Zhiyuan Zhuang, an assistant store manager at a Bottega Veneta shop in Milan, remembers the boom times through 2012, when the first wave of Chinese shoppers were a ray of sunlight amid the gloomy European economy. "We used to have older clients accompanied by their translators who would buy without thinking as if they were not spending their money," Mr. Zhuang said.
"They have disappeared now," he added. "Now we are seeing more young couples who pick and choose."
Dora Tao is typical of a more sophisticated Chinese traveler. The 38-year-old accountant from Shanghai used to buy things for her friends, family and colleagues when she traveled to Germany for work. "I bought at almost every luxury store on the main shopping street in Frankfurt, mainly for other people," said Ms. Tao. Her purchases included Louis Vuitton scarves for business associates, bought on behalf of a friend, and German cooking pans and Cuckoo clocks, which her relatives wanted.
But this summer when she took her family and parents to Austria, the Czech Republic and Germany, they went to a concert at Vienna's Golden Hall and tried rafting for the first time. They shopped only to pick up some medicines they can't find in China.
Ms. Tao's changing tastes are typical of Chinese shoppers. More Chinese than ever are traveling abroad, but they are shopping less.
Almost 100 million Chinese took trips abroad last year, accounting for 9% of international trips outside China, according to the World Tourism Organization. They outspent travelers from other countries, accounting for 27% of the value of all tax-refund claims made in 2013 with Global Blue, which processes refunds at airports for shoppers visiting from abroad.
But the shopping craze is losing its momentum. Tax-refund claims by Chinese tourists in Europe grew just 18% in 2013, compared with 57% in 2012, said Global Blue.
"The Hong Kong market is weak and so is Western Europe," said Erwan Ramboug, author of "The Bling Dynasty: Why the Reign of Chinese Luxury Shoppers Has Only Just Begun."
"This might seem unimportant if Chinese travelers are simply shopping in different cities," added Mr. Ramboug, a co-head of global consumer and retail research at HSBC. "However, not all sales that have been lost from one market are being recouped in another." He still believes in the long-term buying power of Chinese consumers but advises investors to stay away from luxury stocks for the moment.
Luxury-goods sellers and industry analysts give different reasons for the weakness. They cite Beijing's anticorruption campaign, the strong euro and tension between Hong Kong and mainland China, which is keeping tourists away and hurting luxury-goods sales in the Chinese territory.
Prada Group said revenue in Europe fell by 1% in the first half of the year, partly due to the fall in tourism volume from China. LVMH Moët Hennessy Louis Vuitton SA blamed an "unfavorable currency environment" for its weak results in Europe during the same period.
In Hong Kong, mainland tourist arrivals fell 2% year on year during a May holiday that is traditionally a huge shopping period. Fewer mainland tourists contributed to a 6.9% year-on-year decline in June retail sales in Hong Kong, while sales of jewelry, watches and other luxury goods plunged 28%.
Some retailers blame the decline on a souring relationship between Hong Kong and mainland China, which has led to protests against mainland tourists in front of some shops. "You shouldn't underestimate the impact of those people in groups of two or three, in front of your shops chanting, 'We don't want your money, just go back home,' " said Francis Belin, head of Swarovski's Asia consumer-goods business. "This has gone viral."
But there is a simpler—and, for the luxury-goods industry, more worrisome—explanation. Chinese are refusing to pay inflated prices for luxury products. The trend is just starting, but it could weigh on profits even if sales rebound.
Luxury goods have long been more expensive in China than abroad, creating an incentive to shop overseas. That price gap is closing. In February 2013, premium handbags were on average 50% more expensive in China than in Europe, according to Luca Solca, the head of luxury goods at Exane BNP Paribas. Now, they are 40% more expensive. The portion of the markup that can't be explained by China's import duties is largely gone.
The gap between Hong Kong and mainland China is even smaller, as retailers mark up prices in Hong Kong in response to higher rents. In 2013, the price of a classic Chanel quilted bag rose by 31% in Hong Kong but just 10% in Shanghai, according to brokerage firm CLSA. As a result, a bag that was 20% more expensive in Shanghai than in Hong Kong is now about the same price.
As China's big spenders disappear, those prices have nowhere to go but down.
Source: Wall Street Journal
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