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