China is finally starting to walk back its zero-Covid policy—and that’s having some beneficial effects on the luxury industry.
After the country announced that it would no longer require incoming travelers to quarantine starting January 8, among other changes, shares in global luxury-goods groups rose, Business of Fashion reported on Tuesday. Shares in LVMH, the world’s largest luxury group, were up 2.7 percent, while shares in Richemont rose almost 4 percent. These companies and other high-end retailers rely heavily on Chinese consumers, and the hope is that fewer restrictions will allow them to engage more fully in the industry.
“Recovery may still be slow, particularly given the caution among consumers, and is likely to build in popular holiday shopping destinations regionally first,” said Susannah Streeter, a senior investment and markets analyst. “Brands will be gearing up for the return of wealthy, globetrotting Chinese tourists.”
Currently, China makes up 21 percent of the world’s luxury-goods market, which totals US$372 billion (HK$2.906 trillion). But the country is expected to become the top region for the industry by 2025, surpassing North American and Europe for the No.1 spot.
With some specific companies, China already makes up a substantial part of their business. It’s responsible for about 35 percent of Gucci’s annual sales and 26 percent of Hermès’s. And at LVMH, the country generates 27 percent of sales in the fashion and leather-goods division.
As China emerges from its Covid lockdown, it’s competing with the United States and Europe in the luxury market. The US economy is currently cooling off, thanks to high interest rates, while Europe is facing a major energy crisis, both of which give China a leg up as consumers return to stores.
And the luxury space in general is a pretty good field to be in right now. A recent McKinsey & Company report showed that while non-luxury fashion sales are expected to rise 2 to 7 percent next year, luxury sales are likely to increase 9 to 14 percent. “China will likely remain a core market for fashion consumption in the long term, with significant untapped opportunities among a customer base whose sentiment for luxury brands in particular is holding strong,” the report noted.
