China COVID-19 Resurgence Hampers Luxury Consumption Growth
SHANGHAI — As China’s major cities face another round of coronavirus outbreaks, the future of luxury consumption remains uncertain.
According to the latest analysis from Barclays, reoccurring lockdown implies “a slightly negative to flattish growth in China.” But the investment bank “continues to favor luxury names with a strong portfolio, including LVMH and Richemont.”
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Barclays expects luxury sales in Asia-Pacific to climb by around 5 percent in the second half of 2022.
“This doesn’t appear too demanding in our view as long as there is no return of a severe lockdown in key cities,” Barclays said of its forecast.
For the second half of 2022, the bank expects sales for main luxury brands in the Asian market to gain 6 percent on average. The report expects sales at Hermès to rise 9 percent, Kering 8 percent, LVMH Moët Hennessy Louis Vuitton 4 percent, and Richemont Group 3 percent.
The highly transmissible BA.5 COVID-19 subvariant forced Chinese cities into full or partial lockdowns in recent weeks.
After declaring victory over COVID-19 in late June, Shanghai reported more than 200 local cases last week, mostly related to a karaoke parlor outbreak. The more contagious BA.5 variant was found in a case last Friday, and the city reported 55 new cases on Tuesday.
Many brands have delayed scheduled events in the city. Prada postponed a summer film screening event at Rongzhai this week at the last minute. However, with hopes of lockdown measures easing in a few weeks, Acne Studios and Bottega Veneta are still planning on hosting press previews in Shanghai at the end of this month.
Other cities also started imposing harsher lockdown measures. Xi’an, a northwestern city of 13 million, entered a seven-day lockdown earlier this month. Macau started a weeklong closure of non-essential businesses this Monday. Duty-free island Hainan’s capital city Haikou also entered a seven-day lockdown last Saturday.
Despite community lockdowns, major luxury shopping malls remain open, but Barclays thinks consumers will remain cautious or even nervous in the coming months.
“The initial reopening in Shanghai saw very positive signs of luxury sales coming back, but the sustainability of these sales relies on positive consumer sentiment, which is difficult to maintain with frequent lockdowns,” the report said.
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