The Impact of the Greek Situation in the Luxury Industry

The current situation in Greece and uncertainty about its permanence in the euro has been a widely discussed topic among the analysts who follow the luxury industry and the companies that are part of it.

Leeson. 06/07/2015
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Most of the reactions and can be summarized in one sentence: «relatively calm but with caution.» Industry analysts unanimously point to Greece as a negligible market for the sector. There is an insignificant level of sales, and even less important manufacturing level of production of luxury goods. Moreover, in recent years the austerity measures introduced in the country had already reduced sales, so the actual impact will be even smaller than before the crisis

Where you can´t find such unanimity in in the possible indirect consequences of a «Grexit». I refer in particular to two important aspects: equity valuations and the impact of foreign exchange on the companies´ results.

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First, the stock value of European giants -the most important industry companies worldwide- may be affected by a general decline in European equities if uncertainty increases. That´s something we have seen in recent sessions: LVMH market value fell 5% last Monday and drops nearly 10% on the week.

The currency aspect is also important. A further weakening of the euro could have a direct impact on the corporate strategy because it can alter the price spreads between different markets, putting companies at the position of having to raise prices in Europe or reduce them in the rest of the world. The effect of foreign exchange would also be noticed in earnings, as for example a weaker euro increases the value of sales made outside the euro zone (in this case the impact on the luxury sector is more important than in other sectors as it is more globalized and diversified geographically).

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The most pessimistic experts alert of the effect it can have a potential contagion of the Greek situation to other European countries, mainly the peripheral (such as Spain and Italy, to name the two most important markets). In this case if we could see a major problem for the luxury industry as they are relevant markets in terms of sales and manufacturing. However, it also should be noted that most experts point out that this option seems very distant right now.

Disclosure: The author is not responsible for the views expressed in the article. The text was written freely expressing ideas, without receiving any compensation. The author has no business relationship with any of the companies whose shares are listed in this article.


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