Shares of luxury-goods companies from Japan’s Shiseido Co. to France’s LVMH fell after social media reports that China is stepping up customs checks on citizens bringing in goods from overseas, adding to jitters stemming from a trade war with the U.S.
Chinese consumers make up the lion’s share of growth for the luxury business and account for roughly a third of the industry’s sales, according to consultancy Bain. Many do the bulk of their high-end shopping during visits to Tokyo, Hong Kong, Paris and other tourist destinations.
Unconfirmed reports on Chinese social networks that authorities are cracking down on bringing home goods like Louis Vuitton totes and Kering SA’s Gucci loafers could lower the incentive to concentrate spending in the brands’ most profitable flagship stores.
Shiseido, the Japanese maker of high-end cosmetics, dropped 4.7 percent yesterday in Tokyo. The selling spread to Europe, with Kering down as much as 6.5 percent, LVMH falling as much as 4 percent and personal-care giant L’Oreal SA slumping 2.8 percent.
The selloff followed a China National Radio report quoting a Shanghai customs official as saying Chinese citizens returning from overseas trips should declare goods if they exceed travelers’ tax-exempt amounts. There’s widespread speculation on social media that Shanghai’s Pudong Airport recently stepped up checks on goods purchased overseas, said the report, which came amid a weeklong holiday.
There haven’t been any official policy changes recently, the customs agent said in the report. But investors in luxury companies were already nervous about the sustainability of the boom in Chinese demand for their handbags, dresses, shoes and cosmetics as a trade war between the U.S. and the Asian nation intensifies.
Tougher border controls have been in place since 2015, and recent customs scrutiny has probably focused on travelers from South Korea, analysts at JPMorgan said in a note. Price differences on luxury goods between China and abroad have eased, they said, reducing the incentive for Chinese tourists to buy while traveling.
If a trade war intensifies, European stocks in the sector could fall 30 percent under a worst-case scenario, analysts at UBS Group AG said in July. After surging over the last year amid runaway demand for Gucci’s designs, Kering has fallen nearly 15 percent since mid-June, for example.
South Korean cosmetics makers also declined yesterday as investors reacted to a report earlier in the week that said visitors from China declined.
“Data from Japan, Hong Kong, Macau and Korea points to China passenger traffic growth moderating quite significantly in recent months,” Jefferies analysts led by Stephanie Wissink wrote in a note. “Beauty is the No. 1 purchased category by outbound Chinese travelers worldwide, as more than 50 percent make beauty purchases while outside of China.” Bloomberg
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