This time last year, Shanghai — China’s capital of fashion and luxury — was in the throes of a ruthlessly enforced Covid lockdown. The city’s glittering high-end malls and avenues lined with flagship stores stood practically empty.
Today it is a different story. Huge crowds on a recent weekend flocked to top retail destinations on or near Nanjing Road, the hub of glamour in China ever since the country’s first large department stores began to open there in 1917.
“I splurge more extravagantly,” Sunny Zhang, 24, said as she waited in line to enter the Chanel store at Plaza 66 mall, where the corridors are lined with shops selling some of the world’s most expensive apparel. Ms. Zhang, who works for a consulting firm, used to buy six handbags a year. Now, she purchases up to five handbags a month.
“I change my handbag every day,” Ms Zhang added. “I felt that everything was meaningless during the Shanghai lockdown, so we should enjoy the present moment in time.”
Many Western fashion and luxury brands have been reaping the benefits of this renewed consumer mind-set. Last month, LVMH, the world’s largest luxury goods group by sales, and the owner of brands like Louis Vuitton, Tiffany & Company and Dior, posted a 17 percent increase in first-quarter revenue from a year earlier. Fashion and leather goods — the French company’s biggest division — were up 18 percent, driven in large part by the rebound in China.
Last week, LVMH shares soared to a record high, making it the first European company to surpass $500 billion in market value. Its French rival Hermès said sales in Asia (excluding Japan) were up 23 percent in the first quarter, “driven by a very good Chinese New Year.”
And Brunello Cucinelli, purveyor of $4,000 blazers and the “quiet luxury” trend, posted a 56 percent surge in first-quarter sales. Luca Lisandroni, the Italian brand’s co-chief executive, called 2023 “a golden year” for the China market.
Luxury spending in China is bouncing back even faster than the country’s overall economy. Retail sales of jewelry, gold and silver soared 37.4 percent in March from a year earlier, more than three times as fast as the rebound in overall retail sales, according to China’s National Bureau of Statistics. It was by far the biggest March on record for jewelry sales in China; indeed, March was the industry’s second-highest sales month ever outside the gift-giving season before Chinese New Year.
“We expect China to be the luxury industry’s key growth engine this year, especially given a slight deceleration in other core markets like the U.S. and Korea,” Edouard Aubin, an equity analyst at Morgan Stanley, said on a call last week.
He added that big brands “at the top of the pricing pyramid” with status-symbol value like Chanel, Hermès and Louis Vuitton were outperforming rivals. Those include Gucci and Burberry, both brands that have recently had a change of designer at their helm.
“Much of the initial spend driving the rebound is, for now, less to do with the middle class of China and more to do with rich people spending more,” Mr. Aubin said, noting that he expected a resurgence in middle-class spending to kick in later this year.
This desire for big-name luxury in China isn’t new. For more than a decade, the country, with 1.4 billion consumers, powered the Western luxury market, contributing as much as a third of market revenue. Two-thirds of that spending took place outside mainland China, as Chinese tourists flocked to Hong Kong, Tokyo, Paris and elsewhere to avoid their country’s steep import tariffs and consumption taxes.
But then came 2020, the worst year on record for the industry, as China closed its borders in response to the pandemic. Now, after three years of relying largely on online purchases, many shoppers in China exult in being able to touch fabrics, try on handbags and sunglasses and simply share companionship with others.
In the Zhang Yuan neighborhood, where heavily restored buildings have polished wood frames and elegant stone columns, a crowd gathered and waited outside the Dior store to watch for celebrities. The onlookers did not have to wait long: Annie Yi, the famous Taiwanese singer, walked out of the store accompanied by a young woman who carried a white Dior bag big enough to hold a flat-panel television.
Zoe Zhou, who was at the Dior store looking for a handbag owned by a member of the K-pop band Blackpink, said she had seen a frenzy to buy luxury goods in her home city, Nanjing, with people lining up outside of stores at downtown malls.
“Now that restrictions have been lifted, there are a lot of people buying handbags,” said Ms. Zhou, who was disappointed that the bag she wanted was sold out. “You can also go abroad. The price difference between domestic and foreign countries is quite large.”
Many luxury brands have raised prices in recent months, notably in China. But traveling outside China remains far more difficult than it was before the pandemic.
Airfares are higher, with a significantly reduced overseas flight schedule. As part of a national security campaign, the Chinese government has made it harder to obtain or renew passports.
As domestic destinations like the duty-free tropical island of Hainan continue to gain popularity, and retail hot spots like Chengdu and Hangzhou continue to emerge, the pivot by Chinese shoppers to buying more domestically is expected to continue. Social media posts about stock shortages and long lines have also become common.
“The domestic recovery may be well underway, but international travel is still far from pre-Covid levels, nor do we think Chinese tourists will be returning at the volumes they once did to Europe any time soon,” said Thomas Chauvet, head of luxury goods research at Citi. Short-haul destinations like Hong Kong, Macau and possibly Japan, given the weak Japanese yen, may see the return of Chinese spending sooner, he added.
Not everyone has been coming out on top. Muted quarterly results last week from Kering, the home of Gucci and Balenciaga, reminded investors that a rising tide in China won’t necessarily lift all brands. The Paris-based group’s revenue grew 1 percent in the first three months of 2023, hampered by a slowdown in its U.S. and wholesale business, the dwindling popularity of Gucci and continuing fallout from a controversial advertising campaign published by Balenciaga at the end of last year.
According to Antoine Belge, an analyst at BNP Paribas Exane, “Strong brands with serious brand desirability are getting stronger.”
“Being bigger helps,” he added.
The same goes for luxury markets. Claudia D’Arpizio, a senior partner at the consultancy Bain, estimated that the population of middle- and high-income consumers in mainland China will double to 500 million by 2030. By then, she predicted, the country will account for around 40 percent of global luxury purchases.
“While African and Southeast Asian countries might be emerging luxury markets,” Ms. D’Arpizio said, “the sheer size of the China luxury market makes it unique and of great strategic importance.”
Li You contributed research.
