The profit warning wiped £1bn off Burberry's market value, sending shares in the 156-year-old fashion house down nearly 21% to £10.87. Following disappointment from Coach and Ralph Lauren in recent weeks, this is the first major disappointment for European luxury brands, analysts said. The shine has also come off sales at New York-based jeweller Tiffany, with Europeans and Asians buying fewer $65,000 (£40,000) diamond necklaces and $10,000 amethyst earrings.
Experts predict the global slowdown will prompt the rise of more affordable luxury lines and lead to Chinese shoppers becoming more discerning in what they buy.
Burberry, known for its trademark camel, red and black check, said like-for-like sales ground to a halt in the 10 weeks to 8 September and have started to fall in recent weeks. Total sales including new space were up 6%. It warned that profits before tax for the year to March 2013 would be at the lower end of City expectations, which ranged from £407m to £455m.
Burberry's chief executive Angela Ahrendts said: "As we stated in July, the external environment is becoming more challenging."
Sales of luxury goods in China tripled in value in the last five years, according to Euromonitor International. Its burgeoning middle classes have become key clientele for Burberry and other international luxury brands including France's LVMH, Hermes and Gucci owner PPR, splurging on western designer fashion and handbags.
The firms have been expanding aggressively in China. PPR boss François-Henri Pinault declared in May he was "über optimistic" on the firm's prospects in China, shortly before he began talks to buy a Chinese luxury company. Prada unveiled plans to double the number of its stores in China to 15 by the end of the year and add up to 100 more over the next five years.
However, there are growing signs that China's economy is coming off the boil, with imports shrinking unexpectedly in August and factory output hitting a three-year low. Burberry's profit warning came a day after the Chinese government scaled back its consumer growth targets for the five years to 2015 to an average annual rate of 15%, down from 16.1% in the past decade.
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