CHINA DOWN, BUT OUTLOOK FOR LUXURY IS POSITIVE

Ongoing Covid-19 restrictions and economic uncertainty led to the declining of personal luxury market in China for the first time in five years

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The China luxury market had been on a bull run over the past five years, with the market doubling between 2019 and 2021. That growth streak ended in 2022, brought to a halt by zeroCovid policies. Strict lockdowns remained in place through December, slowing economic and social activities and causing a significant number of stores to sit idle.

As a result, the personal luxury market contracted 10% YOY (see Figure 1). In 2022, nearly every luxury category and most brands experienced their first major decline in five years.

Since borders were still closed at the start of 2022, Chinese customers made most of their luxury purchases within the mainland. Despite a strong start to the year, Covid-related lockdowns started in the second quarter and created barriers to purchasing. Major cities were shut down, sometimes suddenly, which prevented in-person shopping.

A decline in the real estate market, higher unemployment, and anxiety about Covid also weakened consumer sentiment. Many consumers opted to stay home, even after movement restrictions relaxed. Luxury brand leaders told us shopping mall traffic was down 30%-35%.

Luxury sales did not decline as steeply as foot traffic because conversion rates increased significantly. Consumers completed very targeted and short shopping trips, instead of casually browsing stores, as they had in the past.

All luxury categories were affected by the decline, although not to the same degree (see Figure 2). Categories with strong online penetration were less affected by lockdowns and fared better.