Asia's woes weigh on luxury brands

HARD HIT: A shopper enters a Louis Vuitton store in the Tsim Sha Tsui area of Hong Kong. The territory's troubles are expected to cause the biggest dent in sales of luxury goods.


    Oct 20, 2014

    Asia's woes weigh on luxury brands


    PROTESTS in Hong Kong, an economic slowdown and anti-corruption drive in China and a coup in Thailand - Asia is no longer a market of constant growth for luxury goods firms.

    Even sales of luxury goods in Singapore have been hit.

    LVMH, world No. 1 in the sector and owner of brands like Louis Vuitton, Givenchy and Dior, saw its sales drop by 3 per cent in Asia, excluding Japan, in the third-quarter of this year, a far cry from the halcyon days of 2010-2012.

    In every other market, LVMH's sales increased, according to figures published last week. Even activity in sluggish Europe has done better over the past nine months, the group said.

    The crisis in Hong Kong "will have an impact" on the quarterly results, group finance director Jean-Jacques Guiony said. "We have already noted some negative impact on activity in duty-free shops in the third-quarter."

    Arnaud Cadart, an analyst at CM-CIC securities, said there was a "rare coming-together of economic, monetary and geopolitical factors that have had a negative impact on the Asian market".

    Slowing economic growth in China, along with a clampdown on lavish spending by government officials, is crippling luxury goods firms that are used to viewing the growing pool of wealthy and brand-conscious consumers in the world's No. 2 economy as a cash cow.

    Consultants Bain & Company have forecast that the luxury goods market in China will contract for the first time ever this year. This will have a clear impact on companies like Switzerland's Richemont, Britain's Burberry and Mulberry, and Italy's Prada, and many luxury brands are reining in their previously rapid expansion.

    Bain said the slowdown in China, combined with other factors, would put the brakes on the global luxury goods sector, which the consultancy now sees growing at 2 per cent this year - what it called "the new normal".

    Mr Cadart noted that the Chinese market has carried the sector for several years and "couldn't keep up such a pace in the long term".

    While rich Chinese clients are still seen as the big spenders, the big spending these days tends to be on holiday rather than at home.

    Still, that is not to say all luxury firms are putting the brakes on the breakneck pace of expansion in China.

    Hermes cut the ribbon on a glittering new store in Shanghai last month, and the shoe still fits for Jimmy Choo, whose initial public offering launched in London last week was aimed at raising cash to tap into demand in China and Japan.

    Luxury goods firms have also complained that a drive to stamp out lavish and ostentatious spending has dried up sales of cognac and expensive wines as well as items such as watches, traditionally given as presents.

    LVMH said revenues in its wines and spirits division dipped 7 per cent in the first nine months of this year from a year earlier.

    French spirit-maker Remy Cointreau last week said sales in the first half of the year had slumped 15.5 per cent, dragged lower by weaker demand for its flagship Remy Martin cognac in China.

    Luxury goods sectors in other countries in the region have also taken a hit from Chinese tourists staying away for a variety of reasons, including a military-backed coup in Thailand in May.

    Singapore has seen luxury goods clients cut by a fifth, according to Bain.

    But the biggest dent in the sector is likely to come from the ongoing protests in Hong Kong, a global centre for luxury watches and the high-end goods market in general.

    The only bright spot? Japan, where the market in luxury goods is actually growing, even though Japanese clients have lost some purchasing power due to a weaker yen.