Global Quality: China spending or producing?

china smoke

Global franchises are perceived as Quality in many cases because of growth. The spending power of China and emerging economies has been a key growth driver in recent years but appears to be on the wane. The results overnight from IBM were particularly shocking. Revenues in Brazil, Russia, India and China(BRIC) were down in Q3 by a whopping 15%. China alone witnessed a 22% fall in revenues with hardware tanking by 44%! IBM seem to think Chinese customers are awaiting details of a new government economic reform plan but it’s not just corporates stalling on their spend….

The assumed insatiable demand for luxury goods in China is also experiencing less frothy growth. LVMH the world’s largest luxury goods company gave us a trading update yesterday and this Reuters commentary caught the eye….

In addition, China, the luxury industry’s main driver since the late 2000s, has started to run out of steam in the last year due to an economic slowdown and a government crackdown on gift-giving.

Guiony said Vuitton’s sales in mainland China were “flattish” but, thanks to sales to Chinese tourists, overall sales growth to Chinese customers was in the “mid-single digits plus”.

Guiony said trends in watches and jewelry had slightly improved in China, but not in fashion and leather.

We wouldn’t advocate panic but would point to our recent article on “Quality Fatigue” and the relative ratings and share price performance  of Unilever and Burberry. The likes of Unilever, Danone recently and Nestle today have confirmed a more constrained growth profile and share prices have taken pain. We had highlighted Burberry’s share price still riding high at the time and did wonder. Apparently we weren’t alone. Burberry’s CEO has just departed to take up a new role with Apple’s retail division. Now, what was she thinking? You know what we think.

 

 

Quality Franchises

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