Chinese consumers are back to binging on luxury handbags, cosmetics and cars. But this shopping enthusiasm is not extending to mass consumption in sporting goods, beer and restaurants.
An uneven recovery is under way in China as the world's biggest consumer market also becomes one of the first nations to rebound from the coronavirus pandemic that continues to ravage the global economy.
Bored after months of strict social distancing measures and unable to vacation overseas, wealthy Chinese consumers are seeking comfort in retail therapy. This bodes well for dozens of luxury goods makers whose growth was fueled by China's increasing affluence in the past decade.
Bloomberg analyzed June-quarter revenue for over two dozen companies that are market leaders in China across key consumer goods categories. Three pandemic-triggered trends emerged, driven mostly by pent-up desire to spend, focus on healthy lifestyles or wariness of public spaces.
Premium v Mass Products
Luxury goods makers saw double-digit revenue growth in the latest quarter compared to the same period last year, underscoring the strongest recovery trend. Inability to travel overseas has boosted businesses in the domestic tourism hotspots and duty-free shops.
"The pent-up demand from nearly two months of lockdown between February-March likely led local shoppers to purchase more aspirational brands than mass brands," said Catherine Lim, a Singapore-based Bloomberg Intelligence analyst. "Consumers are definitely looking to treat themselves following the scare from the outbreak."
LVMH's China sales last quarter rose 65% from a year ago while overall group revenue dropped 38%. The wine-to-watches luxury group has seen "a very good offset in China for the rest of the business, which is suffering," Jean-Jacques Guiony, LVMH's chief financial officer, said in an earnings call in late July.
Kering SA's sales in mainland China jumped over 40% after a hit in the first quarter.
But these spoils are not shared by mass-category consumer products. Other firms such as Anta Sports Products Ltd. and electrical-appliance maker Midea Group Co. have seen little or no sales growth between April and June. Total retail sales were still decelerating in July, highlighting the continuing economic pain from the coronavirus outbreak.
The government data as well as market research show that the pandemic "deals a bigger blow to the low-income consumers who have to further tighten their belt," said Luo Yixin, a consumer analyst at Huatai Financial Holdings. "That's why the performance of consumer brands in China has polarized in the last few months."
The Ministry of Commerce will launch this year's "consumption promotion month" from Sept. 9 with activities including food carnivals and e-shopping campaigns, to further unleash the pent-up demand and accelerate the recovery.
Companies promoting healthy living -- dairy firms in particular -- have been another big beneficiary as consumers strive to take better care of themselves.
China Mengniu Dairy Co. reported 19% revenue growth for the June quarter and an 86% profit surge compared to last year. Inner Mongolia Yili Industrial Group Co. saw a 23% rise in revenue and 72% surge in quarterly profit, rebounding from a profit slump in the March quarter.
"Consumers' rising health awareness amid the coronavirus outbreak is bringing growth opportunity for health-related products, especially the dairy business," Yili said in the interim result statement in August. Mengniu too expects sales and profit growth to continue for the same reasons, brokerage UOB Kay Hian said in an Aug. 28 report, citing company management in a post-earnings call.
By-health Co., a Chinese protein powder and vitamin provider, launched a marketing campaign aimed at "strengthening immunity" and saw sales surge almost 17% in the second quarter after a drop of 5% in the March quarter.
But the drive toward healthy lifestyles is not helping every company in the fitness sector, with people still reluctant to go into gyms or undertake outdoor activities due to the lingering fear of crowds.
While people have begun leaving their homes again to work and shop, they are wary of dining out and socializing.
Yum China Holdings Inc., operator of KFC and Pizza Hut eateries in the country, continued to see sales drop in the second quarter. Budweiser Brewing Co. APAC Ltd. narrowed its sales decline in the second quarter, boosted by supermarkets and online sales, but the slow re-opening of night clubs and bars remains a drag.
Analysts expect sales growth for luxury goods to temper somewhat after the pent-up demand is satiated.
"Shoppers from mainland China are likely going to be selective in their purchases in the second half of the year," said Bloomberg Intelligence's Lim. "Spending, in general, will slow down from the surge we had seen over April and June."
Disclaimer: This article first appeared on bloomberg.com, and is published by special syndication arrangement.