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What Will China’s Looser Covid Restrictions Mean for Fashion?

This week, China rolled back some strict zero-Covid measures, opening a road to recovery for luxury and retail. But the journey is likely to be long and bumpy, experts warn.
A Chanel store in Shanghai with customers queuing outside the store extrance.
A Chanel store in Shanghai with customers queuing outside the store extrance. (Getty Images)

This week, as continued strict controls led to rising unrest and economic turmoil, China’s previously uncompromising zero-Covid stance finally appeared to thaw.

Mass testing will no longer be conducted in areas that are not considered “high risk,” with lockdowns targeting specific buildings or floors rather than entire neighbourhoods or cities, Beijing said. People with mild symptoms will no longer be required to isolate in centralised quarantine facilities, and “high-risk” areas can end lockdowns after five days if no new infections are found. In many instances, lateral flow tests will replace PCR testing.

Restrictions on domestic travel were lifted, with virus checks for people traveling between regions no longer required.

The policy shift came after simmering frustration erupted into widespread public protests in cities including Beijing and Shanghai. The protests began last month after crowds in Xinjiang blamed virus restrictions for a deadly apartment block fire claiming 10 lives.

While China has rolled back restrictions before during periods with low cases numbers — only to put them back in place — this move seemed like a major shift in the government’s attitude. That Chinese authorities were responding to people’s desire for less-strict controls prompted jubilant celebrations from locals. The government also said it would accelerate vaccinations among the elderly.

What will the changes mean for the fashion industry?

As seen over the past two years of the pandemic, relaxing Covid restrictions can lead to a rapid pick up in luxury consumption, especially as consumers who haven’t been able to travel or eat out during lockdowns often accumulated bigger pots of money to spend, said Jelena Sokolova, equity analyst for Morningstar.

“That would be my expectations too for the Chinese market, if the restrictions are sustainably relaxed,” she said. “Chinese luxury consumption remains well below the pre-pandemic level, hence pent-up demand can be expected.”

In recent months, many Chinese shoppers had avoided crowded spaces like shopping malls even after lockdowns were lifted for fear of being “pinged” over a potential exposure to the virus — leading to testing and isolation — or being sent to a centralised quarantine facility if they were to test positive. The move to less-frequent testing, more localised lockdowns and at-home quarantines should help boost foot traffic.

Yet the path to reopening is likely going to be long and bumpy, analysts and experts warn. Even though China’s first reopening in 2020 after the first Covid lockdowns led to a boom in demand that soared into 2021, this time around could be different.

The easing of restrictions comes as the country enters into peak flu season. The Financial Times reported on Thursday that Beijing city, home to 22 million people, is running out of medical supplies, with hospitals starting to ration ibuprofen and paracetamol — suggesting the country’s healthcare infrastructure remains ill prepared for the loosening of restrictions.

Even though Omicron is milder than previous coronavirus variants, if infections spike among those with underlying health conditions and under-vaccinated groups like the elderly, there’s a possibility emergency services could be overwhelmed. In Europe, even after authorities accepted living with (rather than eliminating) the virus, easing of restrictions ebbed and flowed for months depending on the number of available hospital beds.

Luxury items are the ultimate discretionary purchase, with the feel-good factor heavily influencing the willingness to splurge on $3,000 bags and $900 shoes. Beyond the severity of Covid restrictions in place, a rebound in purchasing to 2021 levels also hinges on a rebound in consumer confidence; in the face of a gloomy economic outlook and the prospect of rising infection rates, how long that could take is uncertain. This week, new data showed Chinese imports and exports in November were down by their largest margins in years, the FT reported.

In fact, executives are increasingly worried about “the long road to consumer confidence recovery,” according to a new Oliver Wyman report released this month, with 83 percent saying they expected it to impact business in China over the next 12 months. Morning Star’s Sokolova pointed to the country’s property market slump as another concern, noting how weakening real estate prices from 2014 to 2016 led to a slowdown in luxury demand.

Shares of some of luxury’s biggest groups, including Richemont, LVMH and Hermès, were flat this week.

Plus, international travel — a huge driver of Chinese luxury goods purchases pre-pandemic — remains heavily restricted. Even after leisure reopens, over half of respondents to an Oliver Wyman survey that pooled thousands of Chinese consumers said they would wait between several months to a year or more to travel outside of the mainland.

Right now, even though restrictions appear to be easing, “the parameters in China remain challenging for brands,” said Daniel Langer, chief executive at luxury strategy firm Equité and executive professor of luxury strategy at Pepperdine University in the US.

“The crackdown on conspicuous consumption is an ongoing risk factor and the preference shift of Gen-Z towards Chinese brands in many categories will [put] further pressure on luxury brands,” he said.

For now, brands will be closely monitoring how the situation plays out. The upcoming Lunar New Year festivities will be a chance to put current consumer appetite for luxury goods to the test.



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Compiled by Joan Kennedy.

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