Disruptions caused by COVID-19 and China’s stringent measures against the pandemic kept consumers away from stores, some of which had to close temporarily or operate on shorter opening hours due to staff shortages. Against this backdrop, foreign luxury brands faced strong headwinds in mainland China in 2022. However, luxury brands will continue to focus on China as the expected revival in its economic growth will drive up sales for them, says GlobalData, a leading data and analytics company.
Raviteja Neralla, retail analyst at GlobalData, comments: “Despite China’s discouraging market environment in 2022, luxury brands will continue to consider it an important market. Following the Chinese government’s adjustment to its COVID-19 policy towards the end of 2022, the Chinese economy is expected to remain resilient in 2023, which could act as a strong factor in driving luxury brands’ confidence in the market. GlobalData forecasts that China’s luxury retail market will grow by 6.1% and 6.0% in 2023 and 2024, respectively. Sales of luxury jewelry, watches, and accessories will grow by 6.7% and 6.8%, respectively, in 2023 and 2024*.
Neralla adds, “The resilience of the Chinese economy in 2023 will act as a strong factor in driving luxury brands’ confidence on the market. GlobalData estimates China’s real GDP to grow by 4.82% in 2023, following the Chinese government’s adjustment to its COVID-19 policy towards the end of 2022**. The pent-up demand for luxury goods and Chinese consumers’ savings during lockdowns will play a significant role in driving up sales. Spending from high-income consumers is likely to see an uptick during the Chinese New Year festivities which started on January 22 and will end on February 5, giving a boost to private consumption in the country. The Chinese government has also eased its fiscal and monetary policies, which will pave the way for better economic growth compared to western economies in 2023.”
Neralla concludes: “In contrast, Western economies are likely to register significant slowdowns, sparking recession fears. For instance, the UK’s real GDP is expected to decline by 0.9% in 2023. The US real GDP is expected to grow by a modest rate of 0.3% in 2023**. The prolonged conflict between Russia and Ukraine and the supply chain disruptions resulted in severe inflationary conditions in the Americas and Europe. As a result, consumers’ purchasing power took a hit in these regions, with them cutting down on their discretionary expenditures. As a result, luxury goods manufacturers are likely to find themselves pulled away from the west towards China.”
*GlobalData Retail Intelligence Center—Market Analyzers, accessed in January 2023
