China’s Covid-Zero approach still remains the biggest challenge facing the luxury industry as the pandemic enters its third year.

Lockdowns, stringent testing requirements and a near collapse in Chinese international tourist travel hit Richemont and Burberry Group Plc last quarter, with investors concerned about the future of arguably the world’s most important luxury market.

Richemont, the maker of Cartier jewellery and Vacheron Constantin watches, saw sales in mainland China plunge 37 percent in the three months through June. Burberry’s like-for-like sales were down 35 percent in mainland China because of restrictions and store closures.

“The biggest impact in China is really relating to Covid as opposed to any wider economic impact,” said Julie Brown, chief operating and financial officer of Burberry. “40 percent of the distribution was effectively closed at the beginning of the quarter.”

While both companies said the situation in China began to improve in June, Covid-19 cases are again on the rise in the country, bringing the threat of fresh lockdowns. That prospect weighed on their shares, said Jean-Philippe Bertschy, an analyst at Vontobel in Switzerland.

Richemont fell as much as 6 percent in Swiss trading, while Burberry slid as much as 6.6 percent in London.

Europe and the US

Outside of China, appetite for luxury products is rebounding, even in the face of economic headwinds and surging inflation. Richemont sales increased by double digits in Japan, Europe and the US, with Europe jumping on “robust domestic demand and a return in tourist spending,” the company said. In France, sales surged by triple digits.

Comparable store sales at Burberry rose 1 percent during the April to June quarter. When mainland China was excluded, sales were up 16 percent, showing the impact of the lockdowns.

The British fashion brand held its medium-term forecast steady, as it “actively manages” the impact of lockdowns in China and soaring inflation in its home UK market.

By Andy Hoffman and Deirdre Hipwell

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