- Luxury execs are expecting the coronavirus epidemic to cost the luxury market as much as €30 to €40 billion ($US32 to $US43 billion) in sales, according to a new survey done by Bernstein and Boston Consulting Group.
- Luxury brands are particularly vulnerable to the coronavirus outbreak because it is hurting the spending of their key customer base: the Chinese.
- Store and mall closings in China along with travel bans restricting Chinese tourism have hurt luxury sales.
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The coronavirus epidemic could cost the luxury market as much as $US43 billion in sales, according to a new report from investment management firm Bernstein.
Bernstein partnered up with Boston Consulting Group to survey a group of 28 senior executives from a selection of luxury brands to find out what impact they expect the virus to have. (Bernstein would not reveal exactly which execs were included in the survey when contacted by Business Insider).
These execs are anticipating to see a €30 to €40 billion ($US32 to $US43 billion) hit on luxury sales in 2020 thanks to the spread of the virus.
43% of the execs surveyed said they are expecting sales to be impacted for the next three to six months before levelling out.
2020 will be a ‘disaster’ for many luxury brands
The luxury market is especially vulnerable to the coronavirus outbreak because it’s impacting the spending habits of its most important customer base: the Chinese.
Chinese consumers were estimated to account for around 35% of the total spend in the global luxury market in 2019 and around 90% of the growth in global luxury goods sales, according to recent data from Bain.
Store and mall closures in mainland China are preventing these customers from shopping in their own country and travel bans put in place by the Chinese government and other countries mean that some of these shoppers also aren’t shopping elsewhere. This especially pertinent as the majority of luxury spending done by Chinese shoppers happens outside their own country, according to Bain.
Beyond these physical constraints, a decline in shoppers’ morale means that those that do have access to stores or the ability to shop online, may not be in the mood to shop.
Pauline Brown, a luxury goods expert and a former chairman of LVMH North America, said she expects 2020 to be a “disaster” for many luxury brands in a recent interview with Yahoo Finance.
“The problem with luxury is that if you don’t buy it in a given quarter, it’s not like you come back and all of a sudden there’s excess demand the next quarter… you’re not going to get the sales back,” she said.
The economic impact of coronavirus outbreak has frequently been compared to the SARS or Severe Acute Respiratory Syndrome outbreak in 2003, which also took a hit on luxury sales but from which brands were fairly quick to recover from.
But the Bernstein note highlights a major difference between the two epidemics: in 2003, the Chinese accounted for 2% to 3% of global demand in the luxury market but today, they account for ten times that, a group of Bernstein analysts wrote. Meaning that luxury brands may be hurting more this time around.
According to the Bernstein research, Swatch and Richemont – the owner of Cartier and Chloé among other brands – are most exposed to the Chinese customer base, while Luxxotica and Moncler are least exposed to this market.