Conflicting reports out of China continue to keep luxury investors wondering if the "immune" part of retail is about to crack.
The HSBC Purchasing Managers Index showed Thursday continued to contract for the eighth-consecutive month. This comes on top of , the first since 2008 as data continues to point to growth slowing.
However, today we saw some encouraging headline news from luxury. Swiss watch exports increased 16.2 percent in May after posting a disappointing 7.9-percent increase in April. That is a pretty significant data point for luxury, considering the Chinese account for about one third of global watch sales, not to mention China is neck-and-neck in competition with Japan to be the second-largest luxury player.
While the overall number was a relief, there are even mixed signals below that headline.
Although Hong Kong, Japan and even parts of Europe were strong (U.K. up 22 percent and Italy up 20 percent, for example), China decelerated to a 13-percent gain. Sure, the Chinese consumer purchases as much as half of luxury spending overseas, but this is not a new development so it cannot explain the drop off from growth in the mid-20-percent range.
Let's add in a little more confusion. The most recent retail sales out of China showed an increase of 13.8 percent in May — also a decelerating trend from a range of 14.1 percent and 15.2 percent in the previous months. But below the headline, the report showed jewelry sales accelerated to an 18.2-percent gain in that month, and was one of the bright spots.
Confused yet? Let's throw in most the recent data points from high-end retailers. Coachtells us Tier-1 markets are slowing in China. Tiffany’s stock recently took a pounding as Asia-Pacific trends slowed. Burberry and LVMH Mainland sales, while still strong, decelerated last quarter. However, both retailers suggested sales to Chinese tourists were performing better than the mainland.
Then we throw Prada into the mix. The company recently reported 19 percent same-store sales growth for the first quarter, with double-digit gains in all regions. Greater China same-store sales climbed 24 percent while Europe rose 31 percent, thanks to Chinese tourism. (To put the importance of Chinese tourism in perspective, 38 percent of Prada's total sales come from Europe, however, less than 20 percent of that number comes from Europeans.)
While it is difficult to deny China luxury spending is slowing, for now, the data is still providing enough puts and takes to give investors hope China will be the tide that lifts all boats.
While luxury may seem immune, we only need to jog our memories of 2008. While luxury was the last to fall, tumble it did.
Disclosure: Widlitz owns shares of Tiffany and Richemont.
Stacey Widlitz is the President of SW Retail Advisors Inc. She has worked at UBS, SG Cowen, Fulcrum Partners and in 2005 was one of three analysts to launch the Research Department at Pali Capital, where she covered Retail and Home Video for 5 years. Follow Stacey on Twitter @StaceyRetail.