What Happened: On September 1, Chengdu, the provincial capital of China’s southwestern Sichuan province, announced that all residents should “stay at home in principle” (原则居家) and that daily city-wide COVID tests would be conducted until September 4. All schools and retail outlets, except those providing daily necessities, are ordered to suspend operations. The announcement prompted many residents to flock to supermarkets to secure necessities, fearing that Chengdu will be a repeat of Shanghai earlier this year. On September 5, the Chengdu government stated that the lockdown will extend until the 7 (aside from two remote suburban regions) as in the past three days, new daily cases have remained between 120 and 160.
The Jing Take: Chengdu is a major luxury hub and tourist destination in southwestern China, and its lockdown will have an adverse impact on luxury retail. In 2021, Chengdu’s International Finance Square and Sino-Ocean Taikoo Li, its two leading luxury retail outlets, took revenues of $1.44 billion (10 billion RMB) and $1.37 billion (9.5 billion RMB), respectively. Gucci’s Taikoo Li store even had the highest revenue among all of the house’s global stores in 2021. However, lockdowns across the mainland in the first half of 2022 had already taken a toll on Chengdu, with revenues of Taikoo Li declining 8.2 percent year on year. A prolonged lockdown in the city will only aggravate the downward momentum. Already, there are reports indicating that luxury brands such as Bottega Veneta and Jaeger-LeCoultre have canceled their scheduled events here.
More importantly, city-wide lockdowns may take place in other parts of the country in the near future. On August 29, the northeastern metropolis of Dalian was put under restrictions that are not expected to end until at least September 10.
In the technology hub of Shenzhen, most residents went into lockdown over the weekend of September 3, and districts with infections continue to enact strict quarantine measures. On September 5, Shenzhen reported 71 new cases. Meanwhile, multiple localities across China are calling on the public to refrain from returning home, traveling far, or making large gatherings during the upcoming mid-Autumn Festival on September 10. It is therefore unlikely that the tourism and travel retail sectors will have bright performances during the mid-Autumn Festival weekend. The slump could even extend to the National Day holiday week on October 1.
Luxury groups need to think carefully about hosting any large physical events in the next two months in China. As the pivotal 20th National Congress of the Chinese Communist Party will be held on October 16 in Beijing, limiting outbreaks is the top priority for both local and central governments. Pandemic prevention measures will be even stricter than usual. If an outbreak, even a limited one, is connected to a label’s promotional event or crowded store, the ensuing reputational damage will be enormous. As such, companies should keep a relatively low profile for the time being and shift any marketing initiatives online. They should also brace for unexpected shutdowns, like the one in Chengdu.
The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.