Global luxury brands lament ‘chilly’ business amid virus outbreak
Published: Feb 25, 2020 10:18 PM

China is the world's top consumption market for luxury products and contributes over half of global sales. Photo: cnsphoto

China is the world's top consumption market for luxury products and contributes over half of global sales, so when its demand drops, the impact on global production chain is immense. Business representatives in the luxury goods sector have expressed pessimism over significant decline in luxury sales.

Beijing's Wangfujing shopping street, a popular location for travelers and buyers, is mostly deserted because of virus fears. A salesperson surnamed Xue works at the Bvlgari store on Wangfujing Street felt the hit to his business.

"Customers are not coming these days," he said. "On normal days around 20 customers visit our store and now there is just about one visit per week."

Xue said he and his colleagues receive only basic salaries, as no sales will mean no commission.

Bvlgari is not alone to feel the chill in this epidemic.

A Louis Vuitton customer representative said the business hours of all its stores have been shortened. "The outbreak has definitely had an impact on customer traffic, like any other industry in this situation," she said.

An Hermes customer service representative said that stores in Beijing, Shanghai and other first-tier cities are operating normally, but business hours are shortened from 12 pm to 5 pm.

A recent report by Altagamma, BCG and Bernstein predicts that even the most nimble brands could be staring down the barrel of a $10.8 billion decline in luxury sales this year due to the coronavirus epidemic, according to online luxury industry news platform Business of Fashion.

When the luxury goods business suffers in China, those along the industrial chain feel the pinch. 

Tian Liangliang, a luxury brands wholesaler based in Italy, told the Global Times on Tuesday that clients have stopped purchasing new goods from abroad and there are hardly any buyers in Italian luxury stores.

"Luxury stores in Italy have lost more than 60 percent of their revenues since the virus outbreak in January," Tian said. Now they are relying on online sales, though delivery services are not operating well at this time.

The absence of Chinese buyers abroad, cuts to domestic courier services and shortened business hours of luxury stores in China will result in a precipitous sales drop for luxury goods in the first quarter, said Nalan Zhengxiu, CEO of Master Bao, a domestic trading platform for luxury goods with customers from top tier cities.

Chen Min, CEO of cosmetic industry group Donger Media told the Global Times that the size of the consumption base - larger internationally than domestically -- determines the impact of the epidemic.

"27 percent of luxury spending is in China and 73 percent is abroad. The virus outbreak led to more than 90 percent of international flights being cancelled and the consumption chain has broken," he said.

Chen said global luxury sales will plunge more than 15 percent in the first quarter, as China's domestic retail market almost came to a standstill during the Spring Festival season.

The epidemic has hit the industry hard, not just sales but the whole chain, Chen Jiana, secretary-general of the China Luxury Institute, told the Global Times on Tuesday, noting that an estimate of China's contribution to global luxury goods sales is around 50 percent.

"China plays an important role in the processing and manufacturing of luxury goods. At present, many factories are unable to resume work, which is bound to cause a reduction in productivity," she said.

Bvlgari currently has 27 stores in China. Stores are currently shut due to the epidemic in Tianjin, Chongqing, Harbin in Heilongjiang Province, Xi'an in Shaanxi Province, and Suzhou in Jiangsu Province, according to Bvlgari.

Some luxury brands are now promoting online sales via live broadcasts in a bid to reduce losses.

Luxury brands such as Bvlgari are promoting their online stores, but business performance has not been ideal. "There have been four to five deals in all of Beijing from the Chinese New Year until now," a source close to the company said.

"One of the most important aspects of luxury shopping is in-store experience. Some luxury goods need an in-store service experience," Chen Jiana said, adding that logistics have been downgraded and online shopping has been affected as a result.

However, industry insiders agree that since demand for luxury products still exists in China, it will only take a short time for purchases to come back to normalcy once the epidemic is finally contained.