With China’s gradual economic recovery and consumption getting back on track, luxury and beauty are witnessing a fast rebound at retail in the country, according to a just-published report from research firm Luxurynsight. However, with the threat of a second wave of covid-19 looming, changing consumer behavior could have a lasting impact on how brands do business.
Now that 90% of shopping malls have reopened, traffic for both luxury and beauty retailers was back to 60% of pre-pandemic levels at the end of March, according to Rebound, the new report. While luxury sales in China fell by 80-90% in January and February of this year, they have been increasing by around 10% a week since then, and an even healthier performance is expected in May and June.
Beauty fared better than other categories during the pandemic. Sales declined 13% in the first quarter, performing better than both apparel (-32.3%) and jewelry (-37.7%), and recovery is expected to accelerate in the second quarter. Manon Hu, head of China business at Luxurynsight, attributes beauty’s resilience to its strength in the online channel.
“Beauty brands’ higher e-commerce penetration rate and more complete online distribution ecosystem enables a smooth customer journey that still functions normally when offline stores are forced to shut down,” she tells Luxe Packaging Insight. Beauty players, especially China’s domestic brands, are more advanced in terms of digitalization, and were quick to adopt new tools such as livestreaming to capture China’s “stay-at-home” economy.
When it comes to luxury, “We are definitely experiencing a dramatic short-term blip,” says Hu. “Luxury brands have shown more resilience than non-luxury sectors during the pandemic and are already back on track to normality.” Hu highlights Richemont, which has pointed to China as a bright spot, reporting "strong demand" in May as its 462 boutiques in the country reopened. US jeweler Tiffany has seen its retail sales grow by around 30% in April and 90% in May compared to the same months last year, despite its global net sales falling by some 40% in May.
However, Hu cautions that the industry is still hurting globally, and that the boost of so-called “revenge spending” isn’t expected to last. “Overall spending from the Chinese is estimated to be far below last year,” she notes. Indeed, although sales are on the rise, the luxury market is predicted to contract by between 15% and 35% in 2020.
Consumers may still be passionate about buying luxury, but they are savvier and tend to be more sensitive about value. “Brands need to consider how to create more reasons to buy, from creativity to experience,” she remarks. Luxury brands will also have to put more strategic weight on the domestic market. “Chinese consumers were spending money closer to home even before the crisis, while showing more attention to social responsibility and the message that brands are delivering,” she highlights.
Influenced by the pandemic and with the threat of a second outbreak looming, Chinese consumers are more conservative and spending less. They are also prioritizing their health and wellbeing, says Hu, which is set to spell opportunities for healthy food and products promoting relaxation.