What Is The Impact Of RMB Devaluation On Luxury Fashion Brands?

Luxury brands are highly dependent on China's economy and China's economy. China is the second largest market or the third largest market without exception.

The RMB has depreciated for two days in a row, and luxury companies are worried.

In addition, Chinese tourists worry that the sudden devaluation of the RMB on Tuesday will further impact on their overseas purchasing behavior if they further develop into a sustained depreciation.

Every year, more than 100 million people travel overseas, and more luxury goods are purchased than other countries.

Buying perfume and clothing at about half the price of the country is a great attraction for overseas travel.

The devaluation of the renminbi is further affecting the luxury market this week. Mainland demand is decreasing, while high profit areas such as Hongkong and Macao are in an unstable market environment.

Retail and luxury brand stocks plunged 5% to 10% in two consecutive days.

According to fashion headline statistics, LVMH shares fell more than 5% for two consecutive days, and the market value evaporated nearly $9 billion.

Local time yesterday, Italy luxury group Salvatore Ferragamo and Swiss watch group Swatch also fell more than 5%.

In the other three luxury goods groups, Hermes fell nearly 4%, the peak group fell 4.18%, and the cloud dropped 3.89%.

But today, there has been a rebound.

How will Chinese consumers, who account for 30% of the luxury consumer spending, cope with the weakness of the renminbi? This will affect the overall consumption of luxury goods in mainland China.

On Thursday, Exane BNP Paribas management partner Luca Solca pointed out in the report that China's practice depends on some major variables, including the final depreciation line, the exposure of the company's turnover in China, the response of luxury consumers to the price of local brands, and whether the Chinese will rechoose domestic shopping rather than overseas.

He believes that although currency devaluation is true for most luxury brands,

But the fall in stock prices seems to be overlooking.

He wrote: "in a comprehensive analysis, we will find that the moderate depreciation of the renminbi has only a negative effect on the profit of luxury brands."

He added that the brand's price in China has not been cut, which is an advantage.

"At first glance, the LVMH group and Swatch look better.

By contrast, those brands such as Burberry and the peak group will suffer more serious negative effects.

Bernstein Research senior analyst Mario Ortelli and its team wrote in another report that the depreciation of the renminbi may have a major negative impact on the business of luxury companies.

He said that the depreciation of the renminbi would inhibit the foreign exchange earnings of luxury companies and curb the enthusiasm of Chinese citizens to travel abroad, which also indirectly prevented the occurrence of overseas tourism shopping.

The report said: "we expect that about 75% of Chinese consumers' luxury consumption is generated offshore.

This change in monetary value may also affect consumer confidence and foster a more cautious attitude towards Chinese consumers' consumption of non essentials. "

On the positive side, Ortelli adds, looking forward to the future, more luxury products will be purchased in China's traditional high profit market.

The price gap between Europe and Asia will shrink, and the risk of grey market will be reduced.

The pressure of price adjustment will also be reduced.

The report added: "quality is definitely a key success factor and a further potential change in the market."

It indicates that the LVMH group and Hermes will face low profit pressure and maximize marginal effect. If the purchasing power of Chinese consumers return to the mainland market, it is equivalent to that they have not lowered their prices in the region.

According to the report, Hermes, LVMH group and Lifeng group are in the best position to cope with the impact and changes of China's luxury market in time.

"This is because they have strong brand positioning, pricing power and profitability, which are specifically targeted at Chinese consumers, regardless of whether buying behavior occurs in mainland China or elsewhere."