China’s yuan cut may hit France’s luxury sector

China's triple yuan devaluation could hit France's lucrative luxury sector, which has already been impacted by Beijing's tough anti-corruption drive against spendthrift officials, analysts say.

China's yuan cut may hit France's luxury sector
Chinese tourists look at Eiffel Tower souvenir at the Galeries Lafayette. Photo: AFP
The Asian powerhouse's central bank cut the value of the yuan currency, also known as the renminbi, three days in a row last week, raising questions over the health of the world's second-largest economy and sending global financial markets into a tailspin.
The move also cast a cloud over the global luxury market as analysts worry that Chinese consumers, who make up more than 30 percent of worldwide luxury spending, would be less able to fork out cash for high-end handbags, wines or clothes.
French giants such as LVMH or Hermes had already felt the pinch of China's drive to end ostentatious spending and its slowing economic growth, which saw the country's luxury market shrink for the first time last year, according to consultants Bain & Company.
And while the triple devaluation in itself is not devastating, it has been taken as a sign that the Chinese economy is performing worse than revealed — and that “will add more pressure on the sector,” says Cedric Rossi, an analyst at the Bryan, Garnier & Co investment bank.
“The market (for luxury goods) had slowed down in China, but that was partly compensated by the fact that Chinese people spend a lot more in
Europe,” he said.
“But if the devaluation continues, the Chinese — 70 percent of whom buy their luxury products outside China — could buy less in Europe.”
More parallel imports?
LVMH  — home to such brands as Louis Vuitton, Givenchy and Dior  — makes 8.0 percent of its global sales in continental China. Hermes reaps 12 percent and Kering's luxury division including Gucci, Saint Laurent, sells 10 percent, according to analysis from Exane BNP Paribas.
A falling yuan means smaller revenues out of China, and also makes it more expensive for Chinese firms to import goods in the first place.
Luxury goods are already between 35 to 50 percent pricier in China than in Europe due to import duties and taxes — a gap that will only widen as the yuan falls.
“Inevitably, such price disparity has encouraged opportunists to buy up popular items in Europe, in bulk, and resell them in China at well below formal retail prices,” says Fflur Roberts, head of luxury goods at market intelligence firm Euromonitor International.
“The grey market is growing, and forcing the owners of luxury brands to take radical action to narrow the differentials.
“In practice, this means they are hiking prices in key European cities and dropping them in China, but with the new currency issues in China this may no longer be possible for international brands.”
Others say the threat is exaggerated since the yuan had risen strongly against the euro over the past two years.
“It's not because there is a devaluation of two, four or five percent that there will be consequences on the luxury industry,” says Francois Godement, head of the Asia and China programme at the European Council on Foreign Relations.
He says the industry has faced a tougher challenge from China's recent anti-corruption drive, which has forced many officials to cut back on their purchases of luxury gifts.
The question now is whether the devaluation will also affect tourism in France, which saw some 1.7 million Chinese visitors last year — crucial to the country's struggling economy as they each spend an average of €1,500 ($1,650) on goods, the world's most spendthrift tourists.


Tourism minister: Book your French ski holiday now

France’s ski resorts will be open for business this winter, tourism minister Jean-Baptiste Lemoyne has promised - but no decision has yet been taken on whether a health pass will be required to use ski lifts.

Skiers at a French Alpine resort
Photo: Philippe Desmazes / AFP

“This winter, it’s open, the resorts are open,” Lemoyne told France 2’s 4 Vérités programme.

“Compared to last year, we have the vaccine,” he said, adding that he would “invite those who have not yet done so to [book], because … there will soon be no more room.”

And he promised an answer ‘in the next few days’ to the question of whether health passes would be required for winter holidaymakers to use ski lifts. “Discussions are underway with the professionals,” he said.

The stakes are high: the closure of ski lifts last winter cost manufacturers and ski shops nearly a billion euros. 

This year ski lifts will remain open, but a health pass may be necessary to access them. The health pass is already compulsory for après ski activities such as visits to bars, cafés and restaurants.

COMPARE The Covid rules in place at ski resorts around Europe

Many town halls and communities which depend on winter sports have found it difficult or impossible to make ends meet.

“It’s time for the French mountains to revive,” Lemoyne said, pointing to the fact that the government has provided “more than €6 billion” in aid to the sector.

Winter tourism professionals, however, have said that they are struggling to recruit for the winter season.

“Restaurant and bars are very affected,” by the recruitment crisis, one expert told Franceinfo, blaming a lack of urgency from authorities towards the winter holiday industry.

“We are all asking ourselves what we should do tomorrow to find full employment in the resort,” the expert added.

Post-Brexit visa and work permit rules mean that ski businesses have found it difficult to recruit Brits for short-term, seasonal positions.