What: Bernstein expects luxury demand to go back to an even keel and growth trajectory in China.

Why is it important: China’s strict COVID-19 restrictions led to a 6.7% year-over-year decline in retail sales of consumer goods in May, to 3.35 trillion renminbi.

The contraction in May was better than in April, which logged an 11.1% dip from the prior year. In the period between January and May, China’s retail sales of consumer goods were 17.17 trillion renminbi, down 1.5% from the same period in 2021, when the country enjoyed relatively robust growth while other economies struggled due to COVID-19 outbreaks.

In the past month, the Chinese government has been adjusting its dynamic-zero COVD-19 policy and announced a broad package of economic support measures to stimulate the economy.

A Bernstein report published Thursday predicts that the luxury and beauty industry will bounce back quicker than those catering to the mass market in China. Chanel, Louis Vuitton, Hermès and Dior were among the first to recover. Local media reported that long lines formed outside their stores in Shanghai’s luxury shopping mall Plaza 66 on the first day they reopened on May 29, after the city came out of the lockdown.

It’s also been reported in the local media that luxury brands in Shanghai were coming up with creative ways to entice high-spending customers during the lockdown, such as sending fancy takeaway meals and putting rare bags worth more than 100,000 renminbi on delivery platforms.

Companies with robust China supply chains like L’Oréal and Proya are gaining share during disruptions, while companies with supply chains disrupted by Shanghai lockdowns, including Estée Lauder and Shiseido, may see slow shipment recovery in the second quarter, despite strong online sell-through.

With regard to the broader apparel and footwear sectors, Bernstein suggests there will be a bounceback as restrictions ease, led by e-commerce, as China distribution centers and last-mile delivery are back on track, while in-store recovery will be slower as people remain nervous about going back to stores until mass testing eases.

China’s demand for luxury is back