Boston Consulting and Tencent Digital Luxury Report Forecasts China Luxury Up 30%

According to Bloomberg, Hong Kong retailers saw better than expected sales even as social-distancing measures were stepped up to combat the latest wave of coronavirus infections. The economists surveyed by Bloomberg had expected a 17.5% decline in retail sales for this period but a government report showed that Hong Kong retail sales slump had eased, falling only 13.1% from a year earlier to US$3.3 billion. Meanwhile, retail sales volume, a measure of retail sales in constant prices, a.k.a. in real terms, showed that volumes also dropped 13.4% from a year ago, an improvement on the 23.8% decline in July. Meanwhile, another bright spark on the horizon supported positive sentiment as Boston Consulting Group (BCG), in cooperation with Tencent Marketing Insight (TMI) released the 2020 BCG x Tencent Digital Luxury Report showing that Chinese demand for luxury goods is projected to grow as much as 30% this year as high income mainland shoppers continue to drive the country’s post-pandemic rebound.

“China’s tourism market is expected to see a wave of growth led by people’s desire to ‘revenge travel’” – Xinhua News

According to government estimates, around 550 million Chinese citizens are expected to travel interstate with the beginning of Golden Week festivities, an eight day break beginning today, Thursday Oct 1st, spanning National Day tomorrow and the Mid-Autumn Festival. Though the number is more than half of the usual 782 million people who make their domestic journeys, it’s still a pretty significant figure with reporting that bookings for domestic flights during the National Day holiday this year already surpassed the number last year,

On Sept 28, Reuters also reported significant rebound in domestic travel over the upcoming Golden Week holiday with some flights selling out with travel platforms like reporting a 20% surge in hotel bookings. Alibaba-backed online travel platform Fliggy said hotel bookings for Golden Week were up by more than 50%. Travel demand is fuelling optimism the Chinese travel industry has reached a turning point echoing the 2020 BCG x Tencent Digital Luxury Report’s sentiments that the world’s second largest economy was getting back to normal.

The recovery of the tourism sector is the latest sign of the country’s post-pandemic economic rebound, echoing Chinese demand for luxury goods as worldwide luxury spending shrink 45% in 2020 as Europe and the US continue to struggle with coronavirus pandemic ahead of a feared winter wave of infections.

“The luxury market in China was the first to recover from the impact of COVID-19, and is seeing an increasing rebound in local consumption and online channel adoption. The share of pure online purchases has increased to 30%, indicating a shift towards an omni-channel journey. In the post-COVID era, luxury brands need to re-consider the key characteristics of Chinese consumers, think about how to better leverage digitalization enablers to understand and cater to consumers’ needs, and develop a truly omni-channel shopping experience that takes into account both service and experience.” – Crystal Hao, Managing Director & Partner of BCG

Revenge Travel and Revenge Spending in China spurring Recovery forecasts

Since early 2020 when the COVID-19 pandemic broke out worldwide, the luxury market has been hit hard and is expected to decline 25% to 45% compared to the previous year. The Chinese luxury market, however, which has benefitted from successful domestic control of the pandemic and has taken the lead in recovery against a depressed global market environment, is forecast to grow from 20% to 30% in the whole year of 2020. State owned Xinhua news reported that, “China’s tourism market is expected to see a wave of growth led by people’s desire to ‘revenge travel”echoing a wider phenomenon of “revenge spending” reflecting pent up demand from the earlier, more draconian lockdown measures which characterised the CCP”s initial response to the coronavirus outbreak.

Not all Chinese cities faired as well, Hong Kong has borne the brunt of a deepening economic recession this year amidst rising US-China political tensions and recurring protests. “As economic conditions remain under pressure and inbound tourism is unlikely to show any swift recovery in the near term, the business environment of the retail trade will remain difficult,” the spokesman said. “Local consumption sentiment may further improve if the recent stabilisation of the local epidemic situation sustains.” Hong Kong Chief Executive Carrie Lam announced a US$3.1 billion round of relief stimulus late September, a less generous amount than the previous two rounds of economic stimulus, leading to some criticism that it might be too small to be effective.

Thanks to its wider recovery, China has become the main battleground of major luxury brands looking to compensate for declining retail sales volumes in other markets.