Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Equity Bottom-Up

<ul><li>Asian tourism demand generally remains strong, with departures from key markets all up YTD in 2016.</li><li>However, shopping by Asian tourists (and spending on luxury goods in particular) has weakened, and clear evidence of this can be seen in tourism authority surveys and in several companies' recent quarterly results.</li><li>We view shopping by Asian tourists as 'doubly-discretionary': leisure travel itself represents a discretionary expenditure, and buying luxury goods while on holiday is a category that is allocated resources only after less discretionary travel categories (transport, lodging, food) have been arranged.</li><li>In addition, several data sources show Asian tourists are putting more of their discretionary travel funds towards 'experiences' in 2016, and less towards shopping. This is especially true of Chinese tourists, who until recently had driven strong growth in global sales of luxury goods over the past decade.</li><li>This trend -- increased spending on 'experiential' travel, reduced spending on shopping -- is hurting already weak sales of luxury goods (in Asia and elsewhere). Importantly, we expect this trend to continue for some time, as it appears to be driven by younger travelers.</li><li>Travel transportation demand should remain relatively strong as it is the "least discretionary" portion of travel, in our view. We continue to recommend <a href="https://www.smartkarma.com/entities/8239" target="_blank" data-smartkarma-citation="entities:8239:1">Air China Ltd (H) (753 HK)</a>, which remains cheap on earnings and benefits from aggressive moves to reduce marketing costs. </li><li>On the other hand, luxury retailers dependent on Asia for growth face a difficult future, and we believe expectations of a recovery in sales in the medium-term are misplaced. Earnings estimates for <a href="https://www.smartkarma.com/entities/13644" target="_blank" data-smartkarma-citation="entities:13644:1">Coach Inc (COH US)</a> remain far too high for the current fiscal year (June 2017) and the next, in our view. Similarly, hopes for an early recovery in sales at <a href="https://www.smartkarma.com/entities/889" target="_blank" data-smartkarma-citation="entities:889:1">Prada S.P.A. (1913 HK)</a> appear overly optimistic. </li></ul>

Asian tourism demand generally remains strong, with departures from key markets all up YTD in 2016.However, shopping by Asian tourists (and spending on luxury goods in particular) has weakened, and clear evidence of this can be seen in tourism authority surveys and in several companies' recent quarterly results.We view shopping by Asian tourists as 'doubly-discretionary': leisure travel itself represents a discretionary expenditure, and buying luxury goods while on holiday is a category that is allocated resources only after less discretionary travel categories (transport, lodging, food) have been arranged.In addition, several data sources show Asian tourists are putting more of their discretionary travel funds towards 'experiences' in 2016, and less towards shopping. This is especially true of Chinese tourists, who until recently had driven strong growth in global sales of luxury goods over the past decade.This trend -- increased spending on 'experiential' travel, reduced spending on shopping -- is hurting already weak sales of luxury goods (in Asia and elsewhere). Importantly, we expect this trend to continue for some time, as it appears to be driven by younger travelers.Travel transportation demand should remain relatively strong as it is the "least discretionary" portion of travel, in our view. We continue to recommend Air China Ltd (H) (753 HK), which remains cheap on earnings and benefits from aggressive moves to reduce marketing costs. On the other hand, luxury retailers dependent on Asia for growth face a difficult future, and we believe expectations of a recovery in sales in the medium-term are misplaced. Earnings estimates for Coach Inc (COH US) remain far too high for the current fiscal year (June 2017) and the next, in our view. Similarly, hopes for an early recovery in sales at Prada S.P.A. (1913 HK) appear overly optimistic. 

'Experiential Travel' Could Dampen Sales of Luxury Goods For Years; Avoid Luxury Retailers

United States

Kate Spade & Company designs and markets branded women's and men's apparel, accessories, and fragrance products.  The Company's portfolio of brands includes most apparel and non-apparel categories. Kate Spade's products are available at retail locations throughout the world, including its own retail and outlet stores, and on its e-commerce sites.

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Kate Spade & Co (KATE US)

'Experiential Travel' Could Dampen Sales of Luxury Goods For Years; Avoid Luxury Retailers

Asian tourism demand generally remains strong, with departures from key markets all up YTD in 2016. However, shopping by Asian tourists (and...

Daniel Hellberg

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