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'Worst is over' for fashion retailers in China

Fashion brands and retailers are yet to escape the economic chill of China, but signs of recovery are on the horizon, according to market experts.

The country’s economy grew just 6.9% in the third quarter, the weakest rate since the 2008 global financial crisis and lower than the 7% seen in the second quarter, according to official data from China’s National Bureau of Statistics.

Luxury and premium fashion businesses continue to blame the country’s faltering economy for lower than expected sales and profits.

Burberry’s retail sales were up by 2% underlying to £774m for the six months to September 30, but its second quarter sales were hit by the “increasingly challenging environment for luxury, particularly Chinese customers”.

It has accelerated action to control costs to minimise the impact on profit, which it expects to be between £434m and £461m for the full year.

Meanwhile, Hugo Boss has cut its sales and profit forecasts by 2% each, owed partly to declining demand in China. The premium German brand said preliminary figures show a 1% drop in total sales to €744m (£547m) during the third quarter.

However, NBS data shows retail sales in China grew 10.9% year on year in September, slightly higher than the 10.8% for August.

Ken Odeluga, senior market analyst at financial broker City Index, said high-end brands and retailers that rely too heavily on China will continue to be hit by its economic slowdown but it is likely the worst is over.

“Burberry, for example, is very concentrated in Asia Pacific – its stores there far outstrip the number in the UK – but many luxury purchases by Chinese shoppers are being done overseas because of the jetset shopping trend, tax refunds, exchange rates and other discounts.

“In terms of the economy, we can never be 100% on where we stand, but there is more than anecdotal evidence that we have seen the bottom of the issue and the economy has stabilised.”

The chief executive of one British fashion chain operating in China said: “The slowdown is hitting luxury brands more than us. There is less footfall in the malls but, because we are good value for money, we have seen our conversion rates go up.”

Last week, Shanghai-based fashion retail group MRH SpaRotica Groupé announced three separate deals to launch partner stores for international brands in China.

British young fashion brand Religion has agreed a 10-year partnership, which includes plans to open 80 retail stores within five years from spring 2016. London-based leather label Muubaa and Canadian menswear brand Hip and Bone will open a minimum of 50 retail stores each over the same period.

Chinese president Xi Jinping is making a four-day state visit to the UK this week; the first by a Chinese leader since 2005. Both countries described it as the start of a “golden era” of relations.

The Treasury hopes to establish China as Britain’s second biggest trading partner within the next 10 years.

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