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The View | Why China’s luxury market is a double-edged sword for foreign brands
- While Chinese consumers are far and away the biggest growth opportunity for luxury brands, the nation’s economy has become the main source of risk
- Not only has the pandemic prevented travel, lockdowns are crimping demand, even as duty-free centres like Hainan are putting pressure on pricing
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The personal luxury goods sector caters to a global consumer. Shopping is a crucial part of the international travel experience, and the opportunity to purchase an exclusive brand in the country of origin is irresistible to many buyers.
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Before the Covid-19 pandemic, Chinese tourists were the driving force behind the growth in luxury spending. In 2019, overseas markets accounted for as much as 68 per cent of Chinese luxury purchases, according to Bain & Company, mainly due to a combination of a growing fondness for travelling abroad and higher prices for high-end goods sold in China.
However, virus-induced travel curbs have put a halt to shopping trips to Paris, Milan and even Hong Kong, depriving the luxury sector of one of its most important growth drivers.
In 2020, mainland China’s share of Chinese luxury spending surged to between 70 and 75 per cent, and is expected to have risen further last year to just under 100 per cent, data from Bain shows. The balance of power within the industry is tilting towards China, which is on course to be the world’s biggest market by 2025.
Moreover, the landscape is shifting just when China’s economy has been hit hard by the government’s draconian response to the worst nationwide outbreak of Covid-19 since the pandemic began. A report by Nomura published on May 10 noted that 41 cities, accounting for nearly 30 per cent of China’s economic output, are currently under full or partial lockdown.
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The unexpected citywide shutdown of Shanghai, China’s most populous city and home to the flagship stores of global brands, has dealt a severe blow to the economy. Retail sales in the financial hub plunged 18.9 per cent year on year in March.
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