As the first country to feel the effects of COVID-19, China has now become the first major economy to emerge from the pandemic, with day-to-day life getting back to normal, or at least near-normal. Consumer spending has resumed across all categories, with luxury sectors seeing a bigger than expected rebound in the second quarter — one which global brands have quickly latched onto.
French luxury giant LVMH saw China sales soar by more than 65 percent in the last quarter when compared to a year ago, as rival group Kering SA has seen sales rise by 40 percent in the same period. And it's not just taking place online: Louis Vuitton held its latest men’s show in Shanghai in August and Swiss-based Richemont SA brought its annual international watch fair to Shanghai for the first time. Even in the mid-market, Nike has cited China as an important growth market in recent results.
The high-end of the market has done well because the wealthy have, by-and-large, been sheltered from the effects of the pandemic. Those involved in active employment have been able to get through the crisis by working from home. Conversely, the workforce at the other end of the scale have had it tougher, many losing jobs or being subject to involuntary layoffs because of a downturn in manufacturing.
Outside of China, forecasts for luxury goods remain weaker. A joint study by Bain & Co. and Altagamma forecasts a contraction in the market in 2020 by between 20 and 35 percent, with sales estimated to be between €180 billion and €220 billion.
Against this backdrop, the importance of the Chinese market will only elevate, especially as it’s likely to be the only country to experience economic growth this year. On top of this, major holidays such as Golden Week and the Singles Day festival in November will spur growth.
With this in mind, it’s no wonder global brands are focusing on China. Growth is growth and it makes sense for these firms to take advantage of the situation, beefing-up existing operations and applying more investment into the market, especially as overseas travel is curtailed.
Luxury tourism goes local
Hainan has emerged as an important domestic market with the growth of local tourism. Additionally, Yunnan Province has also seen a rise in popularity. These locations should attract inbound investment from global brands seeking to tap into the tourist potential. And with Hong Kong currently closed to mainland tourists, Hainan and Yunnan can take up the slack. FOLIDAY, the travel and cultural unit of Shanghai-based Fosun International has been stepping up tourism investments in Hainan and other locations. Its Atlantis Resort in Sanya received more guests in August than it did in the same month last year. The company also controls the Club Med resort brand and the prominent British tourism name Thomas Cook.
Innovative new products, such as those from Club Med and Thomas Cook, can bring new life to the domestic property market as the company seeks to take domestic leisure products and services to a higher level.
Luxury brands are also experimenting more with online activities and livestreaming to mixed degrees of success. The goal of these efforts is to build awareness rather than conduct transactions, especially in lower tier cities, as many in the industry feel that the decision to buy a particular brand is now being made online before people go into a store. However, the causality remains inexact.
A rise in consumer confidence is driving other sectors, including spending on automobiles, hotels, dining out and entertainment.
Production and profits rise
With its large size, China can generate a lot of growth momentum acting as a catalyst for other sectors of the economy. Industrial production grew by 5.6% year over year in August, accelerating from 4.8% in July. Fixed asset investment, a measure of expenditure on real estate, infrastructure and capital equipment is returning back to growth. According to figures from China’s National Bureau of Statistics, profits at industrial companies also increased in August, buoyed by an increase in commodity prices and price of equipment.
All this activity should propel nearby economies in Asia forward, but the global environment remains uncertain — especially given the trade tensions with the United States.
In terms of government policy, it makes sense for China to build closer relationships with its neighbours, especially in the ASEAN markets, as well as in Europe to counter any fall out from trade policies with the U.S.
With stronger economic growth and more money flowing in trade between these nations, the choice for countries sitting on the fence between China and the U.S.’s bitter mudslinging — and not wishing to offend either — becomes one of higher growth and jobs linked to China, or lower growth and no jobs if one chooses to ignore the opportunities. The choice is quite stark.
This piece was written by David Croasdale, managing director, Newell Public Relations and treasurer of PRHK. PRHK Viewpoints is an article series contributed by members of PRHK, Hong Kong’s PR & communications association.