Global retailers take a hit when Chinese consumers stay home

TOKYO • The spreading coronavirus is showing the world what happens when Chinese consumers stay away. Shopping streets empty out, stores close and sellers of everything from sneakers to fancy handbags sound the alarms.

Across China, where the deadly outbreak emerged, shopping malls have been shuttered. In the cosmetics shops of Seoul, the glitzy department stores of Tokyo's Ginza district and the luxury boutiques of Paris, Chinese tourists are dwindling.

Taking the hit are companies ranging from US sportswear giant Nike to Japanese cosmetics maker Shiseido to British fashion brand Burberry. Exposure has come swiftly for the likes of Burberry, which generates 40 per cent of its sales from China's shoppers at home and abroad.

The trench-coat maker warned last Friday that the virus is wiping out as much as 80 per cent of sales at stores that remain open in China. More than one-third of its outlets there have been shuttered.

Shiseido said the outbreak cut China sales of four of its top brands by more than half during the Chinese New Year holidays.

Walt Disney said profit will shrink by US$135 million (S$187.6 million) if Shanghai Disneyland, which it shut as a precaution to limit the spread of the virus, remains closed for two months. The stakes are especially high for luxury goods companies like Burberry, LVMH and Kering, which have ridden a wave of Chinese demand.

Mass-market chains such as Starbucks and clothier Uniqlo have also pinned their hopes on the fast-growing market full of consumers eager to splash out on foreign brands.

Making matters worse for retailers, the virus has coincided with the Chinese New Year - one of the biggest travel and shopping seasons for the Chinese. Last year, shoppers spent one trillion yuan (S$198.5 billion) in the week-long period.

The luxury business also bounced back from previous illness outbreaks in China, including the severe acute respiratory syndrome virus in 2003. But its exposure to the country was much smaller then, and the government has responded more aggressively this time around, imposing quarantines around the virus epicentre of Wuhan and travel restrictions elsewhere.

Even consumers who are free to move about are reluctant to venture forth and risk catching the virus. The suspension of package-tour sales is keeping many Chinese from making the overseas trips that have traditionally fuelled growth in luxury spending.

Some businesses are shutting their doors now rather than risk the bad publicity that a virus outbreak in a store would bring. Others have scaled back marketing in China.

Broad-based consumer-goods companies may be better insulated than luxury labels, as shoppers keep buying staples like shampoo and skin cream while eschewing splurges on leather handbags.

Investors shrugged off L'Oreal's warning of a short-term sales hit, focusing instead on its better-than-expected sales growth in the most recent quarter. Japanese personal-care and cosmetics maker Kao boosted output after seeing an uptick in demand for disinfectant and bathroom cleaner.

Home-bound consumers can also keep shopping online, which will "definitely help" counteract the negative impact of the virus outbreak, L'Oreal's chief executive Jean-Paul Agon said.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on February 10, 2020, with the headline 'Global retailers take a hit when Chinese consumers stay home'. Print Edition | Subscribe