Main­land China’s yuan cut spells a bad omen for France’s lux­ury sec­tor: an­a­lysts


Main­land 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 say.

The Asian pow­er­house’s cen­tral bank cut the value of the yuan cur­rency, also known as the ren­minbi, 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 or Her­mes had al­ready felt the pinch of main­land 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 & Com­pany.

And while the triple de­valua- tion in it­self is not dev­as­tat­ing, it has been taken as a sign that the main­land Chi­nese econ­omy is per­form­ing worse than re­vealed — and that “will add more pres­sure on the sec­tor,” says Cedric Rossi, an an­a­lyst at the Bryan, Garnier & Co in­vest­ment bank.

“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,” he said.

“But 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 8.0 per­cent of its global sales in con­ti­nen­tal China. Her­mes reaps 12 per­cent and Ker­ing’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 main­land 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 main­land 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,” says Fflur Roberts, head of lux­ury goods at mar­ket in­tel­li­gence firm Euromon­i­tor In­ter­na­tional.

“The grey mar­ket is grow­ing, and forc­ing the own­ers of lux­ury brands to take rad­i­cal ac­tion to nar­row the dif­fer­en­tials.

“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.”

Oth­ers say the threat is ex­ag­ger­ated since the yuan had risen strongly against the euro over the past two years.

“It’s not be­cause there is a de­val­u­a­tion of two, four or five per­cent that there will be con­se­quences on the lux­ury in­dus­try,” says Fran­cois Gode­ment, head of the Asia and China pro­gram at the Euro­pean Coun­cil on For­eign Re­la­tions.

He says the in­dus­try has faced a tougher chal­lenge from main­land China’s re­cent anti-cor­rup­tion drive, which has forced many of­fi­cials to cut back on their pur­chases of lux­ury gifts.

The ques­tion now is whether the de­val­u­a­tion will also af­fect tourism in France, which saw some 1.7 mil­lion Chi­nese visi­tors last year — cru­cial to the coun­try’s strug­gling econ­omy as they each spend an av­er­age of 1,500 eu­ros (US$1,650) on goods, the world’s most spend­thrift tourists.

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