Luxury stocks rebound as China reopens, but consumers can shop ‘at home’
A vendor displays the limited edition items released by Emporio Armani to welcome the Year of the Tiger at a duty-free shop in Haikou, south China’s Hainan province, 15 January 2022.
Zhou Huimin | Xinhua News Agency | Getty Images
Shares of many luxury fashion houses that rely on Chinese consumers rallied as China reopened, but those customers may not necessarily be buying the goods overseas.
In the past, overseas travel often involved personal luxury purchases for wealthy Chinese consumers looking to take advantage of currency and tax advantages.
Shares of LVMH are up around 12% since early December, when Beijing began rolling back its zero-Covid policy.
Similarly, shares of Cartier-owner Richemont are up about 13%, while Dior is up more than 11% since early December.
Domestic luxury consumption is now a habit
The “revenge spending” that comes with returning from overseas travel will lead to a surge in consumption of luxury goods in 2023, Daxue Consulting analyst Jessy Zhang told CNBC.
“[The Chinese’s] Mentality is that they have to buy luxury goods in duty-free shops before returning home,” Zhang said.
But years of zero-Covid measures have taught Chinese consumers that they can get their opulence on their own shores – and experts say the habit is here to stay.
A Bvlgari store at a mall in Shanghai, China, 12 January 2023.
CFOTO | Future Publishing | Getty Images
“China’s domestic luxury consumption should far exceed overseas luxury consumption,” said Zhang, who estimates that domestic luxury consumption will account for 70% of China’s luxury consumer spending in the long run, compared to just 30% from abroad.
According to Zhang, that would be the opposite of spending behavior before 2017, when over 70% of China’s luxury spending was outside of China.
As a result of the world largest luxury market by 2025 will mainly buy “in-house”.
“Although domestic after-tax prices in China could be a disadvantage, the familiarity of the shopping experience, the strong relationships that have been developed with local sellers, and the broader range of brands and product offerings in mainland China in recent years increase the appeal of domestic shopping ‘ said Kenneth Chow, director at Oliver Wyman.
He added that Chinese consumers’ share of overseas luxury shopping is unlikely to recover to pre-pandemic levels of over 70%.
Additionally, places like China’s island province of Hainan, lined with all of its duty-free malls, are a tax-free paradise for many luxury shoppers. According to a, sales there increased more than 120% in 2020 and grew about 85% in 2021 Report from Bain & Co.
People queue to enter the Haikou International Duty Free City Complex on the opening day on October 28, 2022 in Haikou, Hainan province of China.
vcg | Visual China Group | Getty Images
“When I came to Hainan, I found that shopping on duty-free apps is too convenient and even offers direct mail home,” a local wrote on a Chinese social media platform Weibo.
According to a report by Bain & Co, the increasing digitization of purchasing processes has also made it easier for the Chinese to buy luxury goods online.
Global luxury houses have also recognized and expanded their physical presence in China since the pandemic began, said Barsali Bhattacharyya, manager of industry briefings at the Economist Intelligence Unit.
“For example, LVMH reported a 20% increase in the number of stores in Asia (excluding Japan) between December 2019 and June 2022,” she said.
There are also travel restrictions
The dismal overseas luxury shopping figures are also compounded by various travel restrictions being imposed on Chinese travelers by other countries.
European nations encompassing many luxury shopping locations, recommended that travelers from China be required to show negative Covid tests. Likewise, Japan and South Korea also require Covid tests for travelers from China.
More Chinese consumers are also favoring short-haul trips over long-haul trips, Oliver Wyman’s Chow said, adding that Hong Kong and Macau would be among the first to benefit from Chinese travelers – ahead of other luxury shopping destinations like Western Europe.
Still, Chow said it will be a “long journey” before international travel fully returns.
“Brands and retailers need to put more effort into getting them to shop abroad while meeting their higher expectations.”
https://www.cnbc.com/2023/02/01/luxury-stocks-rally-as-china-reopens-but-consumers-may-shop-in-house.html Luxury stocks rebound as China reopens, but consumers can shop ‘at home’