What will the impact of the coronavirus outbreak be on the luxury-goods sector? At this point, it is hard to say.
Chinese shoppers typically make up about 40% of global sales of luxury-goods producers. About half of that spending occurs in China, with the rest coming during trips abroad. Right now, people are not even going to local malls, and are definitely not taking international trips.
Even online sales have been affected, as quarantine measures are complicating deliveries.
Burberry Group recently scrapped its financial forecast for the year, warning that the coronavirus epidemic was cutting sales by 75% or more
Of course, it’s better to be selling handbags than coffee in a situation like this. If Starbucks shuts down stores in central China, its customers won’t buy 30 extra cups of coffee next month, when it (hopefully) reopens. Luxury-goods purchases can be deferred.
The deadly virus has illustrated the increasingly central role China plays in global manufacturing. Just about every major piece of consumer electronics is made in China — from iPhones and gaming consoles to half the world’s LCD screens. High-end luxury-goods producers are somewhat less affected, as more of their production is in Europe.
Several companies have issued wider-than-normal range in earnings guidance. Burberry Group recently scrapped its financial forecast for the year, warning that the coronavirus epidemic was cutting sales by 75% or more at stores in China. L’Oreal and Estée Lauder said last month they expected temporary setbacks in the region.
This pain is added to the impact of anti-Beijing protests in Hong Kong, which cut sales in the territory by half over the Christmas quarter.
In time, we will see a full recovery. The experience with other similar outbreaks shows that humans are very resilient. The quarantines and flight restrictions are temporary. The urge to own nice things never goes away. This is probably a luxury-goods-sector stock buying opportunity.
• Theron is CEO of asset manager Vestact.
• From the March issue of Wanted 2020.