By Trefor Moss
SHANGHAI -- The coronavirus pandemic has created a divide in
China's consumer economy, with makers of premium products
rebounding strongly but those catering to mass-market consumers
finding it tougher to return to growth.
Driving the trend: The relative stability of upper middle-class
incomes in China throughout the pandemic, with many white-collar
workers able to work and ride out the crisis from home. In
contrast, up to 80 million Chinese people, mainly lower earners in
services and manufacturing, have lost their jobs this year as a
result of the pandemic, according to the Chinese Academy of Social
From cars to sportswear and liquor, Western and Chinese
companies that provide luxury items have seen sales growth return
more quickly. While Chinese retail sales declined 9.9% between
January and July from a year earlier, many brands targeting
affluent consumers continued to grow.
"The second-quarter business in China bounced back," said
Nicolas Peter, BMW AG's chief financial officer during a recent
earnings call. "Our second-quarter sales were already higher
year-on-year," rising 17%, he said. Daimler AG, which makes
Mercedes-Benz cars, had a record June quarter in China, the
company's chief executive, Ola Källenius, said.
Volkswagen AG, whose brands span the luxury and entry-level
segments, saw only a gradual recovery in China overall, said
Christian Dahlheim, VW's head of group sales, but the premium Audi
unit delivered record sales in May and June.
The trend has been repeated across China's consumer sectors.
Clothing and footwear as a whole have been generally slow to
rebound in China, with sales declining 9% in the second quarter
from a year earlier. But luxury jacket producer Moncler S.p.A. and
premium sportswear brand Lululemon Athletica Inc. both saw their
quarterly sales grow by double-digit percentage points over that
"Our China business has really returned to where it was
pre-Covid-19," Lululemon CEO Calvin McDonald said.
Likewise, Chinese liquor and tobacco sales fell 3% between
January and June when compared with a year earlier, but top-shelf
labels outperformed, most notably Kweichow Moutai Co. -- a local
producer of high-end grain spirit -- which increased its revenue by
13% and 9% in the first two quarters, respectively.
In the cosmetics sector, which was down slightly overall in the
first half, premium brands also prospered, with L'Oréal S.A. --
seen as a high-end brand in China -- reporting a 6% and 18%
year-over-year sales increase in the first two quarters,
"In China especially, the market rebounded very quickly and was
back to double-digit growth in Q2," said Jean-Paul Agon, L'Oreal's
Though suffering globally, luxury brands were helped in China by
travel restrictions that kept affluent consumers at home and away
from splurging in foreign boutiques, where luxury goods have
traditionally been cheaper than in equivalent stores in Beijing or
Shanghai. The China unit of LVMH Moët Hennessy Louis Vuitton SE
grew 65% year-over-year in the second quarter, while Kering SA,
whose brands include Gucci, was up over 40%.
Demand for luxury items had rebounded so strongly by mid-August
that Gucci and Hermès stores in Shanghai were among those limiting
visitor numbers to prevent overcrowding, staff at two of the
brands' outlets said Wednesday.
Autos were among the Chinese economy's worst-hit sectors
overall, with sales down 23% year-over-year in the first half, the
China Passenger Car Association reported. Yet premium brands
collectively increased their sales by about 1% on-year, it
As the overall car market returned to growth in July, increasing
nearly 8% from a year earlier, premium cars led the way, surging
30% from the year before.
Sales of Tesla Inc.'s premium electric cars more than doubled in
China in the first six months of the year, as the company began
delivering cars from its new Shanghai plant in December. But while
premium sales remained strong in the first half of 2020,
mass-market players such as state-run BAIC Motor Corp. watched
their sales collapse by roughly two-thirds, according to
passenger-car sales data from LMC Automotive.
Covid-19 persuaded many Chinese people to ditch public
transportation in favor of private vehicles, but "affluent
households are better equipped to put those types of decisions into
practice quickly," said Robin Zhu, an analyst at Bernstein
Research, adding that rising unemployment mainly sapped demand for
Premium auto makers also have been offering big discounts and
generous financing, tempting some buyers to trade up and further
weakening demand for midrange alternatives.
"This is a rare window of opportunity," said Aries Huang, a
product manager at a videogame company in the southern tech hub of
Shenzhen, who took advantage of the post-Covid market in July to
buy his first car -- a BMW, a brand he had long dreamed of
"Everything is encouraging us to choose premium cars," he
With videogame sales booming during the pandemic, Mr. Huang's
$5,700 monthly paycheck was never in jeopardy. He said that when he
saw the BMW X1 sport-utility vehicle that he had wanted on offer
for just $34,000, down from a list price of $39,700, he
The deals available on new cars aren't much help to those jolted
financially by the pandemic.
"I know it's a good opportunity to buy a car. Salesmen call me
all the time to update me on their latest promotions," said an
accountant surnamed Yuan whose employer, a toy manufacturer in the
southeastern city of Xiamen, stopped paying salaries in May as
foreign orders dried up. "But I just can't spend the money and take
on the debt right now."
Mr. Yuan was planning to buy an entry-level car from state-run
auto maker SAIC Motor Corp. but has abandoned the idea. "Now I have
to make sure the basics are covered," he said, "and go without
things like cars, holidays and fancy meals."
Raffaele Huang and Zhao Yueling contributed to this article.
Write to Trefor Moss at Trefor.Moss@wsj.com
(END) Dow Jones Newswires
August 19, 2020 09:23 ET (13:23 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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