New Crown Virus Pneumonia Hits The Boutique: What Price Will The Luxury Brand Pay?

The outbreak of the new crown virus pneumonia led to a decline in the share price of luxury goods companies, which led to the loss of the world's richest man, the president and CEO Bernard Arnaud of the French luxury goods giant MOET & CHANDON Hennessy LV group (LVMH), which is only 3 days away from his summit of the world's richest man. Investors are worried that the epidemic will lead to a decrease in luxury sales, and Asian consumers have been the main engines of luxury brand sales in recent years.

According to the data of Bain consulting company (Bain&Company), the proportion of Chinese people in the personal luxury market reached 35% in 2019, and most luxury items were purchased during their outbound travel. Tens of millions of Chinese are now fighting quarantine at home and losing the opportunity to go to boutique.

Anna Lepsak klehman, chief executive of Moscow fashion consultancy, received an interview with Russian Satellite News Agency reporter, introducing the lack of tourists' threat to Russian luxury brands.

Without Chinese passenger flow, shops are unsalable each month, resulting in a loss of between 1% and 2% of annual turnover. Nevertheless, Moscow fashion consultancy remains optimistic:

LEB sac klehman believes: "there is little chance of long-term quarantine of China's passenger flow. Moreover, the end of January and the beginning of February are the most slack seasons for tourism. Usually only about 500 to 1000 Chinese tourists go to Russia every day during this period. From this point, we can hope that there will be no tragic drop in the sale of luxury goods. After the abolition of quarantine, there will be delayed demand effect and short selling blowout. Luxury retailers should not miss this moment.

Let's look at the sales of luxury goods in China and Europe. According to the Wall Street journal data, major luxury brands have closed stores previously opened at the epidemic center in Wuhan, China. Paris fashion shop employees say sales have dropped sharply, while retailers in China have been switching from expensive bags to selling much-needed respirators and disinfectants.

Investors are selling stocks of luxury goods companies: since the beginning of the year, the share price of luxury goods companies has fallen by between 5% and 15%. At that time, many luxury brands such as MOET & CHANDON Hennessy LV (LV), kering, Herm s, Moncler and so on, fell to the lowest level in history. Burberry, a luxury brand in Britain, said that 24 of the 64 stores in China have been closed, and other stores have shortened their business hours.

According to the calculations by UBS analysts, the profit of luxury goods companies will be reduced by 2% to 15% this year in the case of a 20% decline in demand in China. If China's luxury goods sales fall by 30% in the first quarter, the annual profits of luxury goods companies will be reduced by 4% to 24%.

Swatch (Swatch) and Richemont, the jewellery and watch makers, suffered the biggest losses. The proportion of Chinese consumers' contributions to them was 50% and 45% respectively.

The most stable luxury brands are MOET & CHANDON Hennessy LV group (main brand LV and Dior), Kai Yun group (main brand GUCCI) and Hermes group. China accounts for about 30% to 35% of sales.

Luxury companies now hope that the new crown virus pneumonia will not last too long, and the situation will normalize before the end of March. Citibank analysts predict that the new crown virus is currently affecting sales in China, and the luxury market will continue to grow at the end of 2020. They also believe that the increase in online shopping will help every luxury company to reduce its negative effects. But according to Bain consulting, only 12% of luxuries are sold through the Internet.