China’s triple yuan devaluation could hit France’s lucrative luxury sector, which has already been impacted by Beijing’s tough anti-
corruption drive against spendthrift officials, analysts said yesterday.
The People’s Bank of China cut the value of the yuan three days in a row last week, raising questions over the health of the world’s second-largest economy and sending global financial markets into a tailspin.
The move also cast a cloud over the global luxury market, as analysts worry that Chinese consumers, who make up more than 30 percent of worldwide luxury spending, would be less able to fork out cash for high-end handbags, wines or clothes.
French giants such as LVMH Moet Hennessy Louis Vuitton SE or Hermes International SCA had already felt the pinch of China’s drive to end ostentatious spending and its slowing economic growth, which saw the country’s luxury market shrink for the first time last year, according to consultants Bain & Co.
While the triple devaluation in itself is not devastating, it has been taken as a sign that the Chinese economy is performing worse than revealed. According to Bryan, Garnier & Co analyst Cedric Rossi, that “will add more pressure on the sector.”
“The market [for luxury goods] had slowed down in China, but that was partly compensated by the fact that Chinese people spend a lot more in Europe,” Rossi said. “If the devaluation continues, the Chinese — 70 percent of whom buy their luxury products outside China — could buy less in Europe.”
LVMH — home to such brands as Louis Vuitton, Givenchy and Dior — makes 8 percent of its global sales in China. Hermes reaps 12 percent and Kering SA’s luxury division, including Gucci, Saint Laurent, sells 10 percent, according to analysis from Exane BNP Paribas.
A falling yuan means smaller revenues out of China, and also makes it more expensive for Chinese firms to import goods in the first place. Luxury goods are already between 35 to 50 percent pricier in China than in Europe due to import duties and taxes — a gap that will only widen as the yuan falls.
“Inevitably, such price disparity has encouraged opportunists to buy up popular items in Europe, in bulk, and resell them in China at well below formal retail prices,” Euromonitor International’s global luxury manager Flur Roberts said.
“The grey market is growing, and forcing the owners of luxury brands to take radical action to narrow the differentials,” she said. “In practice, this means they are hiking prices in key European cities and dropping them in China, but with the new currency issues in China this may no longer be possible for international brands.”
“French luxury brands will have to re-think their communication strategy with affluent Chinese consumers” says Pierre Gervois, Publisher of the Shanghai Travelers’ Club Magazine. “Instead of opening too many stores in China’s second tier cities who remain empty, Major brands should target their best Chinese customers when they travel outside China with appropriate marketing and advertising campaigns respecting China’s culture and showing a genuine interest for their Chinese clients”
The question now is whether the devaluation will also affect tourism in France, which saw about 1.7 million Chinese visitors last year.
Source: Taipei times
We have all seen these cheezy advertising campaigns made by department stores or western brands trying to attract Chinese tourists in the last years: Be assured that affluent Chinese tourists were also smiling… But it is going to change. Exit the low quality shopping publications targeted to Chinese tourists that ended in the hotel rooms trash bins. U.S. and European Luxury brands and high end retailers start now to advertise seriously with affluent Chinese tourists.
Although luxury sales in mainland China have still remained in slowdown mode in 2015, and Hong Kong has recorded a significant slump as well, Chinese spending remains a potent force in the global luxury industry, propping up growth rates in developed markets worldwide.
This week, Hermès reported a 22 percent increase in global sales in the second quarter, with sales in Japan leaping 33 percent—a figure attributed in large part to an influx of big-spending Chinese tourists attracted by a weaker yen and easier travel. On a global scale, Chinese travelers are spending lavishly: a recent Global Blue report found that Chinese tourist spending jumped 87.8 percent in June, while spending on leather goods in Europe grew by an even more staggering 93.7 percent. Year-to-date spending growth sits at a whopping 110 percent.
These numbers contrast sharply with the situation in mainland China and Hong Kong, one that is particularly striking in formerly triumphant Hong Kong. Last week, Burberry reported a “double-digit percentage decline” there for the three months ending in June, while sales of Swiss watches in the former British colony were down 21.2 percent in June, despite 3.3 percent growth worldwide.
These numbers further support the trend that growth is following Chinese tourists abroad, and brands need to keep up with their changing location preferences for travel—engaging outbound shoppers before they leave China and when they arrive overseas. Recent stats also illustrate the ever-shifting tides of Chinese travel patterns. Whereas Japan was, just a few years ago, faced with a Chinese tourist slump (caused in no small part by Sino-Japanese political tensions), the country is seeing a wave of Chinese arrivals and spending, owing to cooling attitudes toward Hong Kong and South Korea’s currency fluctuations and MERS outbreak.
Amid these rapid and unpredictable changes, what is clear is that brands need to have plans in place to quickly jump on opportunities, and ensure they’re able to reach and influence the Chinese outbound consumer wherever he or she happens to be in the world.
“Luxury retailers like Bloomingdale’s have well understood the importance of targeting affluent Chinese tourists”, said Pierre Gervois, CEO of China Elite Focus and Publisher of the Shanghai Travelers’ Club magazine, a high end publication in Chinese language for High Net Worth Chinese global travelers. “Bloomindale’s and the Shanghai Travelers’ Club magazine have launched a very creative marketing and PR campaign this spring showing actual Chinese customers and what it feels like to shop at the iconic Bloomingdale’s store in NYC.” Gervois added. This campaign has generated a considerable attention on Chinese social media and is the first ever campaign focused on the Chinese customer and the overall shopping experience in a U.S. luxury retailer. An example to follow for the industry.
Source: Jing Daily / China Elite Focus / The New Chinese Tourist