As the Chinese stock market implodes, fashion brands may start downplaying their exposure to the Asian giant.

The Chinese stock market has lost close to $3.5 trillion of market capitalization in the last 25 days and dropped roughly 38 percent. The Chinese response to the plunging market was to ban shareholders, directors and executives from selling shares, leaving roughly 70 percent of Chinese investors frozen out of the market. Chinese officials are downplaying the events by describing it as a mood of panic and irrational dumping of shares, while banning local journalists from using the term “equity disaster.” The bloodbath is creating a horror show of negative headlines and prompting a swift reassessment of the once-touted Chinese consumer.

“If you talk to a lot of the c-suite executives, they are starting to de-emphasize the mainland Chinese consumer,” said Brian Buchwald, chief executive officer of Bomoda Consumer Intelligence. However, the Chinese consumer remains critical to companies – especially luxury firms. Buchwald said about 70 percent of sales to Chinese consumers are conducted outside of China.

Whereas executives once flaunted their expansion into the Chinese market, now they would prefer to put a little distance between themselves and the market meltdown in that country. This comes as firms such as LVMH Moët Hennessy Louis Vuitton, Compagnie Financière Richemont SA, Prada and Kering have already felt the squeeze of declining luxury spending by Chinese consumers inside the country.

Equity analysts are wasting no time reviewing Chinese risk and applauding retailers that have limited their expansion in China. Bernstein analyst Anne-Charlotte Windal recently upgraded her rating for Tiffany from market perform to outperform and addressed the Chinese risk. While Tiffany is the number-two luxury competitor behind Cartier in China, Windal noted that its store footprint is smaller. “We view Tiffany’s still relatively small exposure to Greater China as an advantage compared to peers given the weakness in Hong Kong, Macau and the uncertainty surrounding Mainland China’s economic outlook and luxury real estate landscape,” wrote Windal. Tiffany’s has 30 stores in China versus 38 for Cartier, so the number is smaller, but not by much.

Burberry is reacting quickly and is closing a net 10 stores in China during fiscal year 2015 and has another five or so closures planned for fiscal year 2016. Burberry stated in its recent quarterly update, “We saw a fall in spending from Chinese customers in the second half of the year, reflecting disruption in this high-margin market.” Burberry’s cautious comments in May caused its stock to tumble by 12 percent in the last three months.

LVMH was an early beneficiary of the Chinese consumer with double-digit sales growth, but now the company is claiming over-saturation and seeing its sales slow. Prada blamed China for a 1 percent decline in sales in 2014 and Gucci recently slashed prices to move inventory due to slow sales.

Retailers are beating a hasty retreat from China even as some consultants still believe in the Chinese consumer story. McKinsey & Co. concedes that the Chinese consumer situation is volatile and unpredictable, but believes that it is still a good story. McKinsey has forecast that spending in China is expected to grow in excess of 7 percent in discretionary categories between 2010 and 2020 and grow 6 to 7 percent annually in seminecessities. McKinsey believes that China’s consumers will continue to surprise the world.

However, that was all before the Chinese stock market meltdown. If Chinese stock holders across the board can’t sell their shares, their wealth will be affected and limit the amount of luxury shopping the consumer can engage in. Additionally, many Chinese corporations used their stock as loan collateral so when the stocks are allowed to trade, they will more than likely plummet in value, triggering loan events at the banks. While the China Securities Regulatory Commission is trying to contain the fire, it is unlikely that the consumer will be immune from the fallout.

For now there is a disconnect between the sales data being reported, which happened before the stock market crash, and what could be coming later this year. Hermès, the French luxury group reported that its Asia sales rose 9.6 percent in the first three months of this year and some of that increase was due to a new flagship in Shanghai. So reports like that make it sound as if the consumer is untouched. The real test will come as the stock market freeze lifts.

“Companies with exposure to China have definitely been more cautious about further expansion given the economic slowdown,” said Windal. With the latest market events, retailers are more than likely sharpening their blades for more cuts.

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