Shares in global luxury heavyweights such as LVMH, Hermes, Kering, Tiffany and Prada have gained on hopes for a recovery in Chinese spending following the end of country’s ‘zero-Covid’ policies in the fourth quarter of last year.

“Luxury consumption will recover as Covid subsides, mall traffic improves, and consumer sentiment rebounds. We expect to see 2021 sales levels sometime between the first and second half of 2023,” said Weiwei Xing, a Hong Kong-based Bain partner.

“While optimism abounds, there are also risks,” Xing noted. Among them: “As more Chinese high net worth individuals are residing outside of China, luxury brands must deliver excellent experiences everywhere in the world.”

The economic slowdown affected entry-level luxury consumers more than high-net-worth individuals last year, Bain said. Among hard-hit segments in 2022, the watch market saw the steepest decline, with sales falling 20%–25% from 2021. Fashion and lifestyle categories experienced a 15%–20% decline, it said.

Product categories with strong online penetration were less affected by lockdowns and fared better, Bain said. For example, with 50% online penetration, luxury beauty only shrank 6%, it noted.

“While most brands saw declines in 2022, a few stayed flat or grew despite challenging conditions. Three factors contributed to their success – first, bigger brands out-performed smaller players on average; second, brands with iconic portfolios did better than those with trendy or seasonal merchandise and finally, brands with a higher concentration of very important clients fared better,” said Bruno Lannes, a Shanghai-based Bain senior partner.