Burberry says coronavirus hurting luxury demand

L’Oreal says outbreak will cause a temporary slowdown in the beauty market in China

Analysts  estimated last month that the “Chinese cluster” would account for 46% of Burberry’s sales this year

Analysts estimated last month that the “Chinese cluster” would account for 46% of Burberry’s sales this year

 

Retailer Burberry said the outbreak of the coronavirus was hitting luxury demand in China and Hong Kong, both important markets for the British fashion brand, sending its shares lower for a second day in a row.

The label said 24 of its 64 stores in mainland China were closed, and there was a significant decline in the number of shoppers visiting its remaining outlets, which were also opening for shorter periods each day.

“The outbreak of the coronavirus in mainland China is having a material negative effect on luxury demand,” chief executive Marco Gobbetti said. “While we cannot currently predict how long this situation will last, we remain confident in our strategy.”

Shares in Burberry fell nearly 5 per cent in early trading on Friday, and were down 2 per cent by 8.45am, leaving them 15 per cent off their January peak.

Analysts at Jefferies estimated last month that the “Chinese cluster” would account for 46 per cent of Burberry’s sales this year, above the average of 40 per cent for the luxury sector as a whole.

The company said spending by Chinese tourists in Europe and other destinations had not been hit as much so far, but given widening travel restrictions it anticipated it would worsen over the coming weeks.

The death toll from the flu-like virus in mainland China rose to 636 as of Thursday, as the number of cases hit 31,161.

The country has sealed off cities, cancelled flights and closed factories to try to contain the virus. The capital of Beijing resembles a ghost town, with main thoroughfares and tourist spots almost deserted.

Burberry, famed for its trench coats and check scarves, had already been suffering from the large demonstrations over the last seven months in Hong Kong, though mainland demand had been taking up some of the slack before the epidemic struck.

China is crucial to Gobbetti’s multi-year strategy to revitalise Burberry by moving it further upmarket, driven by the creative vision of designer Riccardo Tisci.

The British brand said last month it had seen a strong early response to its lunar new year campaign, and it planned to take its autumn/winter 2020 runway show to Shanghai in April.

It is also opening its first “social-retail” store in Shenzen in partnership with Tencent in the first half of its next financial year.

Last month, when the impact of the newly emerging virus was uncertain, Burberry upgraded its sales forecast for the year to the end of March to a low single-digit percentage increase from broadly flat.

Cosmetics

Elsewhere, L’Oreal said the coronavirus outbreak would cause a temporary slowdown in the beauty market in China, where strong demand for high-end cosmetics helped the company beat sales estimates in the fourth quarter.

Comparable sales in the period rose 9.6 per cent, the company said after the close of trading on Thursday. Analysts surveyed by Bloomberg had forecast a 7.4 per cent gain.

The French owner of the Lancome and Kiehl’s brands said it was confident demand in China would bounce back quickly once the epidemic eases, citing its experience during SARS and other illness outbreaks.

Rival Estee Lauder said earlier Thursday that it also expected a short-term hit from the coronavirus.

L’Oreal’s sales have been fuelled in recent quarters by Chinese consumers splashing out on luxury skincare products and makeup, which has made up for a sluggish performance by the company’s mainstream brands like Maybelline in the US.

Chief executive officer Jean-Paul Agon previously said he expected the Asian country to remain a growth engine over the coming year.

L’Oreal earlier this week said it entered exclusive negotiations with French investment firm Impala for the sale of its Roger and Gallet brand. – Reuters/Bloomberg