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Research on the Impact of COVID-19 on the Profitability of the Luxury Industry

In: Proceedings of the 2022 4th International Conference on Economic Management and Cultural Industry (ICEMCI 2022)

Author

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  • Jingwen Li

    (Beijing Normal University-Hong Kong Baptist University United International College, Department of Accounting)

Abstract

Since the outbreak of COVID-19, the global economy has become relatively sluggish. Quarantine and lockdown policies hamper the efficiency of the luxury industry. The literature on the impact of COVID-19 on the luxury goods industry is relatively limited. This paper aims to fill in the gaps in this field. Based on the window periods of the pre-epidemic, outbreak, and post-epidemic three years, this paper explores the impact of COVID-19 on stock price changes, equity evaluation, and profitability metrics of the luxury industry to measure the profitability of the luxury industry over that period. This paper uses the CAPM model and event study model to analyze how the stock prices changed during the window periods and whether COVID-19 is a significant factor. The fund “U.S. Global Investors Global Luxury Goods Fund” was selected to represent the industry’s stock performance. Based on these data, the P/E ratio and price-to-book ratio are used to assess market expectations and valuations for the industry. Finally, the financial ratios of the top 100 luxury companies are selected to measure the operating efficiency, sales growth, and growth potential of the industry. In the short term, the stock price of the luxury industry is hovering negative, the utilization efficiency of assets is reduced, the growth rate is slowed down, and the overall health of the industry is reduced. But the post-pandemic performance of the luxury sector is worth looking forward to: share prices are gradually recovering to their pre-pandemic performance, and retaliatory spending presents a good growth opportunity for the sector. The luxury industry needs to adjust its traditional marketing and sales models to embrace models like online sales and practical design to meet the needs of consumers in the COVID-19 era.

Suggested Citation

  • Jingwen Li, 2023. "Research on the Impact of COVID-19 on the Profitability of the Luxury Industry," Advances in Economics, Business and Management Research, in: Hrushikesh Mallick & Gaikar Vilas B. & Ong Tze San (ed.), Proceedings of the 2022 4th International Conference on Economic Management and Cultural Industry (ICEMCI 2022), pages 31-39, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-098-5_5
    DOI: 10.2991/978-94-6463-098-5_5
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