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Written By Unknown on Saturday, September 19, 2015 | 9:02 AM
Photo: Eric Estrade Agence France-Presse
The triple devaluation of the yuan last week, is a bad signal for the sectors of luxury and tourism in France, already affected by the anti-corruption policy from Beijing, analysts say.
The luxury market, which depends 30% of Chinese customers, fell for the first time in China last year, battered by the slowdown in consumer spending in Asia and the struggle of the authorities against ostentatious spending, according to a study Cabinet Bain Company.
In this context, the devaluation of moderate magnitude (almost 4% in total), will in itself “no impact fort”. But the slowdown in the Chinese market behind this measure will “add additional pressure to the sector”, said Cédric Rossi, an analyst at Bryan Garnier Co.
“Part of the market had slowed in China was offset by the fact that the Chinese spend much more in Europe. If the devaluation continues, the Chinese, who buy 70% of their luxury goods out of the country, could buy at least in Europe “, he says.For François Godement, director of the Asia program at the European Council on Foreign Relations, “this is not because there is a devaluation of 2, 4 or 5% that there will be consequences for the luxury industry, that has already taken a hit with the campaign against corruption in China “.
The devaluation should nevertheless lead to a decline in activity in China in euro. LVMH achieved 8% of its sales in mainland China, Hermes, 12%, and the Luxury branch Kering, 10%, according to Luca Solca, analyst at Exane BNP Paribas.
Another consequence, in outdoing the prices of luxury goods imported into China, the depreciation of the yuan might encourage parallel trade, warns Fflur Roberts, luxury segment manager at Euromonitor International. “The price difference between Asia and Europe will grow, which may increase the gray market, ie products lawfully purchased through intermediaries in Europe and sold in China without the manufacturer’s authorization “, she says.
For now, luxury goods prices differ by at least 35% between China and Europe because of Chinese import duties and luxury goods. This gap reached even 50% in some cases.
Brands increased their prices in Europe to reduce the difference with China. Some companies, like Chanel, even decreased their prices by 20% in China, but this option is no longer valid due to an unfavorable monetary policy, said Fflur Roberts.
In terms of tourism, “France is attractive enough to absorb the currency gap. The impact of the currency, as long as it remains low, has no real impact “, says René-Marc Chikli, president of the Union of French tour operators (SETO).
“It does not feel anything at this stage, but there is such a desire to travel the Chinese, and particularly in France, with a double digit growth of Chinese tourists for four or five years that I think it will have very little impact “, for its part Mantei Christian, managing director of Atout France, the tourism development agency of France. Last year 1.7 million Chinese tourists came to France and they should be 2 million this year, he said. A windfall for the French economy, because with 1500 euros of purchases per head on average, Chinese tourists are now by far the
biggest spenders in the world.