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How the Coronavirus Is Impacting the Jewelry Industry
Pandora, LVMH and Kering execs reflect on the ripple effects of the outbreak as sales continue to dip.
New York—Global health officials estimate the coronavirus outbreak is responsible for 1,300 deaths worldwide as of Thursday, and its effects are rippling through the global economy.
The current outbreak originated in the Wuhan province of China with symptoms similar to the common cold, like fever and cough, but more severe symptoms can develop, such as severe acute respiratory syndrome and kidney failure.
There are more than 60,000 confirmed cases, which have spread from mainland China to 25 other countries and territories.
As the casualty count rises, areas of China have been on lockdown and additional screening measures are underway in airports worldwide in an attempt to contain the virus.
The disease is impacting industries worldwide, including luxury brands, which depend heavily on Chinese consumers today. Investment group Jefferies estimated Chinese buyers made up about 40 percent of the €281 billion ($306 billion) spent on luxury goods worldwide in 2019 and drove 80 percent of the growth, as per a report from the Financial Times.
Here’s how the outbreak, which started at the end of December, has affected the luxury industry so far.
In an effort to contain the outbreak, jewelry trade show organizers are moving and canceling shows, and taking extra precautions for those events scheduled to go on as planned.
The Hong Kong International Diamond, Gem & Pearl show and the Hong Kong International Jewellery Show, both scheduled for March, have been moved to May.
The AEC Gems & Jewelry Presidents’ Summit, which is held by the Hong Kong Jewellery & Jade Manufacturers Associations, has been postponed as well to a soon-to-be-announced date.
Swatch cancelled its “Time to Move” event, scheduled for late February/early March in Zurich, Switzerland, in order to “prevent their partners from travelling internationally in an insecure climate.”
And Alrosa announced last week that it would be relocating its March auction of special-size rough diamonds from Hong Kong to Moscow.
In contrast, the organizers of the upcoming Bangkok trade show will not be changing their plans because of the outbreak.
The 65th Bangkok Gems and Jewelry Fair, scheduled for Feb. 25-29 at the Impact, will go on as scheduled.
In a letter shared with National Jeweler, Somdet Susomboon, director general of Thailand’s Department of International Trade Promotion, outlined what the country is doing, and will do, to ensure visitors’ health and safety during the show.
Precautions include installing thermal scanners and infrared thermometers to identify potentially infected people; spraying disinfectant at the fairgrounds;
Outside of the jewelry world, the Formula 1 Chinese Grand Prix in Shanghai and Olympic qualifier events have been postponed as well.
Pandora suffered a rough fourth quarter as sales in China showed continued weakness.
In an interview with Reuters, CEO Alexander Lacik said the Danish jeweler has seen an “unprecedented” drop in business in China as a result of the coronavirus.
“As I sit here and watch the Chinese business, it is in a standstill mode; I mean there’s pennies being sold,” he said.
Lacik said 70 of its 240 stores in China have been closed by order of the government and customer traffic at its open stores “is next to none.”
“For Pandora, as well as many retailers with a presence in China and Hong Kong, the outlook for the year depends greatly on how the coronavirus epidemic unfolds and, of course, whether cases start to ramp up in Europe and the U.S. where, up to now, cases have been few,” Nigel Frith, a senior market analyst at AskTraders.com, noted in an email to National Jeweler.
Looking to the year ahead, Pandora expects like-for-like sales to remain in the red with organic growth also decreasing.
LVMH ended the year on a strong note, posting double-digit revenue growth even as protests in Hong Kong weighed on the second half of its fiscal year.
The company’s brand portfolio includes Louis Vuitton, Christian Dior, Bulgari and Hublot.
CEO Bernard Arnault addressed the potential impact of the coronavirus on China, a key market across all sectors, in an interview with reporters following the results.
Arnault said Chinese authorities told him the peak of the virus is expected to pass within weeks and the situation is expected to settle down by the end of March.
“If it dies out in two months or two months and a half, it’s not terrible. If it takes two years, that’s a different story,” he said.
LVMH said it is “cautiously confident” about the new year, citing “an uncertain geopolitical context.”
Kering, the luxury titan behind brands like Gucci and Balenciaga, posted strong results in its quarterly report Wednesday.
The company reported double-digit revenue growth overall in its fourth quarter and full year as well as in its jewelry houses, which include Boucheron and Pomellato.
On an earnings call, CEO François-Henri Pinault said the environment in China had “changed significantly” in the wake of the coronavirus outbreak.
He said about half its stores in the country are closed and those that remain open have seen a slowdown in traffic and shortened operating hours, leading to a “strong drop” in sales.
Events, product launches and store openings have been postponed in the area while inventory is being moved out of the country to other regions.
“Due to the evolving nature of the situation, it is impossible at this time to fully evaluate the impact on our businesses and how fast they will recover,” he said.
Kering did not provide guidance for 2020 but said it “remains confident” in its growth potential.
“The underlying strength of the business bodes well for the second half,” Jefferies analyst Flavio Cereda told the Financial Times, but noted that more information on China is needed.
Gold jewelry sales in China are expected to sink this year as a result of the coronavirus outbreak.
“People are not in the mood to shop for jewelry,” Zhang Yongtao, chief executive officer of the China Gold Association, said in an interview with Bloomberg.
Yongtao said he expects the sales of gold jewelry and bars to drop substantially this year.
“We have seen in China, particularly over the Lunar New Year, empty streets and deserted shopping malls. Quite simply, people don’t want to be in public spaces unnecessarily for fear of contagion,” noted Frith, the AskTraders.com analyst.
He added that if cases were to emerge in the U.K., whose economy is already fragile due to Brexit uncertainty, a similar slowdown in spending would arise there.
Research firm Metals Focus forecast a 6 percent decline in gold jewelry sales in China this year, but said it would “not be surprised if that projection proves too optimistic.”
The drop in jewelry sales may be particularly sharp as the outbreak has disrupted Chinese New Year, which is usually the busiest period for gold sales.
In addition, a slowing economy and weak growth in disposable income translates to less money for consumers to spend on discretionary items, like jewelry.
The report noted that even before the outbreak, the jewelry industry was facing headwinds, including weak consumer sentiment, a shift to smaller designs, and a sharp rise in gold prices, which could continue.
Investors tend to favor safe-haven assets like gold during periods of uncertainty, so if the outbreak were to develop into a pandemic, it may push up gold prices considerably
From a manufacturing standpoint, the Hong Kong Jewelry Manufacturers’ Association told Bloomberg that operating efficiency at Chinese factories may be around 20 to 30 percent as workers remain at home.
The association expressed concern about orders from mainland China dropping.
“In my 40 years in the jewelry industry, I have never seen the entire Chinese market ground to a halt like now,” said Chairman Benny Do.
Do estimated that retailers’ sales volumes of gold jewelry may decline 70 percent year-over-year in the first quarter.
Health experts recently convened at the World Health Organization’s Geneva headquarters for a two-day forum to strategize on how to stop the coronavirus outbreak and prevent another in the future.
“This outbreak is a test of solidarity—political, financial and scientific. We need to come together to fight a common enemy that does not respect borders, ensure that we have the resources necessary to bring this outbreak to an end and bring our best science to the forefront to find shared answers to shared problems,” WHO Director-General Dr. Tedros Adhanom Ghebreyesus said in a statement.
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