Britain Now World's Cheapest Luxury Market

LONDON, United Kingdom — In the wake of Britain's vote to leave the EU, which pushed down the value of the pound about 10 percent against the euro, the country has become the cheapest luxury goods market in the world, helping to buoy British luxury labels, at least in the short term, according to new research by Luca Solca, the head of luxury goods at Exane BNP Paribas.

"The Brexit vote has made the UK the cheapest market in the world for luxury goods," Solca told BoF. "A weak British pound will boost travel inflows to the UK, helping British luxury goods players like Burberry, Mulberry and Jimmy Choo."

While luxury goods companies are not expected to raise prices in the UK in the coming months — at least until there is more clarity around exactly when and how the country might exit the EU — Britain should see a boost from tourist inflows and spending due to its weakened currency. That, coupled with recent terror attacks in France, which have slowed tourist flows to the country, could result in a tourist spending boom in the UK.

Luxury goods sold in Europe are amongst the cheapest in the world, costing less than in the US and significantly less than in Asia, where luxury goods are most expensive. Indeed, on the company's UK website, a classic Burberry trench coat retails at £1,495 or about $1,995 at current exchange. In China, the same coat is priced 32 percent higher at ¥17,500.00 or about $2,639.

Exane BNP Paribas estimates that travellers account for about 50 percent of global luxury goods sales and fluctuating exchange rates — particularly a weak pound and euro — have made the pricing differences between some regions even more pronounced, helping to fuel tourist spend amongst bargain-seeking consumers. Importantly, some consumers also see emotional value in shopping away from home, preferring to buy luxury goods in destination cities like London, Paris and New York to add cache to their purchases.

It's not surprising that increased tourism and lower prices in the UK will boost British luxury brands like Burberry, Mulberry and Jimmy Choo, which have higher store counts in the country. Four and a half percent of Burberry's total retail network, measured by number of stores, is located in Britain, including its largest flagships, so the company should experience a significant tailwind, especially as it report its profits in pounds. Likewise, Mulberry and Jimmy Choo, which are dependent on the UK market, should also see a boost.

However, smaller brands like Kering's Stella McCartney and Prada's Church's, which also have a high exposure to the UK, are unlikely to see any material boost to the profits of their respective owners, who would be negatively impacted by currency exchange losses. Hugo Boss, which has 6 percent of its stores in the UK, could stand to benefit from organic growth. However, this could be offset by currency translations.

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