2022 ended on a mixed note for many luxury brands. Revenue growth was stunted by the rising wave of COVID-19 infections in China, with Burberry’s in-store sales dropping double digits in the three months to December 31. Although strong demand from the rest of the world helped to offset losses, the missed estimates serve as a reminder that the mainland continues to be a critical market for retailers.
With the Chinese economy now in slow recovery, local consumers starting to travel, and the Lunar New Year in full swing, luxury groups are hopeful for a rebound — Swatch Group is even banking on having a record year. Will the Year of the Rabbit bring renewed luck and fortune to global companies?
On January 18, Burberry Group released a third-quarter trading update. Stricken by soaring COVID-19 cases and slumping foot traffic at the end of 2022, comparable store sales in mainland China fell a whopping 23 percent. However, double-digit growth in revenue outside of the market helped to counteract this loss, resulting in total comparable store sales of 1 percent in the 13-week period.
The famed trench coat-maker credited a strong program of pop-ups, VIP experiences, and social media campaigns for its progress. This included erecting its first-ever ice rink at K11 MUSEA mall in Hong Kong, as well as rolling out a new store concept in the city’s luxury shopping mall Pacific Place. The British brand also launched a Lunar New Year campaign that put a playful, bunny-inspired spin on the TB monogram, which should help boost results in the next quarter.
Compared to 2019, when Chinese shoppers accounted for around 40 percent of Burberry's retail revenue, this demographic now accounts for only a quarter of its business. Still, Burberry is confident in China’s recovery: In addition to local shoppers starting to travel and splurge abroad again, there is the “ the opportunity of the growth in the middle class, significant accumulated savings of Chinese consumers and also policy easing,” listed CFO Julie Brown in the earnings call.
Like Burberry, luxury group Richemont was also significantly impacted by mainland China’s underperformance in its third quarter. “The massive increase of COVID cases negatively impacted customer traffic and, due to staff unavailability, led to a reduction of boutique opening hours or temporary closures of points of sale in mainland China, leading to a sales drop of 24 percent during the period under review,” the company wrote in a press release.
The owner of Cartier, Piaget and Vacheron Constantin missed analyst estimates, with total sales growing at 5 percent at constant exchange rates to about $5.8 billion (39.8 billion RMB). This was driven by a 43 percent jump in revenue in Japan, a 19 percent uptick in Europe, and a 10 percent increase in the Middle East, where the group benefited from the FIFA World Cup in Qatar. By business area, jewelry labels grew 8 percent in sales while specialist watchmakers (such as IWC Schaffhausen, Jaeger-LeCoultre, and Panerai) dipped 5 percent due to double-digit declines in the Asia Pacific, which accounted for close to half of this category’s growth.
The first of Europe’s big-three luxury conglomerates to report its earnings in 2023, Richemont’s results reiterate two things: one, the continued importance of China to the luxury sector’s growth; and two, the sustained demand for luxury even amid macroeconomic pressures. Although Richemont did not offer an outlook this year, a spokesperson told Reuters that the conglomerate is experiencing “a strong retail rebound before the Lunar New Year holidays,” leaving analysts optimistic.
Releasing its fiscal 2022 results, Swatch Group reported a 4.6 percent growth in sales to $8.14 billion in 2022. This was “severely dampened” by a sales shortfall in China, which amounted to $758 million (5.1 billion RMB). “First the lockdowns, and then the massive COVID wave, after the measures were lifted, led to shortfalls of over 30 percent in this quarter,” Swatch Group wrote in a press release. “The decline in the month of December alone was around minus 50 percent.”
The group noted that the Bioceramic MoonSwatch models — a collaboration between sister brands Swatch and Omega — were its bestsellers last year, with demand still high nine months after their release. In fact, the 11 solar system-inspired models generated such high global demand that there is currently not enough in stock, despite not being a limited edition collection. The crossover, which attracted large crowds in Hong Kong when it first dropped, points to the power of a luxury brand-street brand collaboration and the appeal of offering a luxury design at an entry-level price.
With consumption recovering in mainland China and its surrounding markets, Swatch Group not only anticipates strong sales growth in 2023 but is aiming for a “record year.” There’s good reason to be optimistic too, as Swiss watch exports jumped to a record high in November, said the Federation of the Swiss Watch Industry, largely thanks to cash-flush American consumers snapping up luxury timepieces.