Burberry slumps amid Chinese slowdown
BURBERRY shares have plunged to their lowest level since late 2020 amid mounting fears over a deeper slowdown in Chinese luxury spending.
The British designer was hit by an investor sell-off yesterday, as it became one of the biggest fallers on the FTSE 100 after analysts warned over weak earnings for luxury brands.
UBS said recent data from local shopping centres in China suggested “a slowing Chinese demand globally and no pick-up in trends elsewhere”.
In this climate, it said investors should stick to “the most defensive names exposed to the high-end consumer” and avoid “unproven” brands such as Burberry.
Yesterday’s report from UBS sent shares in Burberry down by 2.9pc to their lowest level since the pandemic forced luxury stores to close.
This latest fall comes after eight months of successive losses for Burberry’s share price, with the company now valued at £4.87bn – down from almost £10bn in April.
At its half-year results in November, Burberry revealed that profits fell 15pc year on year to £223m.
The company has blamed its recent struggles on the UK Government’s tourist tax, arguing late last year that a growing number of US and Middle Eastern tourists are now doing their shopping in Europe. Jonathan Akeroyd, the chief executive of Burberry, said in November that he was “disappointed by the UK Government’s decision not to reinstate tax-free shopping”.
However, signs of pressure in China have now sent Burberry’s share price lower, with the UBS report also impacting the value of other listed luxury giants such as LVMH, Hermes and Kering.
Concerns have been growing over a spending slowdown in China for months as it is a key market for many luxury companies.
However, Burberry is particularly exposed as China is its largest market. The Asia Pacific region overall accounts for more than 40pc of Burberry’s revenues. Figures this week suggested consumers’ spending power in the country could come under increasing pressure in the coming months, as salaries offered to new hires in China fell at a record pace.
Average monthly wages for staff taking new jobs dropped 1.3pc in the final quarter of 2024, according to data from the recruitment site Zhaopin and Bloomberg. The fall is the latest blow to job seekers in China as unemployment hovers at around 5pc, according to an official survey.
Duncan Wrigley, at Pantheon Macroeconomics, said the jobs market was proving to be particularly difficult for new graduates in China. He said key sectors, such as property, finance and education, are no longer hiring younger workers in the same way they used to.
This is expected to feed into reduced luxury spending as younger consumers will no longer be able to afford high-end purchases. A survey by Boston Consulting Group suggested that the average age of a luxury shopper in China is just 28, about 10 years younger than elsewhere in the world.
Brands including Kering’s Gucci particularly benefited from strong demand from younger shoppers before the pandemic. Sales at Gucci were down 14pc on a reported basis in the third quarter of 2023.
UBS analysts warned that as well as a “weak end to the year” for luxury brands, investors should expect “little visibility” for the year ahead.
They added: “Although we continue to like the sector structurally in the long term, we remain cautious in the short term seeing further downside risk to estimates.”