The Rebound in China’s Luxury Demand Could Signal a V-Shaped Recovery
Investors across the world are now bracing for the economic aftermath of the COVID-19 pandemic. As countries gradually emerge from extended lockdown over the next few weeks, institutional investors and industry veterans have been debating whether the economy will quickly bounce back (a “V-shaped” recovery) or take years to recover (“L-shaped”).
Now, early indications from China seem to suggest at least some sectors of the economy could bounce back quickly. High-end luxury brands including LVMH, Dior, Fendi, Hermes and L’Oreal saw a spike in sales on the mainland when restrictions were lifted in April. Sales of Hermès’ famous Birkin bags reached $2.7 million on the first day of reopening in Guangzhou, the highest the company has ever recorded. LVMH reported that sales in Mainland China jumped 50% in the first few weeks of April.
Sales of diamond-encrusted watches, silk scarves and opulent tableware also rebounded strongly in China, in what Bloomberg called a “revenge spending” spree. This splurge could indicate pent-up demand, at least from high-end consumers across the world.
However, some experts believe the “revenge spending” is temporary and could taper off rather quickly. 29% of respondents to a recent Morgan Stanley survey in China said they planned to spend less on luxury goods in the near future and more on essentials such as groceries. A lack of consumer confidence in the high-end sector could represent a bleak outlook for the global economy, especially consumer-driven regions such as North America.