LONDON – Chinese tourists usually flock to Bond Street, home to some of the world’s most expensive retail areas. They gather behind velvet ropes outside the Gucci store or head out from the leading clothing stores in Chanel and Louis Vuitton with padded shopping bags.
This week, however, there was none next to it. The scene was repeated in the shopping streets of Paris, in the shopping malls in Dubai and in the streets of Hong Kong. The Corona virus has isolated more than 50 million people in China, and imposed travel and visa restrictions for more than 70 countries. Besides the large-scale closure of shops and malls in China, it has caused heavy losses in the global luxury goods sector, which has long been dependent on Chinese shoppers spending at home and abroad.
Some fear that the sector may face the worst crisis since the global financial meltdown in 2008.
Investment bank Jefferies estimates that Chinese buyers accounted for 40 percent of 281 billion euros, or $ 305 billion, spent on luxury goods globally last year, and harvested 80 percent of sales growth last year in the sector, making them the fastest growing luxury demographic shoppers. In the world.
Now, with the last season of fashion weeks on the way forward – and Many corridors cancellations have been canceled in New York, London, Milan and Paris – as some of the industry’s biggest names publicly account for the cost of the corona-related disorder.
“Our environment has changed dramatically with the outbreak of the Corona virus,” Francois Henri Pinault, CEO of Corning, said, adding that half of the company’s stores in China were closed, while those that were still open had limited hours.
“Because of the evolving nature of the situation, it is impossible at this time to assess the impact on businesses and how quickly they are recovering,” he said.
Although strong quarterly results are published, Mr. Kering, who has names like Gucci, Saint Laurent and Alexander McQueen, has seen “a serious drop in traffic in mainland China,” said Mr. Pinault, and a “strong drop” in global sales in The last days due to the virus.
Burberry, which derives nearly a fifth of its sales from Chinese consumers, said the impact of the virus is worse than the turmoil caused by the Hong Kong protests, which cut the sales of the British luxury brand in half in the last fiscal quarter. The company said in a statement that nearly a third of the Burberry stores on mainland China were closed, while traffic on foot fell 80 percent in stores that remained open, prompting the company to cancel its directions throughout the year.
Several leading American fashion groups have lowered their earnings forecasts this month. Last week, Capri, owner of Michael Kors, Versace and Jimmy Choo, said he cut his sales forecast for the quarter by $ 100 million after closing 150 of 225 stores from mainland China. Tapestry, who owns coach Kate Spade and Stuart Weitzman, said she expects sales to drop by as much as $ 250 million after most of its stores are closed across China.
“The spending on luxury goods has come to an abrupt halt in China, with sales hitting zero for most brands or dropping by at least 80 percent,” said Luca Solca, Bernstein’s global luxury market analyst. “Coronavirus is likely to have more impact on the sector than the SARS epidemic in 2003, given the amount of brands most dependent on China and Asia for sales growth.”
Concerns are growing about the effect on consumer sentiment. Besides physical barriers to spending on luxury, pollution concerns that focus on crowded places are unlikely to create a kind of positive emotional and psychological background that makes people tend to shop.
No wonder, then, that the main names have called for a public donation of money to fight the spread of the disease. On January 27, Louis Vuitton Moet Hennessy LVMH announced that he had submitted 2.2 million to the Chinese Red Cross Society. Days later, Richemont donated 1.4 million dollars for the same reason, Carring donated $ 1.1 million.
For many western luxury brands, the outbreak could not be worse. It coincided with the Lunar New Year festival, which is usually one of the most commercially important weeks in the global trading calendar. This also means that thousands of factories – which were already closed during the New Year’s festive period – have not yet opened, which has caused manufacturing to halt.
Few top-tier fancy names are produced in China (and ones that don’t do that often Willing to reveal it). Wells Fargo estimates that Ralph Lauren makes a quarter of its merchandise in China, while Canada Goose, a high-end outerwear company, has about 10 percent.
But many other high-end clothing and footwear brands depend on the country when it comes to their supply chains. Costs may be added due to backlog of orders and delay in logistics services, as well as an imminent threat to global trade. Given that China is the world’s largest textile producer, with exports valued at more than $ 280 billion a year, some analysts believe that the shortfall may soon become apparent in stores, although the fashion industry often pre-orders goods more than many Other sectors, due to seasonal collection courses.
“The next few weeks should be decisive, as further delay in reproduction may start to leave stocks on the US shelves in mid-April,” said Edward Kelly, a Wells Wells Fargo analyst, in a note to investors. .
Regardless of the widespread tension over the short-term turmoil caused by the virus, major luxury stocks like LVMH and Kering have remained relatively flexible. Most analysts believe that well-managed luxury brands that are very popular and have high margins should be able to withstand short-term volatility.
Attention is restricted to honorary players (groups such as Richemont that largely sell watches and jewelry) and midfield brands with less ability to absorb financial shocks or have been experiencing slow sales. Assuming a 20 percent drop in Chinese consumption in the second quarter of 2020, UBS predicts a 3 percent drop in earnings per share for brands like LVMH and Hermès, compared to 8 percent for Richemont and 7 percent for Burberry, which is distinguished With a particularly high degree of exposure to China.
“The market seems to be taking the SK virus in step, with the idea that this will be temporary, while the attractiveness and strength of this sector are very strong,” said Mr. Solka of Bernstein. “Investors seem to think this will be a temporary point, and then we will return to normal,” he said.
However, for the time being, the sidewalks on Bond Street feel a different feel. A shop assistant at an Italian luxury home, who asked not to be named discussing the store business, said the absence of Chinese shoppers was very real. It estimated that last month, sales decreased 40 percent.
“There are still customers coming, especially from Britain, America and the Middle East,” she said, adding that “it is far from normal.”