Luxury brands feel the effect of Japan’s disaster

Isaac Mostovicz writes that Japan's recent humanitarian disaster is having share price implications for some of the world's best known luxury brands...

While it can perhaps seem distasteful to discuss stocks and shares in the aftermath of a humanitarian disaster, the impact can be significant, and when the disaster has hit a nation such as Japan which is said to account for 23 per cent of the global market for luxury goods (according to MF Global), it can have severe implications for exposed brands.

In an understandable reaction to Friday’s crisis in Japan, Japanese investors dumped stocks: Japan’s Nikkei .N225 shed 10.6 per cent on Tuesday. The UK’s stock markets fell a fraction of that amount, but luxury names suffered. Shares in some of the world’s biggest luxury goods companies fell amid concerns that high-spending Japanese consumers will, at least in the short-term, stop shopping.

Burberry was down 6 per cent in Monday morning trading; Japan accounts for 7 per cent of Burberry’s sales. In Paris, shares in LVMH, which relies on Japan for 9 per cent of sales, were down more than 3 per cent, while Gucci and Yves Saint Laurent owner PPR, which relies on Japan for 16 per cent of sales, was off nearly 2 per cent.

Having experienced limited growth during the past decade, luxury brands have shifted attention from Japan to emerging Asian markets such as China, but as the above numbers show, Japan is still crucial to many of these companies.

With the world’s attention now focused on a potential nuclear disaster, analysts have suggested that luxury spending may be curbed for some time.

“While not all parts of the country were equally affected physically, recent events will almost certainly dampen the consumer mood,” Nomura Securities analyst Paul Lejuez said in a research note.

The worry for markets now is that the disaster will affect buying and shoppers’ likelihood to spend elsewhere. Luxury sales depend on people’s confidence; if the crisis continues to develop in Japan this could effect spending on a global scale.

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