BEIJING (BLOOMBERG) – Global consumer giants selling everything from jewelry to t-shirts saw sales in China tumble in their most recent quarter as Covid Zero lockdowns hammered consumer demand in the world’s second-largest economy.
Starbucks was particularly hard hit, reporting a more than 40 per cent drop in sales in the quarter ended July 3. The company began the period with about a quarter of its Chinese stores shut due to Covid-19 policies, and its 940 locations in Shanghai were locked down for about two-thirds of the financial quarter.
Luxury goods also bore the brunt of Covid chaos. Burberry Group, Richemont, Adidas each reported at least a 35 per cent drop in their most recently reported quarterly results. Kering, which owns Gucci, saw a more than 30 per cent drop. Yum China Holdings and Uniqlo fared slightly better, with declines of about 13 per cent each.
Apple held up the best among major foreign brands, with Greater China sales slipping just 1.1 per cent in its third quarter, though the company did offer a rare sale of some top-tier iPhones and related accessories last month in an acknowledgment of weak local sentiment.
For many brands, the most recent quarter captures the unprecedented two-month shutdown of the financial hub of Shanghai, which came to exemplify the lengths Chinese authorities would go to in order to stamp out the virus. While there’s been some pick up in demand since the worst of the city’s curbs were eased, flareups in other parts of the country have been met with harsh containment measures, damping consumer sentiment and hurting retail sales.
It’s stoking concerns about the outlook for China’s economy, which is also facing a property crisis, record-high youth unemployment and a severe drought that’s led to power cuts. Leadership has privately acknowledged the country’s annual growth target of about 5.5 per cent is not achievable.
Starbucks’ chairwoman for China, Belinda Wong, described the recent quarter as “pretty difficult,” with mobility restrictions and lockdowns implemented faster and eased more slowly under Covid Zero, and the company expects its recovery will be nonlinear.
Still, the global giants insisted they had long-term confidence in the world’s biggest consumer market. Starbucks’ Ms Wong said she’s “super confident” on China, where growth would accelerate once all Covid restrictions are lifted. Adidas’s chief financial officer Harm Ohlmeyer said the company will continue to invest in the market as they “remain committed to China and convinced about its potential for the years to come”.