Luxury brands impacted by China’s currency devaluation
After Prada‘s annoucement it would revise its profit outlook after weak sales in China, other major luxury retailers are feeling the Chinese pinch now that the government devalued its currency for a second time. Many luxury brands will see their shares suffer, expecially those who have a large presence in the market.
China is currently the world’s fifth largest luxury market, not including Chinese luxury shoppers who shop abroad while traveling. Taking into consideration Chinese spending outside of the country, they become the world’s biggest group of luxury consumers. Devaluations in currency raise the costs of imports, hitting luxury goods, which become more expensive. Already luxury goods are an average of 20 percent higher in China.
Early signals of luxury brands that will be affected are Italy’s Salvatore Ferragamo which saw its shares slide 5.5 percent. To put that in perspective, he company’s turnover sees 13 percent come from China. Luxury conglomerates LVMH was down 5 percent and Kering dipped 4 percent. .
It will be interesting to see how it affects Chinese spending outside China, as Chinese travelers now face a yuan weakened in relation to other currencies.