Part 3: Brexit and the Asian Market

brexitandtheasianmarket

The Brexit dust has settled a bit in the last week. The US stock market has rallied, pro-Brexit UK politicians and EU officials have agreed to continue present policy on a number of important issues, and folks are finally realizing that the world isn’t falling. But while the rest of the world’s markets seem to be slowly adjusting, and in some cases even prospering (South Africa has seen the largest inflow of investment since the 1990s), the UK will likely remain in a rut for quite some time. Regardless of how nimbly they react, the markets just don’t trust them. This has grave consequences for the commercial banking sector, but it could be even worse for the consumer credit market. The currency is still at 30+ year lows against the dollar.

But it’s even weaker against the yen! Even though Japan’s economy has been struggling, it’s still the world’s third largest economy and investors are fleeing to it for safety. The currency is on fire! Since Brexit, the yen has gained almost 5% on the US dollar, and almost 20% in 2016 alone.

This might sound like good news in theory, but for an economy with the issues Japan has, it could exacerbate the problem. Exports have slumped over the past couple years so the central bank has tried to weaken the currency. It succeeded on that front, but the broader economy didn’t improve. A stronger yen means goods produced in Japan are now more expensive for the rest of the world and imports are cheaper. This is bad news for Japanese retailers; like potential US shoppers, Japanese tourists to the UK can snag a huge bargain.

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Increase in Tourist Spending after Brexit. Source: Bloomberg.

Currency Legend

PRE-BREXIT

JAPAN (¥)
1 GBP(£) = 155 Yen
1 EU (€) = 120 Yen

CHINA (¥)
1 GBP (£) = 9.75 Yuan
1 EU (€) = 7.48 Yuan

POST-BREXIT

JAPAN (¥)
1 GBP (£) = 130 Yen
1 EU (€) = 110 Yen

CHINA (¥)
1 GBP (£) = 8.6 Yuan
1 EU (€)= 7.37 Yuan

Let’s do some handbag math to see how much Japanese and Chinese shoppers can save by shopping abroad in the UK and Europe…

Chanel Medium Classic Flap (Japanese Yen)

classicflapmedium

Handbag Math: Japanese Shoppers will experience a ¥84, 500 savings (~16% discount) if buying a Chanel Classic Flap today versus before Brexit in the UK. If buying a Chanel Classic Flap in Europe, Japanese shoppers will now save ¥ 42,600 (~8% discount).

RegionPre-BrexitPrice in YenPost-BrexitPrice in YenSavings
Japan¥599,400¥599,400¥599,400¥599,400¥0
UK£3,380¥523,900£3,380¥439,400¥84,500
Europe€4,260¥511,200€4,260¥468,600¥42,600
RegionPre-BrexitPrice in YenPost-BrexitPrice in YenSavings
Japan¥599,400¥599,400¥599,400¥599,400¥0
UK£3,380¥523,900£3,380¥439,400¥84,500
Europe€4,260¥511,200€4,260¥468,600¥42,600

Chanel Medium Classic Flap (Chinese Yuan)

mediumcc

Handbag Math: Chinese Shoppers will experience a ¥3,887 savings (~12% discount) if buying a Chanel Classic Flap today versus before Brexit in the UK. If buying a Classic Flap in Europe, Chinese Shoppers will now save ¥469 (~2% discount).

RegionPre-BrexitPrice in YuanPost-BrexitPrice in YuanSavings
China¥29,800¥29,800¥29,800¥29,800¥0
UK£3,380¥32,955£3,380¥29,068¥3,887
Europe€4,260¥31,865€4,260¥31,396¥469
RegionPre-BrexitPrice in YuanPost-BrexitPrice in YuanSavings
China¥29,800¥29,800¥29,800¥29,800¥0
UK£3,380¥32,955£3,380¥29,068¥3,887
Europe€4,260¥31,865€4,260¥31,396¥469

There’s another really interesting tidbit in this story for the luxury market: China. Chinese tourists have single-handedly sustained the luxury sector in Japan over the past year at least. Michelle Ma, a Bloomberg Intelligence analyst, recently argued that Chinese tourists switching their travel plans to the UK or EU could save them 40% on luxury goods purchases. Since it’s the middle of the summer holiday season in China, we should expect to see this shift pronto. While this could be a boon in a dark time for UK houses like Burberry, what happens to luxury sales in Japan is anyone’s bet. Will the almost certain decline be fully compensated for by UK/EU sales, or will luxury shortly be in the position of fighting a two-front war?

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Sales increase for some retailers due to weak pound. Source: Bloomberg.

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Let us know your thoughts and personal experience on the BopTalk threads. Also share what you’ve bought post-Brexit by tagging @pursebop with hashtag #pursebopBBB (Buying Bags after Brexit )

Read related articles below:
Part 1: Brexit…and Bags.
Part 2: Buying Bags After Brexit
Chanel Increases Prices in the UK
Hermes Increases Prices in Europe

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Curated By Monika