Luxury Brands Hit Hard by Virus as Shoppers Shift to Staples
(Bloomberg) -- American luxury goods makers are proving particularly vulnerable as the coronavirus pandemic erodes spending on non-essential goods and keeps shoppers away from fashion boutiques.
Amid historic market declines this week, a host of luxury companies have seen sharp plunges that have outpaced the general market: Capri Holdings Ltd., owner of Michael Kors and Versace, is down more than 40% this week, while Coach and Kate Spade owner Tapestry Inc. has fallen about 31% and Ralph Lauren Corp. has declined 27%. PVH Corp., the owner of Calvin Klein and Tommy Hilfiger, has lost almost 40%.
Data is piling up that U.S. shoppers are stocking up on food and health items as they prepare for an extended period of working from home and social distancing. Luxury retailers, meanwhile, are joining apparel chains and department stores as net losers from the outbreak.
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Reflecting the broadening pessimism, Deutsche Bank downgraded seven apparel and footwear stocks on Friday, including Ralph Lauren, Tapestry and Capri. The bank also lowered its investment rating on Tommy Hilfiger and Calvin Klein owner PVH. Deutsche Bank cited concerns about supply chain disruptions, falling tourism and the potential that slower demand for luxury goods is sustained.
Luxury companies in particular could see their earnings hurt, Deutsche Bank analyst Paul Trussell said in a note to clients. The companies could also see “a more limited recovery upon market stabilization,” he said.
Citigroup Inc. also downgraded a long list of apparel and luxury companies, including Tapestry, Capri, PVH, Ralph Lauren, Signet Jewelers Ltd., Abercrombie & Fitch Co. and Steve Madden Ltd., citing a “weaker demand environment.”
Changes in consumer behavior are already apparent: Foot traffic to luxury shops in North America fell 14.7% in the first week of March, a sharper drop than the 9.1% experienced by retailers overall, according to location-data provider Prodco Analytics. Visitors to high-end shops have decreased for eight straight weeks, which dates to around the time the first known U.S. coronavirus case was announced on Jan. 21.
Adding to these concerns, Cowen & Co. analyst Oliver Chen said the U.S. now faces the risks of malls being completely closed down as the pressure for stronger action grows as more and more cases are reported. Italy on Wednesday ordered all shops that aren’t pharmacies or grocery stores to close until late March.
The S&P 500 traded 1.1% higher at 12:09 p.m. in New York, paring earlier gains. The index plummeted 9.5% on Thursday in the fifth-worst rout on record. Luxury stocks swung violently, with Capri and Ralph Lauren declining after posting gains earlier in the day. Tapestry, which fell 15% on Thursday, was little changed.
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