“We don’t need luxury right now” – Chinese consumers are reassessing their spending

Shoppers visit a reopened luxury store in a shopping mall in Shanghai © AP

A strict lockdown in Shanghai was lifted on June 1, allowing millions of residents who had been confined to their homes for more than two months to finally venture out, while shops were able to reopen.

To celebrate, Eric Young, founder of the elegant Shanghai boutique Le Monde de SHC, organized a meeting of friends and acquaintances in the store. “We felt good and wanted to buy some new clothes,” he says, speaking to WeChat a week after the reopening. “The business is doing quite well due to the declines. But is it really? Lockdowns are still ongoing in some areas. For example, last night downtown they blocked two blocks. It’s not really back to normal. “

Young and his friends weren’t the only ones in the mood for sketches: on the day of the reopening, luxury shoppers were spotted queuing outside Hermès, Celine and Dior in a “spend for revenge” bout, in which consumers buy more. it would normally be a reaction to having endured restrictions and limitations. Jessie, a 23-year-old Shanghai games specialist, bought a £ 320 Acne Studios bag on a whim. “I really wanted to take revenge, so I bought it on impulse,” she says.

But Jessie has no plans to splurge on luxury again anytime soon. “I have a lower threshold for what makes me happy now. Just going out in the sun, buying some delicious snacks, satisfies me. I’d rather spend a lot of money on experiences, like traveling, instead of buying a bag, “she says.” Right now I think we don’t need luxury, because when you can’t even have the security of basic human rights, there isn’t. petty bourgeois consumption is needed “.

The mixed sentiment of Jessie and Young reflects the uncertainty created by the Chinese government’s determination to stick to its “zero Covid” policy and the swift and unpredictable nature of its restrictions. Just over a week after the release of the blockade in Shanghai, mass tests and localized blockades were reintroduced, while entertainment venues in Beijing were closed and thousands of people were placed in home isolation after an outbreak in a bar in the Chaoyang district. This year’s lockdowns have been tough, hitting major financial and economic centers such as Shanghai and Shenzhen, as well as the capital Beijing, and impacting food provisions, online shopping and internal travel.

People queue outside a store in a shopping mall

Some in China welcomed the easing of restrictions with a venge shopping attack, but others remain cautious © AP

“I am 70% happy, 20% traumatized and 10% alert,” says Andrew, a 28-year-old scientific researcher from Shanghai in his post-blockade state. His salary was unaffected by the lockdown, but he became stricter in spending, buying less overall and focusing more on higher quality goods, including luxury goods. “I’m glad life is getting better. I can go to work, buy things and live more or less like a modern city dweller. Yet it is difficult not to be traumatized for those who have experienced what happened in Shanghai. I am pessimistic about the “return of life to normal”. I’ll never go back to the old normal again and I’d rather be alert and prepared. ”

This sense of uncertainty is related to analysts’ suggestions that the recovery in Chinese luxury spending will take longer than in 2020, when it quickly recovered in the second half of the year. The recent restrictions in Shanghai, which in some cases mean brands have closed up to 40% of their Chinese store network, were duly noted in the latest financial results of luxury conglomerates Kering, LVMH and Richemont.

Despite a widespread belief in the resilience of Chinese luxury consumers, executives sounded a note of caution. “We have to expect that China’s re-emergence after the blockade will not be so dramatic,” Richemont president Johann Rupert said in a phone call with analysts in May. “China’s growth rate has slowed. I’m not sure any company under that block will be able to grow by six, seven or five percent. So yes, it will take some time before they come back. “

Veronique Yang, chief executive and senior partner of Boston Consulting Group, believes consumers will begin to feel optimistic about their finances and the economy again in the next three to four months, with luxury spending picking up in the final quarter. of the year pending resolution of supply chain problems, which are currently disrupting store deliveries.

“The growth of affluent consumers in China remains intact and the government’s determination to further encourage consumption has also not changed,” he says. “The fundamental perspective remains the same, but it is very clear that there is further polarization in the luxury sector, with the big luxury brands doing really well despite the challenges of Covid and the accessible and premium luxury sector in difficulty”.

Blondie Tsang, president of the Lane Crawford luxury department store, also believes that China is an “irreducible luxury market. . . The biggest challenge will not be slowing down customer sentiment, but quickly obtaining exclusive and exciting products for Covid-fatigued and travel deprived consumers who are desperate for novelty, “he tells me in an email. Lane Crawford’s mainland China store is located in Shanghai.

The store did not do business during the two-month lockdown, and when it reopened, shoppers were eager to return. But the enthusiasm quickly subsided. “For the first weekend our shop was open, all of our VIP suites were fully booked and sales exceeded a normal weekend,” says Tsang. However, “overall, the traffic is declining. . . People are still cautious, so for us it was a higher conversion than a lower traffic rate. ”

Pedestrians on a walkway in a shopping district

Blondie Tsang, president of Lane Crawford luxury department store, believes that China is an “irreducible luxury market” © Bloomberg

The economic consequences of China’s zero-Covid policy have understandably been perceived differently by Chinese shoppers, with the middle class feeling the squeeze. Affe, a 39-year-old entrepreneur from Shanghai, says she had to endure three months of cost with no earnings, which she expects will affect her spending power for at least the next six months. Liying Zhao, a 28-year-old music teacher from Shenzhen, was not impressed at all, splurging on a new Hermès bag after the lockdown was lifted.

And Plusplus, a 28-year-old shopper from Shanghai, was not affected economically, but her spending shifted from clothes to household items. “I don’t have much desire for luxury goods,” she says. “Now I spend most of my time at home, so it’s more important to improve the quality of my life there.”

“Wealthy groups may not be deeply affected, but for some normal people it will take some time to recover. The epidemic has led to difficulties for a large number of small and medium-sized enterprises and layoffs in many large enterprises, “says Wenyan Jiao, co-founder of the Mushion fashion boutique based in Shanghai and Wuxi.” Sooner or later, everything will finally come back to normality. However, it will certainly be a major challenge for the retail market in general. “

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