Suddenly, luxury stores miss free-spending Chinese tourists

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NEW YORK | There was one key feature missing at the luxury jeweler Tiffany & Co. in recent months: Chinese tourists.

For the second time in as many months, a volume seller of high-end goods noticed that a particularly vital demographic of its shopping base had made itself sparse, damaging sales and stoking fears of worse to come.

On Wednesday, shares of Tiffany & Co. dropped 12 percent after reporting weaker-than-expected sales in its third quarter. CEO Alessandro Bogliolo said that Chinese tourists have failed to show up, and open wallets up, with the same vigor that they had in the past.

Last month, the owner of Louis Vuitton noted the same phenomenon of dwindling Chinese tourists. Shares in that company were hit hard as well.

The logo for Tiffany & Co. appears above a post on the floor of the New York Stock Exchange, Wednesday, Nov. 28, 2018. Evidence of China’s slowing economy popped up in the sales numbers posted by Tiffany & Co. (AP Photo/Richard Drew)

Tiffany is considered a bellwether for luxury goods, which is why shares of Ralph Lauren and Movado also fell on Wednesday, even as the broader stock market climbed sharply.

Tiffany’s third-quarter revenue rose 4 percent to just above $1 billion, yet industry analysts were anticipating a bigger boost. Part of the reason for the surprise was fewer tourists, particularly Chinese tourists, at stores in places like New York and Hong Kong.

“We don’t see a slowdown of demand by the Chinese. What we see is that Chinese tourists are traveling less,” said Bogliolo in a phone interview Wednesday.

In fact, Bogliolo said that Tiffany’s business in mainland China remains strong, achieving double digit sales growth throughout the year. In response to the shift, Tiffany’s is increasing its inventory at its stores in Mainland China so it’s not missing out on any sales.

Bogliolo speculated that the deteriorating value of China’s currency is to blame for the drop in Chinese tourists.

The yuan, also known as the renminbi, or “people’s money,” sank to a 10-year low against the dollar at the end of October. It strengthened slightly this month, leading many to believe that Beijing has stepped in to stop its slide.

But others see broader issues at play, including a simmering trade war and the potential for a slowing global economy that is squeezing even the wealthy in China.

“There are major strains in our political relationship with the Chinese government,” said Robert Burke, a luxury consultant in New York. “It doesn’t put them in the mood to come to the U.S. to spend their hard earned dollars. They do have the option to buy in mainland China.”