LONDON — China’s strict COVID-19 restrictions, especially with Shanghai under a two-month lockdown, led to a 6.7 percent year-over-year decline in retail sales of consumer goods in May, to 3.35 trillion renminbi, or $496.16 billion, the National Bureau of Statistics revealed on Wednesday.
The contraction in May was better than in April, which logged an 11.1 percent dip from the prior year. In the period between January and May, China’s retail sales of consumer goods were 17.17 trillion renminbi, down 1.5 percent from the same period in 2021, when the country enjoyed relatively robust growth while other economies struggled due to COVID-19 outbreaks.
In the past month, the Chinese government has been adjusting its dynamic-zero COVD-19 policy, and announced a broad package of economic support measures to stimulate the economy.
“Early signs indicate that luxury demand is reviving in China, as lockdowns are lifted — with shopping malls in Shanghai reporting sales 80 percent of pre-lockdown levels, albeit with the support of double loyalty points,” the report said.
Chanel, Louis Vuitton, Hermès and Dior were among the first to recover. Local media reported that long lines formed outside their stores in Shanghai’s luxury shopping mall Plaza 66 on the first day they reopened on May 29, after the city came out of the lockdown.
It’s also been reported in the local media that luxury brands in Shanghai were coming up with creative ways to entice high-spending customers during the lockdown, such as sending fancy takeaway meals and putting rare bags worth more than 100,000 renminbi, or $15,000, on delivery platforms.
Despite the promising signs, Berstein noted that logistics disruption has impacted luxury sales well beyond Shanghai. Online and physical supply in major luxury spending cities like Chengdu, Hangzhou and Shenzhen was impacted as most of the luxury brands’ warehouses are located in Shanghai, which has reopened since June, but a negative test within 72 hours is still required for anyone entering public areas.
“Exiting the lockdowns, demand seems back to an even keel and growth trajectory — equally to what we had seen up to Chinese New Year,” Bernstein said, adding that “for affordable luxury, strong pent-up demand will drive continued growth through the remainder of this year.”
Luca Solca, senior research analyst of global luxury goods at Bernstein, added that “contacts within the luxury goods industry and real estate companies point to a rapid demand rebound in China after exiting lockdowns. What remains to be seen is if this demand level will sustain, despite macro-economic indicators being weak.”
An earlier research report from Barclays warned that luxury brands may face additional headwinds in China as pandemic-related restrictions widen to cities like Beijing. The city for the past week went through rounds of mass testing, as hundreds contracted the COVID-19 virus after partying at Heaven Supermarket, a nightclub in downtown’s Sanlitun area, which has been shut permanently following the outbreak.
A survey from Oliver Wyman released this week, which reflects feedback from more than 30 of the consulting firm’s clients across premium consumer and luxury goods, also revealed that luxury brands have slashed expectations for their China business this year. Forecasted 2022 growth for luxury and premium consumer brands in mainland China was reduced to a mere 3 percent from the 18 percent Oliver Wyman expected months ago.
As for the beauty sector, Bernstein expects that “long-term demand remains intact,” and that demand recovery will come “as soon as restrictions ease, but the path to when this might occur remains unclear.”
The group also said companies with robust China supply chains like L’Oréal and Proya are gaining share during disruptions, while companies with supply chains disrupted by Shanghai lockdowns, including Estée Lauder and Shiseido, may see slow shipment recovery in the second quarter, despite strong online sell-through.
With regard to the broader apparel and footwear sectors, Bernstein suggests there will be a bounceback as restrictions ease, led by e-commerce, as China distribution centers and last-mile delivery are back on track, while in-store recovery will be slower as people remain nervous about going back to stores until mass testing eases.