Heard on the Street: Designer labels have been less successful with U.S. millennials than young Chinese shoppers
Chinese spending on Gucci handbags, Burberry trench coats and the like has been surprisingly resilient despite the country’s weakening economy. That has buoyed the stock-market valuations of listed European luxury players this year. Bellwether stock LVMH Moët Hennessy Louis Vuitton LVMUY 0.48% now trades for almost 25 times next year’s estimated earnings—close to 2018’s 15-year high.
For now, Chinese millennials show no sign of tightening their belts. That could be because their spending power is boosted by a wall of cash put aside by their parents’ generation. As China’s social welfare spending has been low by international standards in recent decades, the country has one of the highest household savings rates in the world at 46%—more than double the global average, data from the International Monetary Fund shows.
Right now, this is a very nice business for European luxury companies to be in. In the long run, however, their reliance on a specific age bracket of consumers in one country for the vast majority of their growth is far from ideal. The U.S. savings rate is just 8%, and outstanding student loans hit $1.6 trillion in the second quarter of 2019, according to data from the Federal Reserve Bank of St. Louis. The average U.S. student has borrowings of $37,000, diverting a chunk of graduates’ incomes toward servicing debt rather than buying the latest designer collections.
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