicago Symphony took part this year. In Las Vegas, the Bellagio put a giant pig in its lobby in honour of the Year of the Pig, and Caesars sent a dragon parade through its Forum Shops mall.

But China's leaders would like more of those purchases made at home, now that the country's economic growth has slowed. BLOOMBERG