Hugo Boss and Chow Tai Fook are latest luxury brands to feel the pinch from China
24th Nov 2015
Hugo Boss celebrating two new flagship stores in China in 2014. Photo credit: Hugo Boss
German fashion giant Hugo Boss announced it now expects challenges in China and the US market to drag down sales growth next year, but that it will continue to invest in its website and stores.
In a presentation released for its investor day, Hugo Boss said it expected 2016 sales growth to be behind its long term target for a high single-digit rise, adding that it would only reach its 2020 target for a core earnings margin of 25 per cent if the overall market recovered. The news comes just a year after BOSS, one of Hugo Boss' core brands, opened two new flagship stores in Hong Kong, in the Central Building and on the well-established Canton Road.
Lower capital expenditure and a further improvement in its management of working capital would help boost free cash flow in 2016, as the business re-emphasised its commitment to maintaining an attractive dividend payout policy.
Speaking at a meeting in Tuesday with investors at its headquarters in Metzingen, Germany, Hugo Boss said hitting its EBITDA margin target had "become increasingly dependent on overall market recovery."
Also today, Chow Tai Fook Jewellery Group Ltd. announced it would ease of expansion plans. With over 2,000 stores in mainland China alone, the world’s largest publicly traded jewellery chain posted its steepest decline in semi-annual profit since listing in 2011. Net income fell 42 per cent to HKD 1.56 billion (GBP 0.13 billion) for the six months to the end of September, in line with its profit warning issued on 10th November.
Even for the domestic brand, Hong Kong’s retail outlook remained challenging as mainland visitors’ spending declined.
The news comes just a month after Boss announced in October that it had experienced weaker demand in China, joining Burberry in recognising slower demand for luxury in the country. Slower spending by tourists had led to a “negative development’ of sales in the US, as the company was forced to cut its sales forecast for this year from 5 per cent to 3 per cent.
Earlier in the month, Burberry reported a 9 per cent increase in pre-tax profit, but warned of a still “challenging” trading environment as China’s economy slowed. The British fashion house said sales at stores open at least a year had been hit by the China slowdown, especially in Hong Kong, a major shopping destination for mainland tourists.
Until recently, Hong Kong was seen as a shopping paradise for mainland Chinese visitors, housing the world’s most expensive commercial units. But falling retail sales
led to cuts in rents and many retailers negotiating cuts in rates as they fail to keep up the momentum seen in the previous years of booming luxury growth. Burberry will now scale back its biggest store in Hong Kong, while sources close to Louis Vuitton said the French business would be reviewing the performance of the eight stores the brand operates in China’s second-tier cities.
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