Luxury industry could be dented by Euro’s strong run - analysts

The success of Euro against the Dollar brings uncertainty over tourist flows into Europe

Prada is one of a number of luxury retailers at risk from Euro’s strong performance according to HSBC analysts. Photograph: iStock

The euro's strong run since the start of the year may dent a recovery in the European luxury industry, which has been led by a rebound in Chinese consumer spending, according to analysts at RBC Capital Markets and HSBC.

The single currency has gained about 12 per cent versus the dollar in 2017, a shift that brings uncertainty over tourist flows to Europe in coming quarters, said RBC analyst Rogerio Fujimori. The impact is partially offset by the resilience of the yuan, which is crucial for Chinese tourists' buying power overseas, Fujimori wrote in a note.

The BI Europe Luxury Goods Top Peers Index has climbed about 40 per cent in the last 12 months, paring multi-year declines as China's crackdown on corruption hurt demand for high-end items. LVMH, Hermes International, Kering and other companies reported a rebound in luxury sales this year as Asian shoppers returned.

While a stronger euro would hurt the entire European luxury sector, Salvatore Ferragamo would be hurt most because of a low sales exposure to Europe, HSBC analysts wrote in a note. Tod's and Prada are also at risk, they said. Swatch Group and Burberry Group wouldn't be significantly affected because they report in Swiss francs and sterling, respectively, the analysts said.