Global Luxury Retail in Gloom as Coronavirus Cuts Chinese Tourism and Luxury Brands Suspended Stores in China
Written by Deja Du, Cosmose Client Success Team
As of the end of Feb 17, China had reported 72,528 infections with the Coronavirus Covid-19, according to China’s top health commissions, with a total death toll reaching 1,870. Nearly half of China’s population, more than 780 million people are currently living under travel restrictions.
The tertiary industry which contributed 54% of GDP in 2019 is most affected by the epidemic, among which transportation, tourism, catering, retail and entertainment industries being the first to bear the brunt as the growth rate of the tertiary industry is expected to slow down significantly in the first quarter. According to the Oxford Economics Research Institute, private consumption will increase by only 1.1% in the first quarter compared with the first quarter of 2019, lower than the previous forecast of 6.8%
The outbreak occurred in the Chinese market, where the luxury industry is now most dependent. Compared with Chinese consumers who had little influence on the global luxury goods industry when SARS broke out 17 years ago, Chinese consumers now contribute 35% of the luxury goods industry’s sales.
Although most major luxury brands have established online shopping channels in China, they cannot reverse the short-term consumer sentiment of consumers in trapped homes. UBS predicts that Chinese consumers may reduce their spending by 20% in the first quarter of 2020.
Travel retail is also facing the crisis. Globally, Chinese consumers last year bought nearly $110 billion worth of luxury goods, including clothes, leather goods and jewelry — about 60–65% outside China. Morgan Stanley predicts that due to the impact of the epidemic in the next two months, sales generated from Chinese travelers will decrease by 50% to 60%. Retailers are watching carefully to the right timing to resume business activities as the reported increase of new infection is slowing down and most companies started working.
But how long will it take for the luxury retail market to warm up again? Will this epidemic outbreak change the mentality of Chinese consumers?
Stay tuned for the next update from Cosmose team!
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Appendix: Luxury Brands Who Suspended Stores in China
Salvatore Ferragamo said that the impact of the suspension of Chinese stores on performance can be felt every day. At present, the brand has started to formulate an emergency plan, but it is too early to predict the performance.
Burberry has temporarily closed 24 of its 64 stores in mainland China, while stores in operation have shortened business hours, and customer traffic has fallen sharply. The Fall / Winter 2020 Burberry men’s and women’s fashion show scheduled to be held in Shanghai on April 23 may be cancelled, and the social retail store in Shenzhen, which is exclusively cooperating with Tencent, will also be delayed. While about 40% of the brand’s annual sales come from Chinese consumers, Burberry expects its fiscal year 2019 revenue to decline by 5% as of March this year, and said that the impact of the outbreak on sales has exceeded the impact of the Hong Kong retail downturn. Since this year, Burberry’s stock has fallen more than 8%, with a market capitalization of about 8.2 billion pounds.
Ralph Lauren recently said that with the Coronavirus outbreak, two-thirds of its 110 stores in the Chinese mainland have been closed. Affected by this, its fourth-quarter sales may be reduced by 55 to 70 million US dollars. Last year Ralph Lauren’s revenue from Asia during the same period was $ 273 million. After the news was released, Ralph Lauren’s stock price fell 2.31% on Thursday, and its current market value is about $ 9 billion. CEO Patrice Louvet revealed that China’s sales accounted for less than 4% of the group’s total revenue, and the group will gradually take steps to diversify its supply chain in the future to cope with more uncertainty.
Moncler One-third of Moncler’s stores in China have been temporarily closed, and the number of customer footfalls in the malls where they continue to operate has decreased by 80%. The relocation plan of the three stores has been postponed to early 2021, and the opening of two new stores has been postponed. Given the uncertainty surrounding the epidemic, the brand did not make predictions for the new fiscal year.
Coach's parent company Tapestry Group said that most of its stores in mainland China have been temporarily closed, or it may have lost about $ 200 million to $ 250 million in sales in the second half of the fiscal year, and annual revenue was about $ 5.9 billion.
Prada has decided to temporarily close some of its brand’s stores in Mainland China and Macau.
Source: Vogue Business & Ladymax
