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Paris Attacks Could Impact Luxury Spending from Tourists

With demand for lavish jewellery and fashion slowing from China to the US, brands have been able to count on a flow of free-spending tourists to Europe’s major cities. Friday’s attacks on Paris may change that.
By
  • Bloomberg

PARIS, France — One of the few shining lights for a struggling luxury-goods industry just dimmed.

With demand for lavish jewellery and fashion slowing from China to the U.S., brands such as Louis Vuitton, Gucci and Hermes have at least been able to count on a flow of free-spending tourists to Europe's major cities. Friday's attacks on Paris may change that.

“It’s a concern for all business,” said Fabrizio Ferraro, professor of strategic management at IESE Business School in Barcelona. “The key question is how big an impact these events will have on tourist flows. Consumption in the industry in Europe depends on tourism.”

Shares of Hermes International SCA, Kering SA and Swatch Group AG fell Monday amid concern that the industry's challenges just deepened. Paris is the second-largest city for luxury-goods spending after New York, according to Bain & Co. The attacks come as the most important sales period approaches, with the last three months of the year accounting for about 30 percent of the industry's revenue on average, Bryan Garnier & Co. estimates.

“Tourist flows to western Europe will be clearly down in the coming weeks and this just ahead of the Christmas period,” said Loic Morvan, an analyst at Bryan Garnier.

France is the most popular destination for tax-free shopping, accounting for about 20 percent of the market, according to Global Blue, which handles payment processing for tax-free shopping. The country accounts for 10 percent of sales for LVMH Louis Vuitton Moet Hennessy SA and about 15 percent for Hermes, which said last week that sales growth accelerated in France in the third quarter.

Buyers’ Mood 

“Some of the spend may revert to the home market or translate into discretionary purchases elsewhere, though we suspect the mood for buying will remain subdued,” said John Guy, an analyst at Mainfirst Bank AG. Investors probably will knock 5 percent to 10 percent off their valuation of luxury-goods stocks, he said.

Hermes fell 1.6 percent to 327.30 euros at 11:50 a.m. in Paris. LVMH declined 1.3 percent to 160.30 euros and Kering eased 1 percent to 163.60 euros. Richemont, which owns the Cartier jewellery and watch label, dropped 0.6 percent to 77 Swiss francs in Zurich and Swatch slipped 0.6 percent to 355.70 francs.

The luxury industry was already facing its weakest year since 2009 as a combination of stock market turmoil and the Chinese government’s crackdown on extravagance curbed demand. Sales of items such as designer dresses and shoes will rise as little as 1 percent to 253 billion euros ($271 billion) in 2015, excluding the effect of currency swings, Bain & Co. estimated last month. That would be the worst year since sales fell 11 percent in the year after the collapse of Lehman Brothers.

Kering, which owns the Gucci brand, among others, reopened its Paris stores today after closing them over the weekend.

“This terrorist attack may depress demand to Paris as a tourism destination,” Xu Xiaolei, chief branding officer of online tour agency Aoyou.com, said in a chat message. “It may have a big impact” on the city.

By Paul Jarvis, Andrew Roberts; editors: Matthew Boyle, Phil Serafino, Thomas Mulier.

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