With China in lockdown, sales of luxury falters

In the west we all remember the days where the outside world was shuttered and we were in a government-enforced lockdown, which experts said would curtail the spread of Covid-19. Working from home, the only outing for many was a trip to the supermarkets, where bare shelves due to supply chain issues had become the norm. The rest of the physical retail industry had paused operations, and in the early days they weren’t even missed, as news of rapid spreading, illness and death dominated the European and American headlines.

While life has largely resumed ‘back to normal’ in the west, the opposite is happening in China. With the pandemic flourishing to its highest levels yet, China’s strict zero covid policy is keeping residents in cities such as Shanghai and Beijing locked indoors. It has also shifted their shopping habits, mirroring the need for only essential goods. Luxury is but an accessory that offers no answer or solace when people are prisoners in their own homes and robots are patrolling the streets.

Luxury is but an accessory that offers no solace when people are prisoners in their own homes and robots are patrolling the streets.

Early 2022 forecasts were upbeat. Now less so.

With luxury booming in the days after the pandemic, the forecasts for China were significantly robust. So buoyant, in fact, that luxury companies declared being only marginally affected and were growing their sales volumes at the rate of pre-pandemic levels. The mood in boardrooms was upbeat.

Robot dogs are patrolling neighbourhoods

Today the reality is different. With robot dogs barking covid restrictions in Shanghai’s most affluent neighbourhoods, the queues in front of the Hermes, Louis Vuitton and Gucci boutiques have all but disappeared. Stores are closed for business, and China’s economic outlook is shrinking by the day.

Sales of luxury saw a double leap in China last year, with the mainland share of all luxury sales growing to 21 percent in 2021. Even as international tourism was curbed, Chinese consumers shopped at home, prompting a boom in domestic sales, up 36 percent according to Bain & Company's China Luxury Report 2021.

Shanghai’s 26 million residents are no drop in the ocean for luxury brand sales. Data released in the first quarter of this year show a steep decline in sales by 30 to 40 percent, partly due to lockdowns. In a consumer confidence survey conducted by Ipsos between 25 March and 8 April 2022, a "significant drop" in consumer confidence was reported, as strains of the pressure of the pandemic started to show.

It is not just retail closures in key cities that affect luxury sales, however, as e-commerce is also challenged with warehouses either shut or operating a low capacity. Shipments and deliveries have stalled, with many focused on how they can feed their families, as food must be ordered and delivered. Life in Chinese lockdown is becoming ‘extremely difficult’, as Kering reflected in an earnings call late April.

According Reuters, up to 12 percent of China’s luxury retail is derived from Shanghai, which is why many brands are pulling out all stops remain in touch with their VIP clients. Some are delivering luxury food parcels (Louis Vuitton, Cartier), others are offering DIY facials (La Mer), virtual yoga classes (Dior) and membership to a cultural club with entertainment recommendations (Prada).

Most importantly, luxury companies will be monitoring the data as they continue to navigate the latest wave of lockdowns. At the very least they have the experience of the effects of store closures in the west to influence their messaging and actions. At worst, they will have to adjust their earnings prognosis.