China's Economic Slump squeezes Luxury Goods Industry

Hermès International SCA and Burberry Group Plc's sales growth in America is slowing down amidst the challenges brought by the slump in the Chinese economy. Meanwhile Louis Vuitton is seen to shrink in China, along with other luxury-goods manufacturer.   

The International Business Times reported that Hermès reported a revenue growth in the US market of only 2 percent during the third quarter, which is a slower growth rate compared to the 11 percent it had in the second quarter. London-based Burberry also reported a slower growth in US sales during the second quarter.

City A.M. writes that the slowdown in China's economy has led to the decrease in prices of products from commodities to pharmaceuticals, as well as high-end properties in London. Luxury goods were also adversely affected, with Burberry's shares down 25 percent for the last six months. Meanwhile, critics expect other luxury firms to also follow suit.

"Burberry underlines just how integral China is to many big-name luxury companies," said FE Research's Charles Younes. "This is not the first company to point to a Chinese slowdown as cause for poor sales performance - LVMH and Gucci's owner Kering recently did the same - and it certainly will not be the last."

Meanwhile, according to Business of Fashion, Louis Vuitton is expected to shrink in China. It will move, refurbish, or close some of its stores in the country "to avoid being overexposed" as more Chinese prefer to shop abroad. Vuitton has a total of 41 stores in China. Luxury watch maker TAG Heuer also closed down a store in Hong Kong a few months ago. Burberry announced this month that is would scale down its biggest store in the city.

However, there are experts who claim that the concern on the luxury goods is not serious and that the industry will just get over this slump. 300 million people in China are considered middle class. Meanwhile about 30 percent of sales in the luxury sector are made during the holiday season.