China between lights and shadows

Will China continue to be a driving force for luxury? For several years now, the chinese market has proven to be the real growth driver of the fashion&luxury sector. The upcoming fiscal year, not surprisingly, opened with a study by Bain & company, highlighting, «In 2021, about 21% of global consumer spending on luxury goods came from mainland China, and the country is expected to become the world’s largest market in this sector by 2025».

However, the evolving situation now more than ever generates perplexity about the country’s future and the choices to be made by fashion and luxury brands. In November, new Covid-19 outbreaks in the country hit absolute highs on a daily basis since the start of the pandemic in early 2020. According to updates by the National health commission, household infections stood at more than 30,000. Since then, the official figures have been much more restrained and probably do not reflect the seriousness of the situation, which can be guessed, however, from some indirect signs and testimonies collected by foreign journalists and posted on social media. In Beijing, Shanghai, and other major chinese cities, hospitals, factories, and transportation companies have reported major staffing problems due to the spread of the contagions. These are the effect that many experts predicted after president Xi Jinping changed his approach to the disease. In fact, after years of lockdowns and extremely tight restrictive measures, as of december 6, the chinese government decided to abandon its zero-Covid-19 strategies, which aimed to avoid contagions altogether. Experts and epidemiologists, in light of what is happening, are predicting three new waves for the winter period.

The current peak of infections is expected to last until mid-January, while the second wave would be triggered by mass travel starting on January 21 during the week-long lunar new year celebrations. During this period, usually, millions of people travel to spend the vacations with their families. In contrast, the third wave is expected from late february to mid-march, when people will return to work after the vacations. One wonders, then, whether all this will affect the performance of the luxury industry in the country and whether the estimates will have to be revised downward. «China represents a key market for many luxury players: as of today, the local management of the pandemic still includes strong restrictions, involving strategic cities for the sector such as Shanghai and Beijing», Guia Ricci and Filippo Bianchi, both managing directors and partners of Boston consulting group (Bcg), explained to MFF. The evolution of this scenario, they continued, as of today is not certain and, as a result, many players are revising downward their estimates for the chinese market for 2022 and 2023 considering current risks, which mainly relate to consumer uncertainty, the increasing need for store closures, and, in general, management difficulties in operations and supply chain.

Hsbc, lockdowns in former Celestial Empire curb sales by 40%

During the 2020 pandemic, China accounted for 25% of global sales in the industry, ahead of the US and Europe with 20% and 22%, respectively, with gdp growing from 8.5 trillion dollars to 17.7 trillion dollars in just 10 years. As of today, the chinese market is still on a growth trajectory but at more than half the rate recorded in pre-Covid-19 times. According to the International monetary fund data in october, the country saw gdp growth of 3.2%, compared to 8.1% in 2021, casting a shadow over investor sentiment. In this wake, in april, the Hsbc bank estimated retail sales down 40% year-on-year and 50% in may due to store closures. In addition to the threat of further Covid-19 outbreaks, the situation is exacerbated by the fact that some Chinese consumers are beginning to prefer domestic brands over their foreign counterparts.

A choice that has translated into, for example, a 24% decrease in sales of sneakers by foreign brands on local e-commerce sites such as Tmall, with a 17% increase in sales of sneakers by local brands. Meanwhile, income inequality in China is widening and youth unemployment is rising, threatening the balance of gdp growth. Still, China’s long-term development projections of 47 trillion dollars gdp by 2040 remain solid. However, analysts noted that in the apparel category, the market share of foreign brands among the top 20 brands in China has shrunk from 47% to 40% from 2013 to 2021, and the same phenomenon is occurring in the beauty markets. The most successful in 2020-2022 were mainly the skincare brand Proya, the fragrance brand To summer, and the cosmetics brand Florasis, which recently launched a 158 million investment plan. (All rights reserved)