There was something missing at the luxury jeweller Tiffany & Co. in recent months: Chinese tourists.

For the second time in as many months, a big seller of high-end goods noticed that a particularly crucial demographic of its shopping base had made itself scarce, damaging sales and stoking fears of worse to come.

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On Wednesday, shares of Tiffany & Co. plunged 12 per cent after reporting weaker-than-expected sales in its third quarter.

Alessandro Bogliolo, the company’s CEO, said that Chinese tourists have failed to show up and buy things with the same vigour that they had in the past.

Last month, the owner of Louis Vuitton noted the same phenomenon of dwindling Chinese tourists. Shares in that company were hit hard as well.

We don’t see a slowdown of demand by the Chinese. What we see is that Chinese tourists are travelling less

Tiffany & Co. is considered a bellwether for luxury goods, which is why shares of Ralph Lauren and Swiss watchmaker Movado also fell on Wednesday, even as the broader stock market climbed sharply.

Tiffany’s third-quarter revenue rose 4 per cent to just above US$1 billion, yet industry analysts were anticipating a bigger boost.

Part of the reason for the surprise was fewer tourists, particularly Chinese tourists, at stores in places such as New York and Hong Kong.

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“We don’t see a slowdown of demand by the Chinese,” Bogliolo said. “What we see is that Chinese tourists are travelling less.”

In fact, Bogliolo said that Tiffany and Co.’s business in mainland China remains strong, achieving double-digit sales growth throughout the year.

In response to the shift, Tiffany’s is increasing its inventory at its stores in China so it is not missing out on any sales.

Bogliolo speculated that the deteriorating value of China’s currency, the yuan, is to blame for the drop in Chinese tourists.

The yuan, also known as the renminbi, or “people’s money”, sank to a 10-year low against the US dollar at the end of October. It strengthened slightly during November, leading many analysts to believe that Beijing has stepped in to stop its slide.

Yet others see broader issues at play, including a simmering trade war and the potential for a slowing global economy that is squeezing even the wealthy in China.

Chinese consumers will fuel nearly half of global high-end sales by 2025
Bain consultancy report

“There are major strains in our political relationship with the Chinese government,” Robert Burke, a luxury consultant in New York, said.

“It doesn’t put them in the mood to come to the US to spend their hard-earned dollars. They do have the option to buy in mainland China.”

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While the number of people visiting the US from China rose 4 per cent in 2017, according to the US National Travel and Tourism Office, that was down sharply from the 16 per cent jump in 2016.

It is not a healthy trend for sellers of high-end goods.

Burke estimates that as much 30 per cent of luxury goods sales globally are made to tourists from China.

There are major strains in [America’s] political relationship with China. It doesn’t put [Chinese tourists] in the mood to come to the US to spend their hard-earned dollars
Robert Burke, a New York luxury consultant

Dan Jaspers, a spokesman at Mall of America’s, the US’ largest shopping centre, noted that Chinese tourists tend to be more likely to buy high-end items including luxury cosmetics, jewellery, clothing and electronics.

He said that the number of Chinese tourists to the centre continues to grow at a “modest rate”.

What may have exacerbated fears Wednesday is that prevailing wisdom had suggested that consumer spending from China in the high-end luxury shops of the West would not only continue, but would grow stronger.

In a study published this month, the Bain consultancy said that Chinese consumers will fuel nearly half of global high-end sales by 2025.

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Chinese shoppers will account for 46 per cent of global luxury sales of an estimated US$412 billion in just six years, Bain said in the study, which was prepared for Italy’s Altagamma association of high-end producers.

Even before the Trump administration ratcheted up the intensity of its trade dialogue with Beijing, there were signs that economic growth in China was slowing.

Chinese economic growth declined to a post-global crisis low of 6.5 per cent in the third quarter.

A trade fight with the Trump administration is pressuring communist leaders to energise economic activity that has weakened since Beijing clamped down on bank lending last year as it tries to rein in surging debt.

It is too early to tell if the spate of weaker-than-expected sales for luxury retailers will continue, or if it is just a bump in the road.

There were some other signs of weakness at Tiffany & Co., such as comparable-store sales, which are watched closely by industry analysts.

Tiffany’s quarterly profit of US$94.9 million, or 77 US cents per share, was actually a penny better than expected, according to analysts surveyed by Zacks Investment Research.

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The slowdown in Chinese tourists was offset by a strong demand from local customers in the North American market as the luxury retailer changes its products and marketing to appeal to a younger shopper.

Yet the company stuck to its previously issued full-year earnings guidance of between US$4.65 and US$4.80 per share, which led some to suspect that shifting geopolitical agreements or a slowing global economy may soon become a bigger threat.

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