Luxury retailers suffer in China with currency devaluation

After Prada's annoucement it would trim its profit outlook after slumping sales in China, other 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.

Salvatore Ferragamo shares sharply fell

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. .

The impact was also being felt in the US, where Coach shares were down about 1.7 percent while Michael Kors was down a more modest 0.2 percent. Burberry was also the biggest faller in the FTSE 100, down 35p at 15.72 pounds.

As one headline stated this morning, "When China’s yuan falls, so do the fortunes of luxury fashion brands." The bigger concern may be how it affects Chinese spending outside China, as Chinese travelers now face a yuan weakened in relation to other currencies.

image: Gucci

 

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