A Year Into Pandemic, China Demand Drives Global Luxury
SHANGHAI — First to get hit with the COVID-19 virus more than a year ago, China has also emerged quickest out of the pandemic-induced lockdown. Thanks to a combination of high mask-wearing compliance, aggressive tracking of its population with QR codes, and weeks-long quarantine policies, it has become one of the few countries that can say it is firmly on a path to recovery.
At the annual Two Sessions congress meeting in early March, the government set a GDP growth target of more than 6 percent for 2021, after the country eked out 2.3 percent growth in 2020. However, it did acknowledge the degree of continuing volatility created by the pandemic by diverging from its usual protocol and did not release a GDP forecast for the coming five-year period to 2025. Still, even Wuhan in Hubei province, the epicenter of the outbreak, is expected to clock 10 percent year-over-year GDP growth this year.
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Recent data indicates the country should have no difficulty hitting those targets. Last week China revealed first-quarter GDP skyrocketed by 18.3 percent, slightly below expectations of 19 percent but still a record. Retail sales in the first quarter leaped 33.9 percent. Companies from LVMH Moët Hennessy Louis Vuitton to L’Oréal and Ralph Lauren Corp. highlighted China as a key market driving their growth over the last quarter and more.
Recovery looks different across this large country. Life in Shanghai returned to what many could consider normalcy by about April last year with the relaxation of mask restrictions and people filling busy weekend markets and packing out restaurants, bars and nightclubs. However, Beijing has had a rougher go of things and has experienced more frequent small outbreak clusters and more stringent measures as the nation’s capital.
Hubei’s 77-day lockdown was finally lifted last April. Given the province bore the brunt of the virus, the people there understandably tend to be more cautious in their pandemic prevention and control measures. Far into September last year, it was difficult to find anyone not wearing a mask in Hubei.
“Things have normalized [in Wuhan] and the fashion sector is no exception,” said Rae Zhang, a Wuhan native and founder of Casaluna, a wedding dress retailer. She added that the provincial capital has seen a boost of investment and attention from both the public and private sectors, with many new commercial developments coming online.
“Wuhan indeed is getting a lot of new mall openings, whether it is Heartland 66, SKP, K11, Paradise Walk, or the renovated Wuhan International Plaza, I’m personally excited about it,” she said.
On the e-commerce front, China’s already digitally savvy population got even more digital given the events of last year. Luxury brands that once considered selling online anathema, started to experiment with different formats. Annual luxury online penetration increased in China from about 13 percent in 2019 to 23 percent in 2020. It was also the year that livestream really moved to the forefront.
“While the trend had been on an upswing in the country for a couple of years, it became a lifeline during the pandemic as both brands and consumers flocked to it in the absence of in-person shopping,” said a report from AlixPartners. “The country’s livestream-selling industry is currently estimated at $66 billion, and the number of consumers watching livestreams grew 30 percent just in the nine months between March 2019 and June 2020.”
“A large contributor to this is the hyper successful phenomenon of shoppable livestreams,” the report continued, “which solve the problems of relevance, ease of access, and the ability to get an authentic review of and a better look and feel for the product in one fell swoop. It is not unheard of for popular livestreams in China to clock millions of dollars of sales in one session.”
Despite the record gains the domestic mainland Chinese luxury market saw — sales of luxury goods within China surged 48 percent in 2020 to 346 billion renminbi, or $53.5 billion, according to a report by Bain & Company and Tmall.com — it was unable to compensate for the Chinese consumption lost overseas. A drop in travel led to a decrease of about 35 percent in Chinese consumers’ total luxury spend, a greater dip than any other group.
No place in the world felt the absence of mainland Chinese tourists more than Hong Kong, which had already begun dropping off the list of shopping destinations for that segment the year prior over bitter political divides. Last year, Hong Kong’s retail sales suffered the largest annual decline since records began in 1981, falling 24.3 percent to 326.5 billion Hong Kong dollars. Beijing has implemented a harsh crackdown on the city’s autonomy, using its new national security law to arrest and jail hundreds of pro-democracy leaders, restructuring the local legislature, and effectively squashing any form of dissent.
In contrast, Hainan Island, a province near Vietnam, has been showered with investment from Beijing and boomed as a duty-free spending hub. Last summer, it unveiled an extensive plan to develop the subtropical island into a key special economic zone with significant tax breaks, also increasing the per-person duty-free quota from 30,000 renminbi to 100,000 renminbi. The change sparked a rush into the island to the detriment of daigou hotspots like Jeju Island in South Korea. Total Hainan duty-free sales reached 21 billion renminbi by the end of October 2020 up 98 percent versus 2019.
International travel is still some ways off but once it does become possible, industry experts expect that Chinese will once again venture abroad to experience luxury in their favorite fashion capitals around the globe.
“The value in luxury and premium consumption, different than more mass good consumption, still has a considerable amount to do with the overall experience,” said Angelito Perez Tan, chief executive officer of RTG Group Asia. “So as those ‘original’ markets reopen, overall brand corporate spend will begin to reallocate. That being said, brands that were able to offer an attractive value proposition of price balanced with a unique China boutique experience may be able to ultimately convince Chinese consumers to spend domestically which can have an effect on global corporate allocation.”
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