Come the half of May, analysts no longer believe that an inversion in trend from last quarter will take place. The activities of fashion and design groups will be negatively impacted by China and Russia’s current situations. Countries hit by either strict lockdowns or by war. Everything depends on the sentiment of consumers, which seems to hold (according to Barclays). Yet, the groups’ stock prices continue to suffer.
And so, let’s start with customer sentiment. Barclay’s analysts, with regards to China, start from a consideration: we can almost be sure that the Zero-Covid policies will not be lifted before the end of the quarter (or June). “The main risk is the deterioration of the sentiment of luxury consumers – argues the report cited by MFF -. Even if the epidemic were to last for a brief period, a change in the hunger of Chinese consumers for high-end goods represents the main risk for the segment”.
A panel of 125 individuals interviewed by Barclays gives back a very wide range of scenarios. We go from 13% of them wanting to increase their purchasing of luxury goods, while 24% wants to reduce it and 33% remain at the same level. Meanwhile, ANSA updates us on retail sales (overall: not just of luxury items) during the month of April. As one could imagine, the Zero-Covid policies implemented and the consequent shutdowns in major cities (Shanghai the most) have affected the nation’s results. “Retail sales in China have plummeted 11.1% in April: the worst results in the last two years, after having gone down 3.5% in March and the expected -6.1% by analysts for the month of April”.
From the East
Luxury groups also have to deal with the current situations in China and Russia, because the War in Ukraine is having wide repercussions. “Share prices of luxury multinationals are falling more than they did for Covid”, writes La Stampa after the Week of April 14th closed on the stock market. Some examples? LVMH closed the week “with a price around that of April 2021 or 581.3 euro, after a negative peak of 550 euro of March 8th and 542.6 euro of May 9th. The total capitalization was 293.4 billion, compared to the 328.6 billion of June 2021”. Moreover: “Kering’s value dropped from the 91.9 billion of June 2021 to about 57.3 billion currently, below even the 68 billion of January 2021”.
The Renault case
It’s hard to move around in Russia and work with the CSI marketplace, as everyone who participated in OBUV well knows. Renault also knows it. The French group was among the last, within the automotive segment, to stop activities in the Federation. Now it lost control of such activities to the Kremlin. “Renault’s activities in Russia are owned by the State – recites an agency ANSA-AFP –. Renault’s shares in Russia were transferred to the government of the city of Moscow. The state’s automotive research institute (NAMI) has thus become the owner of Renault’s shares in Russian automaking company Avtovaz. In doing so, Moscow now has 100% control of all Renault Russia shares, while 67.7% of Avtovaz is in the hands of NAMI. The agreement includes the possibility for Renault to repurchase its own activities in specific moments within the next 6 years”.
Lockdown in Shanghai, Shutterstock archive