What China’s reopening means for luxury

*To receive the Vogue Business newsletter,* [*sign up here*](https://signup.voguebusiness.com/vb)*.* After years locked down at home, Chinese consumers can finally dust off their passports to travel internationally. The country is lifting its quarantine requirements and opening back up for tourism on 8 January, in a welcome move for the global luxury industry. But with Covid infection rates said to be higher than official data shows in China, challenges remain. Beijing has pursued a zero-Covid policy since the pandemic to eliminate the virus. [China is the world’s second largest economy](https://www.bain.com/about/media-center/press-releases/2022/2021-china-luxury-report/) and is set to become the biggest luxury market by the end of 2023, according to consultancy Bain. The local economy and international markets that rely on Chinese consumer spending and manufacturing facilities have taken a significant hit from the policy, which has led to frequent lockdowns. Major companies including Capri Holdings, Estée Lauder and Tapestry all knocked back their outlooks in their most recent earnings due to a slowdown in the region toward the end of last year. Rare mass street protests broke out in November against the strict policy. On 7 December, restrictions eased in some major cities such as Guangzhou and Zhengzhou; removing health code checks for domestic travel and scrapping the requirement for those testing positive to quarantine in centralised facilities. On 27 December, China announced its decision to reopen its borders for international travel in 2023. Shares in LVMH and Richemont were up 2.7 per cent and almost 4 per cent respectively following the announcement. Overall demand for global luxury goods in 2023 will be determined by the rebound of Chinese consumer demand alongside the normalisation of Western demand, according to Bernstein. “We see [circa] 50 per cent probability that a benign scenario materialises, whereby Chinese luxury demand rebounds between 25 per cent and 35 per cent in FY23, and Western demand continues to grow between 5 per cent and 10 per cent. The combined effect should be luxury demand growth in the mid-teens organically,” said Luca Solca, Renny Shao and Clementine Flinois, analysts at consultancy Bernstein, in a note on Thursday. However, experts note that China’s recovery will depend on many factors, not least how it manages rising infection rates. Since dissolving the zero-Covid policy, there have been reports that some [hospitals in China are overcrowded](https://www.bloomberg.com/news/articles/2022-12-21/covid-surge-hits-shanghai-with-crowded-hospitals-empty-streets) with sick patients. The World Health Organization (WHO) has warned that [China is underrepresenting its Covid figures](https://www.who.int/director-general/speeches/detail/who-director-general-s-opening-remarks-at-the-media-briefing---4-january-2023) and its criteria for what constitutes a Covid death goes against WHO guidance. “China will face tough comps in [the first quarter], while the Covid-19 spike may take a toll on traffic and sales, as Chinese consumers ponder the advantage of newly found freedom and the risk of catching Covid-19,” the Bernstein note reads. “The faster the spread of infection the better the revenue outlook in [the first quarter of 2023], as more Chinese may decide to go out and put Covid-19 behind their back.” Demand will likely rebound at the end of Q2, they add. Meanwhile, shopping behaviours have changed. “The surge of local brands, a repatriation of luxury spend through e-commerce, and the rise of domestic travel destinations such as Hainan island will all have a lasting impact on the retail space that will be difficult to reverse,” says Adam Knight, co-founder of China-focused brand consultancy Tong. Chinese travellers are likely to be cautious and prefer closer destinations in East Asia and Southeast Asia, says Antonello Germano, luxury business analyst at China research and management firm Daxue Consulting. [Flight bookings from mainland China jumped 254 per cent](https://www.prnewswire.co.uk/news-releases/tripcom-group-data-shows-outbound-flight-bookings-surge-from-mainland-china-a-spike-in-demand-expected-for-upcoming-lunar-new-year-break-301710619.html) the day China announced it would reopen its borders, data from Chinese-owned international online travel agency Trip.com shows — and the top five tourist destinations were Singapore, South Korea, Hong Kong, Japan and Thailand. “Chinese people’s demand for outbound travels is going to drastically increase, but the fear of infection could induce many Chinese consumers to be cautious and put on hold their travels abroad, at least in the next few months,” says Germano. Attracting shoppers within China will remain an important focus. “I think the Chinese government will try to stimulate domestic consumption first,” Germano adds. “Now, luxury stores in Europe and North America have to compete with their counterparts in China. The pandemic induced Chinese luxury consumers to shop domestically, and Hainan imposed itself as a key destination for travel shopping and it is expected to keep playing an important role once travel restrictions are completely eased.” Global political leaders remain cautious. France will require Chinese travellers to provide a negative test less than 48 hours before departure, with random testing upon arrival also being conducted, under measures currently in place until 31 January. The US, Canada, UK, South Korea, Japan, Italy and Spain are among those also requiring varying forms of testing. French health minister François Braun said the Covid infection rate in China [was “worrying”](https://www.reuters.com/world/china/chinas-covid-situation-is-worrying-says-french-health-minister-2023-01-05/) and is urging the European Union to impose safety measures such as testing of inbound Chinese travellers across all of its member countries, to limit the spread of infection. Chinese foreign ministry spokesperson Mao Ning said the restrictions for Chinese travellers arriving in other countries [“lack scientific basis” and are “unacceptable”](https://www.aljazeera.com/news/2023/1/3/china-blasts-unacceptable-covid-curbs-on-travellers), adding that China could “take countermeasures based on the principle of reciprocity”. However, members of the public appear to broadly support the restrictions, says Tong’s Knight. “Far from putting potential visitors off, many people online have conceded that such measures are both warranted given China’s own recent quarantine rules, as well as needed, what with surging cases.” Still, for Western luxury brands there will be a renewed opportunity to capture Chinese spend. Key will be gaining a deep understanding of how Chinese luxury shopping behaviour has evolved, and how these consumers will shop while abroad. “After a long time without being able to travel abroad, once Chinese tourists can travel again they will probably look for more authentic and memorable experiences,” says Germano. “The pandemic acted as a catalyst: it accelerated some pre-existing trends and stimulated the emergence of some new ones. Brands cannot ignore what’s going on in the Chinese luxury market when developing a strategy for attracting Chinese travel shoppers.” *Comments, questions or feedback? Email us at* [*feedback@voguebusiness.com*](mailto:feedback@voguebusiness.com)*.* **More from this author:** [Stella McCartney to pioneer new fibre-to-fibre textile recycling process](https://www.voguebusiness.com/sustainability/stella-mccartney-to-pioneer-new-fibre-to-fibre-textile-recycling-process?itm_source=manual_article_recommendation){: target="_blank"} [Prada announces new brand CEO amid management shakeup](https://www.voguebusiness.com/companies/prada-announces-new-brand-ceo-amid-management-shakeup?itm_source=manual_article_recommendation){: target="_blank"} [Kering and L’Occitane Group announce climate fund](https://www.voguebusiness.com/sustainability/kering-and-loccitane-group-announce-climate-fund?itm_source=manual_article_recommendation){: target="_blank"}

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