China hits and sinks luxury and luxury brands. The illusion of making money with the CCP
In the West, especially since 2010, the illusion had spread of being able to get rich with the neo-rich Chinese, eager to acquire the status quo and to show off, even in a tacky way. Of course, those who benefited most from this trend were the various companies that control the luxury brands, Arnauld's LVMH in the lead, but also Monclair, Gucci, Swatch, Kering. But the wind changes and an autocratic government, theoretically based on a communist ideology, is quick to change its mind.
Given that the elite of the rich had become too powerful and, in any case, it is the simplest target to divert attention to the real problems of society, such as demographic decline, the top of the government decided to hit the rich with a new fiscal policy to "Promote the birth of a middle class". The consequences are twofold:
- no more super-rich that European brands can afford;
- a middle class that favors Chinese brands.
All this has turned into negative opinions from analysts. Eg:
JPMorgan,
China's wealth redistribution plans represent an "incremental risk" to the strong recovery of the luxury sector so far
Swatch and Burberry are among the most exposed to the Chinese consumer; watches are "a category of products most likely exposed to decreased manifestations of wealth"
UBS,
Ongoing concerns about China could weigh on the luxury sector in the near term. Swatch has an estimated ~ 50% exposure to pre-Covid Chinese consumers, Burberry ~ 40%, Richemont ~ 40%, Hermes ~ 35%, Prada ~ 35%, Kering ~ 33%, LVMH ~ 31%
Sees Hermes and LVMH as the "most defensive names in the industry"
The results on the shares are showing. For example LVMH has experienced a 13% drop in the past 10 days
Similar dips have been seen by other luxury brands, such as Gucci. At this point, luxury needs to completely review its priorities and growth path. Thinking only of the super rich, thinking that the Far East will lead to continuous growth, risks being a dead end. Maybe it's time to rethink a different path.
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The article China hits and sinks luxury and luxury brands. The illusion of making money with the CCP comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/la-cina-colpisce-ed-affonda-il-lusso-e-i-marchi-del-lusso-lillusione-di-fare-soldi-con-il-pcc/ on Thu, 19 Aug 2021 16:30:10 +0000.