The recent Coronavirus (COVID19) outbreak, which has prevented as many as 1000 consumers from attending Europe’s best-fashion shows in this month, is one of the biggest risks to the Chinese luxury industry since the financial crisis in 2008. In addition, the outbreak also disrupts supply chains for more mid-market clothing, with retailers and fashion labels voicing concern about Chinese factories ‘ ability to produce autumn-winter collections as expected. As Bernstein’s luxury goods analyst Luca Solca, luxury sales in China may be significantly impacted during the first quarter of the current financial year, with revenues dropping by low to mid-teen digits.
Many luxury companies listed on the US also depend on China to sell. For example, Tapestry, the luxury brand centered on the US, has increased its Chinese revenues three times more quickly than the group as a whole. From jackets and bathrobes for luxury brands, from H&M and Next of UK and top designers such as Tory Burch Chinese manufacturing facilities will choose from.
However, due to the outbreak five Chinese designers have cancelled their fashion shows scheduled for the Paris Fashion Week next week. Chanel and Prada have also postponed separate events planned for May in China. As per an estimate by the National Chamber of Italian Fashion, Italian exports are likely to fall by a minimum of €100 million in the first quarter and €230 million if the crisis prolongs further for the first half of the year.
To attract Chinese buyers back to the market, Kering’s Gucci brand live streamed the catwalk show for Autumn/Winter women’s collection in Milan, using Weibo, one of China’s biggest social media platforms. Similarly, other luxury groups activated contingency plans that include closing stores and offices in China, scaling back product launches and advertising, and clamping down on staff expenses globally. Some have instituted hiring freezes.
Mid-market fashion companies in China are more vulnerable than their luxury counterparts to the contingencies in the supply chains. Increasing labor costs have little effect on luxury players, as development in other cheaper countries is easy to diversify. But in places such as Bangladash and Vietnam, China still remains an important supplier of textiles to manufacturers. These brands are likely to face delays as their winter collections are assembled and delivered. In China, for example, Brand Next has an inventory at risk of around £ 20 million.