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European luxury companies affected by China crisis, driving stocks down

By Don-Alvin Adegeest

19 Oct 2021

Business

Image: Shanghai via Pexels

Ever since China announced in August it is cracking down on wealth distribution, European luxury-makers have seen shares drop amid a market that is showing signs of a slowdown.

If alarm bells haven’t sounded off before, Kering and LVMH saw their values fall by 3.5 percent on the stock market as China foresees growth to tumble from 7.9 percent per year to 4.9 percent.

The slowdown is a result of the global energy prices, the economic cost of a post-pandemic future, supply chain issues and the real estate crisis of China’s Evergrande.

The impact on European luxury brands is inevitable, with companies investing heavily in China as it emerged as the first country out of the pandemic, wooing the next generation of Chinese shoppers.

Mostly it is the supply chain issues that are making Western companies wary, with many moving production closer to home and nearshoring and buying up components. For the past two decades Asia has been the center of the fashion industry’s manufacturing sector, allowing for lower cost production and thus cheaper goods. But the ‘silk road’ route seems to have disrupted global trade, starting with the Suez Canal blockage, leaving a scenario made up of half-empty warehouses, delays in deliveries, a shortage of chips, expensive transport and factories plagued by blackouts and coronavirus outbreaks. It is a crisis that affects the entire supply chain, and thus the world at large.