How the Euro's Recovery Could Dent the Luxury Sector

LONDON, United Kingdom — The euro's strong run since the start of the year may dent a recovery in the European luxury industry, which has been led by a rebound in Chinese consumer spending, according to analysts at RBC Capital Markets and HSBC Holdings Plc.

The single currency has gained about 12 percent versus the dollar in 2017, a shift that brings uncertainty over tourist flows to Europe in coming quarters, said RBC analyst Rogerio Fujimori. The impact is partially offset by the resilience of the yuan, which is crucial for Chinese tourists’ buying power overseas, Fujimori wrote in an August 11 note.

The BI Europe Luxury Goods Top Peers Index has climbed about 40 percent in the last 12 months, paring multi-year declines as China’s crackdown on corruption hurt demand for high-end items. LVMH, Hermes International, Kering SA and other companies reported a rebound in luxury sales this year as Asian shoppers returned.

While a stronger euro would hurt the entire European luxury sector, Salvatore Ferragamo SpA would be hurt most because of a low sales exposure to Europe, HSBC analysts wrote in an August 8 note. Tod's SpA and Prada SpA are also at risk, they said. Swatch Group AG and Burberry Group Plc wouldn't be significantly affected because they report in Swiss francs and sterling, respectively, the analysts said.

By Lisa Pham and Beth Mellor; Editors: Celeste Perri, Paul Jarvis.