Rainy Day For Burberry

Burberry

Image source: TungCheung / Shutterstock.com

What's going on?

Burberry, the luxury fashion retailer, reported poor sales numbers and gave a rather pessimistic outlook for future sales – that doesn’t bode well for other luxury goods companies either!

What does this mean?

Burberry was particularly hard hit because of weak sales in Hong Kong and Macau: a lot of shoppers in those cities are from mainland China where the economy has been struggling. China is particularly important to Burberry because China accounts for a larger proportion of Burberry’s sales than it does for most of its peers. Believe it or not, sales of luxury goods to Chinese buyers have fallen quite sharply in recent years as President Xi’s crackdown on corruption has led to a big decline in ostentatious displays of wealth amongst the rich in China.

Why should I care?

For stocks: Luxury looks like a challenged sector. Earlier this week, French fashion house LVMH reported that its sales were weaker as a result of fewer tourists travelling to Paris after the recent terrorist attacks. Other luxury companies have warned explicitly about the risk of weak Chinese sales this year. In some cases, the stock prices of these companies are already reflecting such risks. Burberry’s stock, for example, is now down almost 30% in the past year.

For you personally: Stocks are risky because unpredictable stuff can happen. Terrorist attacks and changes in Chinese policies have made the environment for luxury firms very different than it was not long ago. If you bought Burberry stock because you like their brand or read an interesting article on their business, you’ve lost 30% in the past year. It’s a very good example of how owning a single stock is risky – and why it usually makes sense to own a bunch of different stocks so that no single stock can have a huge impact on your investment portfolio.

Originally posted as part of the Finimize daily email.

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