Luxury stocks rise as China reopens, but consumers can shop ‘from home’

A seller displays a limited edition Emporio Armani commemorating 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 dependent on Chinese consumers have risen since the opening of China, but these customers do not necessarily buy goods abroad.

In the past, trips abroad often involved personal luxury shopping for wealthy Chinese consumers who wanted to take advantage of currency and tax breaks.

LVMH shares have risen about 12% since early December, when Beijing began to roll back its zero-spread Covid policy.

Similarly, shares in Richemont, owner of Cartier, are up about 13% and Dior shares are up more than 11% since early December.

Home consumption of luxury goods has become a habit

The “revenge spending” associated with the return of overseas travel will lead to an increase in luxury consumption in 2023, Daxue Consulting analyst Jessie Zhang told CNBC.

“[The Chinese’s] the mentality is that they need to buy luxury goods from duty-free shops before returning home,” Zhang said.

But years of anti-Covid measures have taught Chinese consumers that they can get their dose of wealth on their own shores – and experts say the habit is here to stay.

A Bvlgari store at a mall in Shanghai, China, January 12, 2023.

CFO | Future Publishing | Getty Images

“China’s domestic luxury consumption should far exceed overseas luxury consumption,” said Zhang, who believes that in the long term, domestic luxury consumption will account for 70% of Chinese luxury consumer spending and only 30% overseas.

According to Zhang, this would be the opposite of spending patterns prior to 2017, when more than 70% of Chinese spending on luxury goods came from outside of China.

As a result, the world largest luxury goods market by 2025 will shop mostly “inside the house”.

“While domestic after-tax prices in China can be a disadvantage, familiarity with shopping, close relationships developed with local merchants, and a wider range of brands and products offered in mainland China in recent years increase the appeal of shopping in-house. countries,” said Kenneth Chow, director of Oliver Wyman.

He added that it was unlikely that the share of Chinese consumers shopping for luxury goods abroad would recover to pre-pandemic levels of over 70%.

In addition, places like the Chinese island province of Hainan, along which all the duty-free shopping malls are located, are a duty-free haven for many luxury buyers. According to Bain & Co. report..

People line up in front of the entrance to the Haikou International Duty Free City complex on the opening day on October 28, 2022 in Haikou, Hainan province, China.

VKG | Visual Chinese group | Getty Images

“When I arrived in Hainan, I found that it was too convenient to shop on the duty-free apps, and there was even the possibility of direct mail to your home,” a local resident wrote on a Chinese social network. weibo.

The Bain & Co report says that the growing digitalization of shopping processes has also made it easier for Chinese people to shop for luxury goods online.

Global luxury homes have also gained popularity and expanded their physical footprint in China since the start of the pandemic, said Barsali Bhattacharya, industry briefing manager at the Economist Intelligence Unit.

“For example, LVMH reported a 20 percent increase in the number of stores in Asia (excluding Japan) between December 2019 and June 2022,” she said.

Exacerbated by travel restrictions

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