How Can Luxury Retailers LVMH Face The Stock Market Crash?

LVMH group was the first beneficiary in the Chinese market, and its sales increased 2 digit annually.

Now, the group claims that the Chinese market is oversaturated and sales growth is slowing down. Prada attributed the decline in sales in 2014 to poor performance in China. Gucci recently slashed prices in China to clear up the backlog of stocks due to sluggish sales.

The Shanghai composite index plunged nearly 1500 points in 16 trading days, and the decline of more than 28% made Chinese investors nervous.

What is the impact of the collapse of China's stock market on Western luxury retailers?

Bomoda ConsumerIntelligence CEO Brian Buchwald said: "you will find that many luxury brands are lowering the importance of Chinese consumers."

Despite the high-profile claims of these brands, they have quietly expanded their stance and kept a distance from them.

The global luxury goods giants such as LVMH group, Kering group, Swiss peak group and so on, have been strategically adjusted under the brutal squeeze of the fact that Chinese consumers' luxury consumption is declining.

Financial analysts no longer waste time on risk assessment in China, and instead applaud retailers who have limited expansion strategies in China.

Anne-CharlotteWindal, an analyst at Bernstein research firm, recently raised its Tiffany stock rating from "marketperform" to "win the market" (outperform).

Tiffany is the second largest luxury jewelry brand in China after Cartier. From the number of stores, Tiffany has 30 stores in China less than 38 of Cartier's.

Windal said: "the expansion of Tiffany in the Greater China region is relatively small compared with its competitors, which is an advantage in the uncertain environment of Hong Kong and Macao consumption and the mainland's economic prospects."

Burberry has responded quickly, and has closed 10 stores in China in fiscal year 2015, and expects to close about 5 stores in fiscal 2016.

In the latest quarterly earnings report, Burberry said: (2015) in the second half of the fiscal year, with the collapse of the high profit market, we can see that the consumption power of Chinese consumers is declining.

After careful comment in May, its share price fell 12% in three months.

Although some luxury retailers are rushing out of the Chinese market, consulting firms still have hopes for Chinese consumers.

McKinsey&Co., a world-renowned consultancy management company, does not deny the fact that China's consumption situation is turbulent and unpredictable, but it still believes that this market can bring good news.

McKinsey predicts that China's disposable consumption will increase by more than 7% in the 10 years from 2010 to 2020, and the consumption of semi essential goods will increase by 6% - 7% annually.

McKinsey firmly believes that the performance of Chinese consumers will continue to surprise the world.

But the Chinese stock market has not yet plummeted when consulting companies put forward the vision.

Now, if Chinese investors can't sell their holdings, their wealth will be affected, so luxury consumption is bound to be limited.

In addition, many Chinese companies use stocks as collateral for loan guarantees. When stocks can be freely traded, stocks are likely to tumble. This will lead to a series of loan events (the most direct one is loans can not be returned).

Although the central bank and the China Securities Regulatory Commission (CSRC) have launched a comprehensive rescue plan to safeguard the stock market and financial stability to the maximum extent, it is impossible to say that Chinese consumers are not affected at all.

According to data released by Herm s, sales increased by 9.6% in the first three months of this year, partly attributable to the opening of the flagship store in Shanghai. At present, the data released by retailers are disconnected before the stock market crash, so it seems that consumers are not affected, and the real results will come out after the stock market is thawed.