- The coronavirus has caused a health scare throughout the world, and has become a worry for the global stock market as well.
- On February 3, when Chinese stocks opened for the first time in over a week, the Shenzhen Component Index fell nearly 8% and the Shanghai Composite Index fell nearly 8.5%.
- Luxury stocks were hit hard by the outbreak. Over roughly two weeks from January 17 until January 31, the MSCI Europe Textiles Apparel & Luxury Goods Index saw almost $54 billion in market value erased.
- As of February 18, the virus has caused at least 1,873 deaths, with more than 73,000 infected globally, according to CNN.
- Visit Business Insider’s homepage for more stories.
Luxury brands are seeing the impact of the coronavirus outbreak and it’s looking ugly.
The outbreak of the coronavirus gathered steam just days before China’s Spring Festival was set to kick off, an especially important time of year for the luxury houses that have increasingly come to depend on the Chinese consumer.
Chinese customers accounted for about a third of all luxury good purchases in 2018, and led the positive growth trend worldwide, according to a report by consulting firm Bain & Company.
The Spring Festival is part of the Lunar New Year celebrations, when Chinese people travel home to be with their families in the globe’s largest human migration of the year, a near-40-day period known as Chunyun. This year, Chunyun officially began on January 10 and was set to end February 18.
China’s State Council extended the Lunar New Year to end of day February 3 to keep businesses closed for longer, as a result of the outbreak. When stocks reopened on February 3, the Shanghai Composite Index fell 7.7%, and the Shenzhen Component Index fell nearly 8.5%, the worst day for Chinese stocks since Black Monday in August 2015. In total, nearly $445 billion in market value was wiped out.
Both indices then gained every day to February 13, when each retreated about 0.7%.
Luxury retailers reported mass store closings and millions in revenue shortfalls as a result of the disruption. Almost $54 billion in market value was wiped out for retailers in the MSCI Europe Textiles Apparel & Luxury Goods Index from market close on January 17 until the close on January 31.
Capri Holdings, which owns brands such as Versace, Jimmy Choo, and Michael Kors, disclosed on February 5 that it expects “the situation in China” to cut full-year revenue by about $100 million. Capri also said about 150 of its mainland China stores were closed as of that date, with the remaining 75 operating with reduced hours.
Kering, the luxury conglomerate which owns brands such as Gucci and Alexander McQueen, has also closed half its stores in China, and has halted new advertising campaigns in the region.
Today, the death toll is at least 1,873, with the virus infecting over 73,000 people worldwide.
The impact on the luxury market is expected to be worse than SARS
The last time China faced such a major outbreak was in 2003 with SARS, but spending from Chinese nationals only accounted for only 2% of the global luxury goods market at that point.
Shortly before the virus outbreak, CNN had reported that 3 billion trips were expected to be made during this period. Besides the trips likely cancelled after the outbreak, many regions have instituted travel bans into and out of China, freezing many travelers in place.
Joëlle de Montgolfier, director of Bain’s luxury practice, told the Financial Times that “not only will Chinese people buy less domestically during the key New Year shopping season,” but “they will also have to cancel trips abroad, during which they often buy luxury goods.”
Chinese designers such as Masha Ma, Jarel Zhang, and Shiatzy Chen have pulled out of Paris Fashion Week, which is set to take place February 24 to March 3, while both Beijing and Shanghai Fashion Week — set to begin on March 23 and March 26, respectively — have also been postponed, as reported by Evan Clark of WWD.
“Our environment has changed significantly with the coronavirus outbreak,” Kering CEO Francois-Henri Pinault said on an earnings call on Wednesday February 12. “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.” Burberry has said the impact to its bottom line will be worse than that caused by the Hong Kong protests, which cut sales in half in its last fiscal quarter.
Leave a Reply
Leave a Reply
This site uses Akismet to reduce spam. Learn how your comment data is processed.
