The Chinese economy may be facing challenges, but its consumers are not holding back when it comes to luxury clothing. Recent inflation data from China reveals a concerning decrease of 0.8% in prices compared to the previous year, marking the largest drop since the financial crisis of 2009. This has been the fourth consecutive month of decline. In contrast, China’s benchmark stock index, the SSE Composite CN:510210, has experienced a 5.1% decrease in 2024, extending the three-year decline for Chinese equities following the COVID-19 pandemic.
Although China’s economy continues to grapple with recovery, higher-end consumers in the country are defying the trend and increasing their spending on apparel. This stands in contrast to American consumers, who are adopting a more frugal approach. Despite the low basis for comparison due to COVID-related shutdowns in the previous year, luxury brands are applauding the growth.
Ralph Lauren Corp. RL, +16.79%, a prominent luxury lifestyle-products company, reported a 5.6% increase in third-quarter revenue compared to the previous year. While revenue in North America remained stagnant, Asia witnessed a notable rise of 16%, primarily driven by a surge of over 30% in sales from China. Patrice Louvet, the Chief Executive of Ralph Lauren, expressed satisfaction with this performance, stating that the results surpassed expectations even when considering last year’s relatively easier comparisons due to the spike in COVID cases.
China’s enthusiasm for luxury clothing showcases its resilience and optimism amidst economic uncertainties. As the country navigates its recovery journey, the growth in this sector serves as an encouraging sign for both domestic and international brands operating within the Chinese market.
Tapestry Inc. Reports Sales Growth
Tapestry Inc. (TPR), the parent company of luxury brands Coach and Kate Spade, announced a 2.9% increase in sales for the fiscal second quarter ending December 30. While North America revenue remained consistent with the previous year, international sales saw a robust 12% growth. Notably, Tapestry witnessed a significant 19% surge in revenue from Greater China, indicating strong performance outside the United States.
According to Tapestry’s Chief Financial Officer, Scott Roe, the company has observed a rise in travel spending among mainland China tourists, with noticeable increases across Asia and Europe. This trend has contributed to Tapestry’s positive revenue growth.
Under Armour Inc. Faces Revenue Decline
Unlike Tapestry, Under Armour Inc. (UA, UAA) primarily focuses on athletic apparel rather than luxury goods. Despite its higher price point, the company experienced a 6% decrease in fiscal third-quarter revenue compared to the previous year.
The decline was primarily driven by a 12% drop in North America revenue, which offset a 7% increase in international revenue. Although Under Armour did not provide specific sales figures for China, Chief Financial Officer David Bergman acknowledged that China was a leading contributor to their third-quarter growth.
Market Performance
These earnings reports coincide with a 1.2% rally of the SSE Composite on Thursday. The index has shown a strong three-day winning streak, surging by 6.1% since closing at a four-year low on Monday. This three-day performance marks the best showing since March 18, 2022, when the index rose by the same percentage.
