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China is tightening its Covid-19 restrictions after hitting a new record number of daily cases on Wednesday, raising fears of a further slowdown in the country’s luxury market.
China’s National Health Commission said the number of locally transmitted Covid cases reached 31,444 on Nov. 23, surpassing the previous record of 29,317 set in April 2022. The government has introduced new lockdowns in key areas including Beijing, Shanghai and the manufacturing hub of Guangzhou.
“Consumer confidence has been shaken dramatically since the beginning of this year,” said Adam Knight, co-founder of China-focused brand consultancy Tong. “Rolling lockdowns, rising youth unemployment and declining economic output are taking their toll. As long as this uncertainty persists and there appears to be no central roadmap to get out of the situation, companies should expect continued pressure.”
The repeated lockdowns have led to an economic crisis in China, with store closures and supply chain problems hitting Western fashion and beauty brands. Luxury executives around the world had hoped Chinese President Xi Jinping would take the stage at the Chinese Communist Party’s National Congress in October to announce an easing of the zero-Covid policy. But in the end, China reiterated its commitment to eradicate rather than live with Covid. Estée Lauder, Capri Holdings and Tapestry all recently scaled back their forecasts, blaming China’s restrictions for the slowdown. Farfetch reported losses in China, while Ferragamo offset disruptions from strong sales in Europe and the US. Richemont said sales in China were “flat”. Ralph Lauren was an outlier that maintained momentum in China.
“China’s luxury market is likely to slow down [further] as more entry-level buyers decide to save more money due to the uncertainty that the zero-Covid strategy brings,” warns Antonello Germano, luxury business analyst at Chinese research and management firm Daxue Consulting. “However, sales of luxury goods are unlikely to come to a complete halt as key high-income luxury consumers will continue to buy high-end goods. Wealthy consumers are likely to opt for more discreet luxury pieces during this time of economic downturn and as a result of the Common Prosperity campaign [China’s strategy to address the wealth gap]although.”