Apple Inc slashed its first-quarter revenue guidance, saying recent sales in China had been far below expectations. In a letter to investors, CEO Tim Cook said it was his assessment that the weakness was attributable to a slowdown in the Chinese economy and a chilling effect from the trade dispute between the U.S. and China.
Executives from Estee Lauder Cos. have acknowledged there is a risk of cooling growth in China and have factored that into the company’s full-year guidance. But to date, its China business continues to boom, with sales in its Asia-Pacific division rising 26 percent over a year earlier in the latest quarter on a currency-adjusted basis. L’Oreal SA has also benefited from young Chinese consumers’ demand for upmarket beauty and fragrance.
It’s the giants of luxury fashion that should feel the strongest sense of alarm after Apple’s gloomy announcement. Apple increasingly has been positioning itself as a luxury brand, with prices on its flagship product, the iPhone, creeping higher.Chinese consumers, which account for about a third of the global luxury goods sales, have been spending strongly after the crackdown on extravagance a few years ago. This wasn’t likely to continue at the same pace, so some slowdown was inevitable.
Richemont Group has indicated that above-average growth in China was now moderating to a more normal level. To be sure, some of the factors that held back Richemont’s Asia-Pacific sales growth in September were one-off, such as typhoons that discouraged tourism.
While LVMH said in October last year Chinese authorities were stepping up border checks, neither it, nor Gucci-owner Kering SA, saw a slowdown in demand from consumers there. But sentiment can change quickly, and may have already done so by now.
It’s tempting to think of mighty Apple as a bellwether for what will befall the entire basket of consumer companies that rings up big sales in China. Investors are right, though, to worry about whether the country’s shoppers will continue to snap up Balenciaga sneakers and Cartier bangles.
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