China Showing Positive Signs of Luxury Brand Recovery

Burberry Group PLC, a British Fashion Company, Has Seen a 2.72% Increase in Their Stock. Cie. Financière Richemont SA, the Owner of Cartier, Has a CFRUY of 0.07%.

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It appears that sales to Chinese customers are beginning to increase, which could be an indication of a rebound in the luxury sector's most significant market prior to the pandemic.

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The ongoing effects of the Covid-19 pandemic in China have been a major challenge for luxury goods producers, who had become accustomed to the spending of Chinese customers both domestically and internationally in the past two decades. As Beijing begins to lift restrictions, the question remains as to when and how quickly Chinese spending will recover.

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Burberry and Richemont both experienced a decline in their quarterly sales in China due to the recent spike in coronavirus cases. However, they both reported a more positive start to 2021.

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On Wednesday, Burberry's stock saw an increase of up to 2.9%, while Richemont's stock rose by as much as 2.8% in European markets.
Julie Brown, Burberry's Chief Financial Officer, reported that the reopening of their stores has been met with positive results. She noted that there has been a strong influx of customers, particularly from Chinese shoppers in Hong Kong and Macau.

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She noted that there have been some signs of recovery in the form of Chinese consumers traveling to other Asian countries, although the numbers are still quite small.
Richemont reported that they are beginning to observe a resurgence in China. A representative for the Swiss firm stated, “Retail outlets have resumed operations, customers have returned, and we are witnessing a powerful retail revival.”

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Leaders have warned that the speed and timing of the recovery is uncertain. As the current outbreak of the virus is reaching its peak, life in China is still disrupted and some stores have had to close due to a lack of employees. Some economists believe that the damage caused by the pandemic, such as job losses and closed businesses, may take a while to repair. A key indicator of the situation will be the week-long Lunar New Year holiday, which begins on January 21st and is usually a significant period of sales for luxury goods companies.

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At present, China is having a negative effect on the companies' results. Burberry reported a 23% decrease in sales in China for the three months ending December 31, due to Covid-19 related store closures and restrictions.

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Richemont, the parent company of Van Cleef & Arpels and Chloé, reported a 24% decrease in sales in China for the same period. The company attributed the decline to a "massive increase of Covid cases" that caused a decrease in customer traffic and staff unavailability that led to reduced store hours or temporary closures.
The Chinese government has recently eased Covid-19 restrictions in Beijing. This month, health authorities have removed quarantine requirements for international travelers, which luxury executives hope will encourage Chinese citizens to travel abroad once more.

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Ms. Brown of Burberry expressed optimism about the recent developments in Hong Kong and Macau, expressing her hope that the same would be seen in mainland Europe.

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Burberry has a greater presence in the Chinese market than many other companies. Before the pandemic, 40% of its sales were to Chinese customers, with almost half of those sales coming from outside mainland China. In the most recent quarter, approximately 25% of its sales were to Chinese customers, with only 2% of those sales coming from outside mainland China, according to Ms. Brown.

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Luca Solca, an analyst from Bernstein, commented on Wednesday that investors are likely to overlook any weak performance at the end of 2019 and be encouraged by the fact that Chinese shoppers have returned to stores in large numbers during the first two weeks of 2020.

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Bain & Co. reported that Chinese spending on luxury items had decreased in the past year, but they anticipate a rebound in the latter half of 2020. They estimated that Chinese consumers made up between 17-19% of global luxury spending in 2019, which is a decrease from the one-third of global luxury spending they accounted for in 2018.

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It is predicted that the Chinese consumer will return to its pre-Covid position as the leading nationality for luxury goods, and is expected to account for up to 40% of global purchases by the year 2030. Burberry reported that, when not including mainland China, comparable-store sales increased 11% in the last quarter compared to the same quarter in the previous year, with Europe showing particularly strong results.

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Richemont reported a notable increase in sales in Europe, which was attributed to both tourist spending and local demand. Additionally, the strong dollar enabled Americans to purchase luxury goods in Europe.