Will Revenge Buying in China Save the Luxury Industry? SF Investigates

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Revenge buying has become the topic du jour in the luxury fashion world as brands have seen a small but not insignificant bounceback in China-based sales since the country’s lockdown ended. Revenge against whom – or what? Presumably the restrictions of quarantine and the inability to access luxury goods for the prior two months. As ground zero of the pandemic, China was hit particularly hard. Store traffic fell as much as 80 percent at the peak of lockdown, with a corresponding 80 percent decline in first-quarter sales revenue for some brands. But as the barriers to access lift across tier-one and tier-two cities in China in February and March, brands are seeing cautious but optimistic improvements.

It cannot be overstated how important the Chinese consumer is to the health of the global luxury market.

It cannot be overstated how important the Chinese consumer is to the health of the global luxury market. Emerging as one of the world’s most significant buying powers after 2010, China was responsible for over half of all global luxury growth in the six-year span between 2012 and 2018. That figure is staggering if you consider the $2.5 trillion in global annual revenues generated by the luxury sector. Prior to the pandemic, it was estimated by McKinsey & Company that China will retain 40 percent of global spending power until 2025 (that’s as far as the management consulting company was able to forecast). But we’re living in a peri-pandemic world. On a broader scale, Bain & Co. estimated that the global luxury market will lose between $65 to $75 billion in sales in 2020. Fashion weeks across the world are cancelled until further notice, travel bans have put a halt to travel shoppers, supply chains are in disarray, inventory is piling up – the list of catastrophes goes on. 

E-commerce saw a bump, particularly as countries entered lockdown and consumers stocked up on initial supplies, but there are still delivery delays to contend with, items being stopped at customs and unable to enter the country, and the downward spiral of brick-and-mortar that ensures any e-commerce upward trend won’t guarantee a brand can break even. According to The State of Fashion 2020: Coronavirus Update report by Business of Fashion: “We estimate that revenues for the global fashion industry (apparel and footwear sectors) will contract by 27 to 30 percent in 2020 year-on-year, although the industry could regain positive growth of two to four percent in 2021.”

Photo: Courtesy of Getty Images

It’s a bleak time, in more ways than one, packed with uncertainty and unknowns. What’s clear is that China’s revenge buying spree could boost luxury spending more quickly than was initially estimated. Tmall, a brand name e-commerce site, reported in March that major brands experienced double-digit sales growth as compared to last year. Hermès – which has reopened all but two of its stores in mainland China – saw $2.7 million dollars in sales in a single day at its flagship location in Guangzhou. Meanwhile, Farfetch has seen faster growth in its China marketplace than any other.

As a testing ground for the luxury market, brands are putting their focus – and their hopes – on the Chinese consumer. Dior rolled out its new ‘Gem’ clutch via WeChat before it was introduced in the West. Burberry and Louis Vuitton have continued communicating with Chinese shoppers via live streaming events on social media, and seen high engagement as a result. One silver lining to lockdown is that it has spurned brands, many of whom had little to no e-commerce presence prior to the pandemic, to innovate new online and omnichannel approaches to retail. 

But what is less clear is how long the rebound will last, or how sustainable it is, given that manufacturing and supply chain issues persist outside of the country. Many Chinese companies are considering a reduction in export in order to bring domestic manufacturing inside the country’s borders. This could solve supply chain issues, but how quickly it can be implemented – as with the general solvency of revenge buying and its long-term benefits to the global luxury market – still remains to be seen.

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