LVMH (MCFP; Aa3/AA-) Reports are it will downsize flagship Shanghai store

Bloomberg reported o/n that LVMH is planning to downsize a flagship Tiffany & co store in Shanghai (https://www.tiffany.co.uk/jewelry-stores/shanghai-...) after opening it in 2019. Reminder themes from 2Q across lux were weakness in China (partly from rolling tough re-opening comp's from last year) and more acute weakness in Jewellery and Watches. Tiffany operates under latter (1 of 8 brands there) and not large enough to be a credit mover for LVMH (entire segment is 13% of sales). Group earnings were firm vs. peers.

Concerns are also rising from the popularity of the grey market facilitated through e-commerce sites (see https://www.dewu.com/) that purchase lux from overseas and retail locally - the market is referred to as Diagou (translated "buying on behalf of"). Sites like Dewu effectively facilitate the Japanese arb. - but without consumers needing to book a plane ticket.

When the global leader in Luxury is downsizing in Asia we get worried for those that lack LVMH's moat. This is not a broader strategy of LVMH's either; it is investing in Tiffany stores through refurbishments. Exposure to Asia for high-beta credit;

• Burberry (Baa2 Neg/NR); APAC ~40% of group, sales fell -23% last quarter with Mainland China -21%, Japan +6%, South APAC -38%. Noted the Chinese customer diverted spend overseas.
• Kering (A-/BBB+); APAC ~40% of group, 1H sales ex. Japan -20% while Japan +22% . It said overseas buying (mainly in Japan) was not enough to offset local demand and flagged weak footfall in particular in China.