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Will Luxury Survive In Europe?

Will Luxury Survive In Europe?

Europe's economic turmoil over the past few years may make the continent seem like an unlikely place for luxury brands to thrive. However, the weakened euro is having the opposite effect and drawing in tourists who want to pick up cheap goods at discount prices.

This is especially true for Chinese consumers, who have shown no signs of cutting back on their European shopping sprees.

China's Luxury Market Slump

Luxury goods makers like KERING SA (OTC: PPRUF) and LVMH Moet Hennessy Louis Vuitton SE(ADR) (OTC: LVMUY) have always had a large appeal in China, but the recent economic downturn has hit their Chinese-based stores hard.

Many retailers like Chanel and Gucci have been forced to offer private sales and online pop-up shops in order to heavily discount merchandise and make room for the new season.

Shoppers are increasingly holding back in China and luxury goods makers are feeling the pinch.

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Shopping Sprees

However, their European operations have been able to soften the blow, as international shoppers flock to locations where a weaker euro makes the goods much cheaper.

Despite the yuan's slide, Chinese shoppers are still spending on their European vacations. Tax-refund service Global Blue said it saw a 72 percent increase in spending by Chinese tourists in August and a 75 percent spending spike from January to June.

The figures suggest that weakness in China's economy has done little to suppress the Chinese appetite for designer goods.

Can It Last?

While it appears that Chinese tourists are planning to continue spending, many analysts question how long this trend can last.

Shares of luxury brands like Swatch Group have been on the decline as investors cautiously exit the sector. Since Chinese spending accounts for about 45 percent of the global luxury market, many worry that the nation's downturn will have dire consequences on luxury firms.

Image Credit: Public Domain


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