LONDON, United Kingdom — Hermès' and Kering's impressive 2019 results announcements this month have done little to offset investor fears over 2020. Both groups reported double-digit revenue growth and increased profitability but were cautious about the impact of the coronavirus on 2020 trading.

Kering witnessed a slowdown in both its brick-and-mortar and online businesses in China, the latter being affected by warehouse closures, but anticipated to make up for the shortfall in sales in the first half by boosting its marketing efforts in the region during the second half of 2020.

Hermès has re-opened its stores in China, further to a slowdown of new cases of coronavirus in the market, but has not yet seen a return to normal traffic. Other companies, including Tod's, Burberry and Moncler have joined the chorus, claiming a dramatic drop in business in mainland China, along with fears as to the potential impact of the virus spreading further afield.

Corporate activity has markedly picked up this month. Private equity firm favourite Golden Goose changed hands from the Carlyle Group to Permira, attracting a valuation of €1.3 billion ($1.46 billion); other private equity deals included the acquisition of a majority stake in French fragrance brand Creed by BlackRock and the acquisition of Coeurdor SAS — a French manufacturer of metal accessories for the luxury industry — by Riri Group, a portfolio company of French midcap investor Chequers Capital.

In jewellery, Vicenza-based goldsmith and high-end jeweller FOPE was acquired by CoMo, an Italian investment company headed by Claudio Costamagna and Andrea Morante, and Asian luxury watch retailer The Hourglass acquired New Zealand-based Mansors Jewellers as part of its efforts to expand presence in the market. Safilo Group acquired a majority stake in US-based eyewear company Privé Goods as part of a strategy to grow its proprietary brands business. Finally, Mike Ashley’s investment vehicle, Frasers Group, acquired a 12.5 percent stake in Mulberry.

The Savigny Luxury Index (SLI) took a nosedive this month, ending 7.1 percent down, reflecting the importance of China and the Chinese traveller to the luxury industry. We would normally expect the SLI to show greater volatility than the overall market, but the MSCI global benchmark fell an astonishing 7.5 percent in February as markets were gripped by fear over the ramifications of a potential global pandemic.

SLI versus MSCI

SLI Graph February 2020

Going Up

• No SLI stock posted any gain this month. The last time this happened was in October 2011.

Going Down

• Burberry took another tumble in February — at least the British group had been honest in announcing that the coronavirus was going to hurt more than the Hong Kong protests. The stock ended the month close to 16 percent down.
• Prada's share price also fell almost 16 percent in February, surely not helped by the fact its primary listing is in Hong Kong.

What to Watch

The market correction in February has, hopefully, already "priced in" the full impact of the coronavirus so that the worse can be expected to be behind us. That would be good news, particularly coming off of hefty stock market valuations across the board. We are, however, getting mixed signals with the virus spread decelerating in China but accelerating everywhere else. No doubt this virus will continue to dominate share price valuations in the short term.

Pierre Mallevays is the founder and managing partner of Savigny Partners LLP, a mergers & acquisitions advisory firm focusing on luxury brands and retail.