Coronavirus outbreak impacts the Luxury market in the worst way possible. It’s yet to be seen how long will the sector take to recover from the epidemic.
It’s about time for the luxury sector’s Quarter 4 results and Coronavirus is already showing its impact. The Business of Fashion along with McKinsey & Co’s annual report The State of Fashion had forecasted a growth slowdown of 3-4 per cent for the second year in a row. Also, it stated that fashion leaders are not looking forward to 2020.
Even without economic headwind, 2020 looks troublesome for the big fashion players. Now Coronavirus has visibly disrupted the market for global players like Kering, LVMH, Hermes, Gap, Nike and more.
Coronavirus Infects Retail Market
The luxury sector is doing its bid to help China in difficult times. However, this quarter looks tougher and tougher for the retail giants. Coronavirus has hit the sector with a decline in travel, logistics, footfall and shutting down of a number of stores across China. The luxury sector is heavily dependent on the Chinese customers who spend close to €100 billion out of €313 billion of global luxury sale at home or through travel. Investors are now getting jittery and are looking for safer investments like gold.
Several luxury giants in Europe and the US have already started reporting a dip in growth. LVMH Moët Hennessy Louis Vuitton, 4.7 per cent, Moncler, 5.4 per cent, Kering, 4.7 per cent, Ralph Lauren Corp., 6.7 per cent, Gap, 4.5 per cent, Burberry Group, 4 per cent, Salvatore Ferragamo, 8.9 per cent, Revolve, 10 per cent.
Kering that holds designer labels like, Alexander McQueen, Gucci, Balenciaga and more has reported a strong drop in global sales. CEO François-Henri Pinault said in his earnings call on Wednesday, “Our environment has changed significantly with the Coronavirus outbreak. Due to the evolving nature of the situation, it is impossible at this time to fully evaluate the impact on business and how fast it will recover.”
Last week, Capri Holding Ltd, which owns labels like Jimmy Choo, Versace, Michael Kors have shut down 150-225 stores in Mainland China has reduced its sales outlook by $100 million for this quarter.
Burberry has reportedly shut down a third of its store in China. Last quarter, Hong Kong protests had hit the brand. It has now stated that the effect of the virus is worse than the disruption caused by the protest.
“The coronavirus is having a material negative effect on luxury demand,” Burberry CEO Marco Gobbetti stated.
The concerns are also growing about customer morale going down because of contamination fear which will further discourage customers to incline towards luxury goods.
Disruption of Supply Chain
In fact, the Coronavirus couldn’t have hit the sector at any worse time. Chinese New Year brought manufacturing to a standstill. The backlogs and logistics delay will further hamper any brand’s growth.
The outbreak has also disrupted global supply chains. China, Japan and South Korea, which contribute 24 per cent of the global economy with a trading volume of US$720 billion, are hit the hardest. South China Morning Post reports, “If the epidemic spreads in Japan and South Korea, it will bring a second blow to the global industrial chain and impact downstream companies in China,” said Song Xuetao, an economist at Tianfeng Securities.
The Federal Reserve of the US predicts, “The recent emergence of the coronavirus, however, could lead to disruptions in China that spill over to the rest of the global economy.”
China has imposed trade and travel restrictions with factories at a standstill. Major houses have also reported a steady decline this quarter. However, the intensity of the Coronavirus’ impact on the luxury market will be clear in March.