While China's slowdown has raised doubts about whether shoppers there will continue their buying spree, French luxury giant LVMH Moet Hennessy Louis Vuitton insists the retail boom is not yet over in the world's second-largest economy. Singapore-based L Capital Asia, an investment arm of LVMH, sees profit opportunities in brands offering premium goods in China's skin care, fashion and other lifestyle-related markets.
L Capital Asia typically targets unlisted companies with an enterprise value of about $1 billion and revenue exceeding $100 million, with an investment horizon of three to five years. Its investment in China is worth about $1.65 billion -- or 40% of its asset portfolio across the Asia-Pacific region.
"Our idea is not to look at the No. 7 or No. 8 players. We have to work with the top one, two or three [players]," Sanjay Gujral, regional managing director at L Capital Asia, said last week in Hong Kong. Gujral said the company focuses on six broad themes: fashion; beauty and wellness; food and beverage; selective retail, including home decoration; media and entertainment; and tourism and hospitality.
Its most recent deal in China was in late 2014, when L Capital Asia injected some $100 million in Sasseur Cayman, an operator of four outlet malls selling discounted luxury goods in cities, such as Shanghai and Chongqing. Sasseur plans to expand its chain to 20 malls. "The trend of actual consumers trading up continues despite all the slowdown we have seen in the luxury sector in China," said Gujral. "Chinese consumers are in general value-conscious."
China's broader economic downturn and the anti-corruption drive led by President Xi Jinping has hurt business for such global luxury brands as Prada, Gucci and Chanel, which have had to slash prices to prop up dwindling sales and sometimes even close stores. But industry watchers say the mass premium market remains one of the few bright spots. "We are facing a new normal now," said Michelle Leung, CEO of Hong Kong-based Xingtai Capital Management, which specializes in China's consumer sector. "Clearly in terms of volume growth, [the high-end market] is not comparable with the mass premium market."
Leung said her company has started to invest in sportswear brands in third- and fourth-tier cities in China, citing their robust volume growth. However, retailers may choose not to raise their average sales prices this year despite higher sales volumes, she said, because consumers tend to be more conservative in spending given the current economic conditions. "China's consumer sector is not a crowded trade," Leung said. "We think the sector's overlooked, and we think the timing is right."