Luxury and consumption: Europe is the threat, China is the hope

Luxury and consumption: Europe is the threat, China is the hope

If a company wants to stay alive during the pandemic it must sell in China. Europe is, right now, the threat. It is a fact that, many stores around the world will no longer be profitable due to the lack of Asian tourists. Chinese consumers, not being able to travel, will focus their spending power within the borders, though the unknowns are many with regard to this topic as well. A complex situation for luxury brands that aren’t well established in China yet. Burberry, for example, is one of the brands that UBS’ analysts recommend selling shares of.

Hope rests in China

China seems to be the one hope of luxury brands, in the geographic sense of the term. “Beijing’s recovery is real”, states Robin Brooks, head of Institute for International Finance, to Fashion United. “There are encouraging signs for the luxury industry”, he concludes. Meanwhile, Jean-Jacques Guiony, financial director of LVMH group, states: “Chinese Boutiques of Dior and Louis Vuitton recorded, in some cases, +50% increase in sales”. Such speedy bounce-back simply cannot happen in Europe, which was even defined as “a threat to the luxury segment. “Europe’s recovery will require a much longer time”, confirms Flavio Cereda (analyst at US-based investment bank Jefferies), as he expects consumption to return to normal levels in 2023. “Foreign tourists in Europe usually account for between 35% and 55% of luxury sales”, concludes the analyst.

Europe is the threat

The threat now is Europe, due to its travel restrictions. UBS cited research that show how about 80% of consumers isn’t willing to travel for the next 3 or 4 months. Retail points owned by many brands could remain unprofitable for a while. In that regards, what is the exact weight of Asian tourists on Europe’s sales? Business Insider, citing UBS (which elaborated data from Planet, a duty-free operator), explains that, in March, sales to tourists in Europe decreased by 68.4% on yearly base. Sales made to Chinese national dropped even more: -84.6%. Italy managed to do worse: -96% in comparison to March 2019.

The Burberry case

According to UBS analysts, the luxury brand risking the most right now is Burberry. The Swiss bank believes that the British brand will miss its growth objective in the medium term (beyond 2021). Though it must be said that Burberry, along with the entire luxury segment, will need to re-evaluate these goals.

Two mannequins in a Paris boutique, May, 2020 – Image from Shutterstock

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