China, which implemented a quarantine at the end of January in response to the coronavirus pandemic, is now gradually reopening and resuming activities after a month and a half under lockdown. The luxury industry is among the sectors that have begun reopening a large number of stores in the country, hoping to see signs of recovery. However, the initial activity indicates a mixed response and suggests that the market will be significantly different from how it was before the Covid-19 outbreak.

Some of the main luxury groups in China, such as L’Oréal and LVMH, have started to release their quarterly financial results, and there are positive trends emerging. Between January and March 2020, both companies reported increases in sales in China. L’Oréal’s CEO, Jean-Paul Agon, stated that the sales increase is an encouraging sign of recovery in beauty product consumption. LVMH’s chief financial officer, Jean-Jacques Guiony, mentioned a rapid recovery with significant growth rates for their well-known brands like Louis Vuitton, Dior, and Sephora.

Hermès, a luxury brand, also experienced record sales at its store in Guangzhou, which reopened in early April. On its first day of operations, the store generated €2.46 million in sales, giving hope for a strong recovery. However, these figures have not been officially confirmed by the brand, leaving some uncertainty surrounding the situation.

Axel Dumas, the CEO of Hermès, confirmed a positive trend in mainland China with double-digit growth since the gradual reopening of their 11 stores in March. However, stores in Hong Kong and Macao have seen a decrease in foot traffic due to border control measures. Furthermore, countries like Singapore, Australia, and Thailand have faced a second wave of store closures since early April due to government regulations.

Overall, the recovery of China’s luxury market has been mixed. Jean-Marc Duplaix, the chief financial officer of Kering, mentioned that the situation varies from city to city, with some cities showing positive sales growth while others are more contrasting. He also highlighted the increase in online sales, particularly in China, which is their second-largest online market after the US.

Promise Consulting, a consulting firm, conducted a study on the rebound of activities in China and found that there may be an economic downturn despite the eagerness of Chinese citizens to resume economic, cultural, and social activities. The study also revealed that luxury goods purchases are expected to be the last to restart, ranking seventh among the sectors expected to return to normal.

The drop in economic growth in China is likely to result in a decline in luxury goods consumption, even among the wealthier Chinese population. Additionally, since a majority of luxury goods purchases by Chinese consumers are made during tourist trips abroad, the ongoing travel restrictions may affect sales. The study also noted a trend of repatriating purchases to the domestic market in China and an increased emphasis on buying from Chinese brands.

Given this new context in China, luxury businesses will need to reassess their strategies for the market. Direct distribution in China with price parity to European or global markets, as well as potentially conducting some production in the country, may be beneficial for brands looking to do business in China.

Useful links:
CNBC: Luxury Goods Industry Anticipates Decline in Sales Amid Coronavirus
Vogue Business: Lasting Change in How Luxury Brands Work with China