The aftershock of tsunami in Japan is being felt in the European headquarters of the luxury brands. Japan has a rich tradition of luxury and contributes over 11% of the global sales of luxury goods. Japan is not only important for the luxury brands in terms of volume but also in terms of profits because the price realization is higher there than compared to the emerging markets. Hermes, Burberry, Louis Vuitton and Richemont were witnessing marked improvements in their sales in Japan but the massive earth quake has put a question mark on the future.
The damage to the Japanese economy is still being assessed. The fear of nuclear pollution has further added to the tension. MF Global is of the opinion that the immediate term impact on the luxury goods sector will be very bad. It might even have a negative impact on the recovery rally in the European consumer sector. Some of the optimists amongst the analysts feel that the impact could be limited as the zones and areas affected by the quake are not major markets for luxury goods.
That is a very optimistic opinion to say the least. The market sentiment is shaken badly and the stock market is reflecting the fact clearly. The shares of companies who have large sales in Japan have suffered the most. Burberry stocks lost 6% of its value. Tod’s stocks suffered a loss of 3%. Hermes was down by 2.12%, whereas LVMH stock was down 3.3 percent. More than the actual, material damage, it is the dampening of the mood that will hurt the luxury market. The timing of the natural disaster couldn’t be worse for the sector as the momentum of growth that was building up will be halted, temporarily at least.