Friday 14 February 2020
Can fashion brands weather the storm? Photo: Nicolas Asfouri / AFP

Luxury fashion brands worldwide are set to suffer from the COVID-19 outbreak. The spread of the virus has led to the dwindling numbers of buyers from China, the world’s biggest consumers of luxury goods, due to a lockdown to prevent the virus from spreading further.

Consumers from China account for almost 35% of the value of all luxury goods bought worldwide. A large chunk of the money is spent in China itself as well as the rest of Asia, where popular luxury fashion brands such as LVMH, Richemont, Kering and Hermes, generate around a third of their overall sales.

woman walks her dog in beijing during the COVID-19 virus
The COVID-19 has caused many parts of China to become ghost towns. Photo: Greg Baker / AFP

The spending power of tourists from China

China also represents the world’s biggest group of tourists, with almost 150 million foreign trips taken in 2018. Additionally, these tourists are also the world’s top per capita spenders per trip. During their holidays, high-end fashion represents the biggest duty-free spending, with 43.7% of their budgets spent on top luxury fashion brands.

In Paris and its surroundings, China’s shopaholics’ favourite European destination, they spend 40% of their budget on lodging, 26% on shopping and 20% on food. Therefore, further illustrating the spending power of tourists from China. That figure went up to US$290 million in 2018, as travellers splurged on handbags, clothes, perfumes and souvenirs.

How COVID-19 impacts luxury fashion brands?

The outbreak of the COVID-19 has now caused luxury fashion brands to take a severe hit, as tourists from China are no longer driving major revenue towards the industry. Capri Holdings, owners of Versace, Michael Kors and Jimmy Choo, mentioned the virus crisis would cut sales by US$100 million.

Retailers are also shutting their doors as efforts to contain the virus. According to CNN, roughly 150 of Capri’s stores in mainland China are closed. British fashion house Burberry also closed 24 out of its 64 stores in mainland China.

people wearing masks and walking during the COVID-19 virus
Can luxury fashion brands bounce back from this? Photo: Manan Vatsyayana / AFP

 

Additionally, cosmetics empire Estee Lauder lowered its financial targets, while Japan’s Shiseido group reported its Chinese sales falling by half in the last week of January. The upcoming fashion weeks in Beijing and Shanghai, due to begin on March 25 and March 26, respectively, have also been postponed.

Furthermore, COVID-19 has taken its toll on the Paris Fashion Week, as Masha Ma, Shiatzy Chen, Uma Wang, Jarel Zhang, Calvin Luo and Maison Mai have cancelled their planned events in the French capital due to the outbreak.

While profit margins at many luxury companies may still be considerable enough to absorb a drop in sales in the short term, the same can’t be said if COVID-19 continues to wreak havoc worldwide, with luxury fashion brands being among the first to face the consequences.

Source: AFP Relax News