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AS GOVERNMENTS CONSIDER EXIT STRATEGY FROM COVID CRISIS, EYES TURN TO CHINA FOR INDICATION WHERE MARKET IS HEADED

As governments begin considering an exit strategy from the COVID-19 shutdown, members of the luxury sector are looking to China, where the epidemic first began but over the past month has being reopening for business.

Prior to the start of the crisis, Chinese consumers comprised about 35 percent of global demand in the luxury sector. Bernstein Research has estimated that this could be down 30 percent to 50 percent during the first half of the year, making it the most precipitous drop in recent history.

High income luxury shoppers from China have long been inclined to split their purchases both inside and outside the country, and therefore have accounted for major part of purchases made in the sector both in Europe and the United States. However, overseas spending was curtailed somewhat in recent years, largely of a result of the Chinese government’s anti-corruption campaign, which led to a resurgence of local retailers and aided the growth of online retailers, led by the giant Alibaba corporation.

But that ended in January, as stores and malls across China closed during the lockdown. Furthermore, travel bans instituted by the Chinese government and other countries meant that Chinese consumers could not shop elsewhere. 

“Luxury is in a very precarious state at the moment. First, protests in Hong Kong disrupted both revenue and production capabilities,” wrote Doug Stephens, a retail industry consultant, in an email to Business Insider. “Now, COVID-19 not only put Chinese luxury consumers on the sidelines but has further disrupted supply chains and touched off a stock market collapse that will also give high-net-worth consumers across the globe reason for pause.”

A DEGREE OF OPTIMISM WITH OPENING OF CHINESE MARKETS

Initial results from the Chinese market have been mixed, but there has been some optimism.  Hermès reopened its flagship store in Guangzhou on April 10, and said that first day of sales equaled $2.7 million, which was said to be record-breaking for a single store in China. Among the items on sale were a diamond-studded Himalayan Birkin handbag that had been shipped in especially for the occasion.

“This reopening affirms the house’s commitment to Southern China and marks a new chapter for the Parisian house in Guangzhou, where it has been present since 2004,” Hermes declared in a public statement.

The appetite for jewelry products evidently has not been dampened in China as a result of the crisis. During the quarantine, many merchants turned to livestream, with the country’s  largest online marketplace Taobao, which is owned by Alibaba, bringing in 1 million new merchants. The number of businesses promoting their products through live broadcasting, grew by 719 percent in a single month, according to data released by the parent company Alibaba.

Diamonds being sold on Taobao’s T-mall, which saw the number of businesses promoting their products through live broadcasting up by 719 percent in a single month of the COVID-19 crisis.

Jewelry has long been a popular item on the Taobao platform, accounting for 23 percent of all sales during the first half of last year. Now, during the COVID-19 crisis, it has been joined by other high-ticket items, including real estate and motorcars.

As the coronavirus struck China, Chow Tai Fook, the country’s largest jewelry chain set up an in-house face mask production line, using its high standard dust-free cleanroom technology in its T MARK diamond processing factory in Lunjiao, Shunde. The production line began operations on March, with a capability of around 100,000 pieces of face mask per day.

CORONAVIRUS CRISIS WILL CHANGE JEWELRY SHOPPING

Unsurprisingly, sales at China’s largest jewelry chain, Chow Tai Fook, were sharply down during the first three months of the year, much of which a large proportion of the company’s stores were closed, both in mainland China and Hong Kong.

Sales during the first quarter of the year were down 41 percent on mainland China, and retail sales and same-store sales in Hong Kong and Macau fell 65 percent.

But, speaking to JCK, the companies managing director, Kent Wong, sounded relatively upbeat about the second quarter. Sales are still down, he said, but between 80 percent and 90 percent of the firm’s outlets are now open, whereas just one month ago 90 percent had been closed.

“We assumed that it would take two to three months to recover,” he stated. “I think in three or four months, we will back to normal. The present data is better than we expected.”

But there will clearly be changes brought on by the coronavirus crisis, and this includes wider use of shopping apps and online video.  

“The older people used to like to go to the market,” Wong told JCK. “But now that they started using the apps when they couldn’t go out, use of mobile has become common even with older people. They see the convenience.”

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