What: Beijing’s policy shift regarding Covid-19 will give the luxury sector a boost in 2023 but a surge in infections and slow economic growth could weaken the recovery after the uplift from the Chinese New Year.

Why it is important: Chinese consumers remain fundamental to the industry’s global growth and the luxury sector’s much-needed comeback in China is finally close as the country lowers its zero-Covid stance.

As Beijing’s Covid-19 policy shifts, analysts and investors are confident in predicting a fast recovery for sales in the luxury market than they did a few months ago, however, the outlook remains highly volatile in the short term. With restrictions lessening, Chinese consumers are increasing their spending domestically. It is estimated that sales in mainland China will drive between 25 to 27% of the personal luxury goods market, compared to 11% before the pandemic. Additionally, as much as 40% of personal luxury goods sales will be made by Chinese consumers.

The uncertainty and timidness regarding Covid-19 will make the first quarter the most difficult. Resuming life as normal won’t necessarily equate to increased luxury sales, as more consumers intend on spending on experiences rather than luxury goods. The wealthy will lead China’s rebound, making strong connections with current customers a top priority for brands. Some brands have already implemented strategies to reach these consumers, such as Chanel and Dior taking over the third floor of department store SKP to open VIP salons.

Analysts and experts predict that a spending recovery should come to fruition by the end of the second quarter. With this in consideration, it’s forecasted that China will reclaim its status as the top luxury spender by nationality and luxury spending among Chinese consumers will increase to about 30% for 2023.

However, determining the country’s luxury sector recovery will be influenced by how the travel market emerges. Domestic travel is beginning to pick up while international travel will take longer to rebound. However domestic travel will remain important for luxury brands as a growing number of Chinese consumers will continue to shop locally as a result of significant investments in retail and marketing across China by luxury brands.

Luxury set for a bumpy ride in China