Japan Quake Hits Luxury Stocks Worldwide

FF Fashion

Tue, Mar 15, 2011
Reuters

Luxury stocks worldwide were hit by worries about the long-term sales impact of the massive earthquake in Japan, the third-largest luxury goods market and a major contributor to results at Hermes, Burberry, LVMH, Richemont and Tiffany.

Japan, which makes up 11 percent of global luxury sales, has been working to recover from Friday's earthquake. But fears about how long that will take and the danger of nuclear accidents are expected to harm Japan's economy and severely curb luxury spending for some time, analysts said.

"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.

Even though Japan has cooled as a luxury market in recent years compared with China, it remains a major market for many of the sector's largest names.

Japan accounts for about 19 percent of sales for Hermes, 9 percent for LVMH, 16 percent for PPR's Luxury Business Group, which owns Gucci and Yves Saint Laurent, and 12 percent for Switzerland's Richemont.

Tiffany & Co. operates 55 stores in Japan and gets 19 percent of its sales there, making Japan its second-largest market after the United States. But in recent years sales there have stalled.

"There's not a lot of upside in Japan sales baked into Tiffany's stock," said Morningstar analyst Paul Swinand. "People are looking for a reason to sell it."

Coach gets 20 percent of its sales in Japan and last year they rose 8.5 percent. A company spokeswoman said 20 out of 165 stores there were closed because of the disaster, but that those stores make up less than 10 percent of overall sales in Japan.

Tiffany's shares were down 4.3 percent in New York, while Coach was off 5.6 percent. Polo Ralph Lauren, which is also exposed to Japan, saw its shares fall 3.1 percent.

Many European luxury stocks also fell. LVMH and Hermes both finished the day down 3.1 percent. Richemont fell 1.1 percent, and PPR was down 2.5 percent.

SPREADING PESSIMISM

While the earthquake's physical damage was largely limited to Japan, analysts said it could hurt shoppers' psyche and affect buying elsewhere.

"A more negative for the luxury goods companies would be if the nuclear accident burdened the general global mood. Luxury sales depend on people's confidence," Swiss asset manager Sarasin said in a note.

Regardless of what happens next in Japan, European luxury stocks are likely to struggle in the short term.

"As far as the European consumer sector is concerned in the wake of the earthquake, we believe that the 'early cycle' recovery rally in luxury now seems vulnerable," MF Global said.


Analysts also noted that within Japan, the areas affected by the earthquake were not where luxury goods makers had major outlets, mitigating some of the damage on business.

In addition, 10 percent to 20 percent of Japanese luxury buyers make their purchases abroad.

As a luxury market, Japan is about the same size as China, and ranks just behind the United States. But the Japanese are still the world's biggest buyers of luxury goods when combining purchases at home and abroad, followed by Americans and the Chinese.

Burberry, which makes about 7 percent of its sales in Japan, saw its stock fall as much as 6 percent.

Shares of Finnish fashion house Marimekko fell 3.6 percent. Japan is the company's biggest export market.

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