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Italy lockdown hits luxury suppliers

By Lawrence Gash

Luxury brands struggle with drops in both supply and demand

Some of the world’s best known luxury brands have been forced to reduce orders with their regular Italian suppliers due to the ongoing disruption caused by Covid-19.

Brands such as Louis Vuitton and Gucci have found themselves stuck between a rock and a hard place as a result of the novel coronavirus outbreak. Demand in the key Chinese market fell as the country ground to a halt throughout much of February, while go-to suppliers have been hampered by the recent shutdown declared in Italy.

One boutique firm in northern Italy told Reuters: “We were producing 800-1,000 handbags a month for Gucci. In February we made 450 and we have no orders for March.”

The luxury goods sector is worth $320bn (£247bn, €282bn) a year and depends on skilled craftspeople in Europe to cater to global demand. This includes Swiss watchmakers, to Italian accessory designers and French couturiers.

The pro-democracy protests in Hong Kong previously affected the industry, with demand from the billionaire capital of the world reducing throughout 2019. Leading brands had started to offset this decline with increased sales in mainland China.

Hopes of a boom following the signing of a U.S.-China trade agreement in mid-January were soon dashed by the ongoing coronavirus crisis. President Xi Jinping visited Wuhan, the epicentre of the outbreak, for the first time this week, in a move to signal that China was getting back to normal.

For the world’s major luxury brands however, the damage has already been done. Kering (KER) and LVMH have been the worst affected, falling 26.40 and 21.75 per cent this month respectively. Richemont (CFHRF) and Estee Lauder (EL) have also suffered, dropping 18.44 and 16.23 per cent.

With over 10,000 confirmed cases and a much higher mortality rate than other affected nations, the coronavirus continues to spread throughout Italy.

In light of such figures the luxury sector is set to face continued supply problems even if demand rebounds.

FURTHER READING: Bank of England cuts rates amid Covid-19 uncertainty

FURTHER READING: UK Budget: Chancellor dedicates £30bn to limit 'significant impact' of coronavirus on economy

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