Will Tiffany (TIF) Win in China?

In this week's issue, Barrons profiles (subscription required) $26 million Boston-based Esplanade Capital. In discussing his investment in Tiffany (ticker: TIF), fund manager Shawn Kravetz said:

"Lots of folks talk about China as the next big opportunity for all sorts of wonderful American brands and products and it is. It is not imminent and it would be foolish to think of luxury brands becoming wildly profitable in China next year."

Quick thought: While Kravetz is probably right that luxury companies like TIF may not become "wildly profitable in China next year", he fails to point out that luxury brands are already experiencing the China impact - even if not on the Mainland. And fortunately for him and his investment, all is good news.

As I mentioned in a recent post, luxury companies like TIF will continue to see greater profits from the increasing wealth of the Chinese. How? From Chinese traveling abroad.

A recent survey indicated that Chinese spend at least twice as much on luxury commodities when touring overseas than they do at home. And with Chinese foreign travel demand growing exponentially every year, companies like TIF should benefit.

So as more foreign countries become approved tourist destinations, the Chinese continue to enjoy greater disposable income, and The Economist Intelligence Unit's expectations are correct (the number of Chinese travelers abroad will increase from 20 million in 2003 to 49 million by 2008, 60 million by 2010 and 100 million by 2015), luxury brand companies should enjoy the fruits of Chinese travel.

Again, all of this is good news for Esplanade Capital and its investment in TIF. But before you run out and buy stock in TIF, consider the Internet Stock Blog's thoughtful piece on the future of TIF and buying diamond rings online. You might have second thoughts.