The Financial Times reports that luxury brands could be facing trouble from the Wuhan coronavirus, as Chinese customers have become such a big part of the luxury industry. The FT writes:
A queue of roughly 30 people, many of whom were speaking Chinese, queued at the Louis Vuitton, Chanel and Gucci stands in the Galeries Lafayette department store in Paris on Monday, writes Leila Abboud. Across the street at Galeries Lafayette’s centre for Asian tourist groups, crowds of people were waiting to get tax refunds on their purchases.
The scenes in the French capital reflect how critical Chinese buyers have become to the global luxury goods sector. The luxury market grew 5 per cent in 2018 to reach €1.3tn, according to Bain & Co consultants, with Chinese customers shopping at home and abroad accounting for 90 per cent of the growth. Chinese customers now account for more than a third of the value of luxury goods purchases.
This means that the industry’s conglomerates such as LVMH, Kering and Richemont, as well as brands like Hermès and Burberry, are particularly exposed to a drop-off in Chinese demand.
Luxury brands have so far weathered a drop in sales since the political protests in Hong Kong because many of the purchases were repatriated to mainland China, or elsewhere in Asia. The coronavirus could change all that.
Joëlle de Montgolfier, director of Bain’s luxury practice, said the coronavirus could have a “double whammy effect” on the sector. “Not only will Chinese people buy less domestically during the key New Year shopping season, they will also have to cancel trips abroad, during which they often buy luxury goods,” she said.
China’s Ministry of Culture and Tourism on Monday told travel agencies to temporarily suspend the sale of group tours abroad.
It is too early for the effects to be seen in Paris shops, but investors in the sector — which before the outbreak had been trading at valuations not seen in a decade — are spooked. Shares in LVMH are down 4 per cent this year so far, while Kering is down 8 per cent and Burberry dropped 9 per cent.
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