Mainland Chinese consumers’ spending on luxury items is unlikely to recover to pre-Covid-19 levels any time soon, owing to limited international travel and a bearish view on the economy, global consultancy Bain and Company said. “We expect Chinese consumers’ personal luxury purchases to recover to pre-Covid levels between the end of 2022 and the first half of 2023,” said Xing Weiwei, a partner at Bain. “This will be supported by continuous repatriation of spending and boosted by the gradual reopening of international travel, first in Asia and then globally.” Before 2020, China’s middle class, buoyed by rising affluence, made up a third of global purchases of luxury goods, ranging from watches to leather bags and cosmetics.
In 2019, Chinese consumers bought luxury goods worth about USD120 billion, which included purchases at home and when traveling abroad. Buying overseas has trickled to near zero over the past two years, since the outbreak of the coronavirus pandemic, which has limited international travel. Before the outbreak, 155 million mainland residents travelled abroad in 2019, becoming the biggest driving force of the global tourism and luxury goods markets. “Covid-19 has prevented millions of Chinese people from buying luxury goods,” said Zheng Honggang, CEO of Shanghai-based Kate Travel. “We have received numerous queries from clients about the reopening of international travel, as they are eager to buy long-coveted bags and shoes during overseas tours.”
A lackluster luxury market could dent Beijing’s hopes of domestic consumption boosting the national economy. Bain has forecast that the country’s domestic luxury market will slow to “low double-digit growth” in 2022, compared to a 36% year-on-year rise recorded in the past year. In 2021, purchases of luxury goods on the mainland were valued at CNY471 billion, which represented 62% of the total spending by mainland consumers in 2019, according to Bain. Sporadic outbreaks of the Omicron variant in cities such as Beijing, Tianjin and Hangzhou have prompted Beijing to further tighten containment policies, which are set to disrupt domestic consumption and global supply chains.
In late January, the International Monetary Fund slashed its forecast for China’s economic growth in 2022 to 4.8%, down from its estimate of 5.6% in October. Swiss Bank UBS said in a research report in January that mainland consumers would refrain from spending in the first quarter of 2022 due to lockdown restrictions and a weak labor market. Luxury items in all categories saw strong year-on-year increases in the first half of last year, ranging from 40% to 100%, while growth throughout the second half dipped to an estimated zero to 25% year-on-year, according to Bain. It cited a cooling down in the stocks and property markets in the second half as one of the reasons for the slowing growth of luxury spending between July and December 2021.
Leather goods was the fastest growing category with a 60% growth rate for the whole year 2021, followed by fashion and lifestyle at about 40%. “There is little expectation that international travel will fully open in 2022,” said Bain & Co Partner Bruno Lannes. “Chinese consumers will continue to buy in China,” the South China Morning Post reports.
