Harrods and Burberry benefit from wealthy internationals

Share prices of luxury stocks have had their lustre tarnished by fears of a global economic slowdown, which could stall demand for designer handbags in fast-growing emerging markets such as China. However, British luxury brand Burberry,

whose share price has been checked by a fifth since July, saw its shares rise 7 per cent last Tuesday after a gleaming second-quarter trading update.

Demand in China, which accounts for 10 per cent of group revenues, shows no sign of slowing, but the company impressed the City by revealing the extent of its contingency planning. Designed to prevent the bumpy landing in 2008-2009 when Burberry’s gross margin crashed by nearly 9 per cent, high-tech adjustments to its distribution channels and the buying in of wholesale contracts mean the fashion giant will be able to react faster to changing economic trends. However, analysts are still cautions that the group will be able to escape unscathed, pointing out that high proportions of Burberry’s London and European sales are driven by sales to wealthy tourists, rather than domestic customers.

These shoppers are also flocking through the doors of Harrods, the luxury London department store owned by Qatar Holding, which reported record results this week. High-spending foreign tourists and “internationals” living in the surrounding luxurious neighbourhoods of Mayfair, Belgravia and Chelsea caused total sales to break through the £1bn barrier for the first time. The Chinese remain the top spenders, with VAT reclaim data showing an average spend of £3,500 per customer on a store visit.

Image: Burberry AW11
Source: Financial Times©