It’s a dizzying number. According to estimates by US investment bank Jeffries, China’s share of global personal luxury goods expenditure shot up from 38% in 2019 to 80-85% in 2020. There are numerous reasons for this, starting with China’s rapid economic recovery after lockdown was lifted, and the fact there has been no second wave of infections, as has been the case just about everywhere else in the world. Travel restrictions are also part of the equation as domestic consumption benefited from purchases that Chinese shoppers would ordinarily have made overseas (Chinese tourists accounted for 51% of the European luxury market in 2019). Despite expectations of a slight decrease, Jeffries forecasts that luxury expenditure in China will continue to account for some 60% of the global market, noting that “this trend was previously forecast to take place in the next five years, but with Covid-19 this has happened in the course of just a few months.”

Go East

While other analysts are more cautious - consulting firm Bain & Co. expects that Chinese domestic consumption in 2025 will account for around 28% of the global luxury market -, the underlying assumption remains the same, and is compounded by figures from the Federation of the Swiss Watch Industry. In its November 2020 release, it notes that “the decline in Swiss watch exports has gradually slowed over the last few months. They almost reached equilibrium during November, with a slight fall of 3.2% compared with November 2019. This performance can be mainly explained by China’s return to strength, following a less dynamic October.” In hard numbers, for November 2020 this translates into a year-on-year increase in shipments to China of 69.5%. For the period January to November 2020, the Swiss watch industry logged a 17% increase in exports to China despite a catastrophic first quarter in Asia (-35.7%), although the decline was less marked in China at -14.7%.

With the exception of LVMH’s acquisition of Tiffany (after wrangling over price per share), Asia - and China in particular - is understandably where the big names in luxury are focusing their attention. The billion-dollar deal between Richemont, Kering, Alibaba and Farfetch in December last year shows how groups are engaged in a battle to become the number-one player in online luxury, starting with China. The rapid rise of Tmall Luxury Pavilion, introduced just three years ago by the Alibaba group, illustrates China’s predominance. When the platform launched in 2017, it already featured some luxury brands. Speaking at a virtual news conference last November, Christina Fontana, who is head of Tmall Fashion and Luxury in Europe, explained how Tmall took the strategic decision to group all its luxury brands into one place within the platform, “where they could directly reach its 757 million consumers.” Historically, top-tier brands have been reluctant to do business online, convinced such a move would damage brand equity and exclusivity. Now they are lining up for a flagship. Expectations were that by end 2020, around 220 leading luxury names would participate in Luxury Pavilion, compared with 150 prior to the Covid-19 pandemic. Balmain, Salvatore Ferragamo, Golden Goose, De Beers, Jaeger-LeCoultre and IWC Schaffhausen have all recently joined. To give some idea of the size of the market, during last year’s Singles Day event, Alibaba racked up $74 billion in sales across its different platforms. Montblanc equalled its quarterly offline sales in just one hour.

Luxury stock weathers the storm

Always one step ahead, stock markets have been quick to spot the investment opportunities to be had. In the days before Christmas, Swatch Group stock was 57% up on its March low and trading at only 14% below January 2020 levels. Richemont, which beat expectations for the six months to end September 2020, did even better. Having gained 80% since March, the group’s stock recovered all previous losses and at mid-December 2020 was trading at 4% above January levels. French luxury groups performed equally well. Over one year to December 18, 2020, LVMH gained 24.7% and Hermès 28.6%. Kering, meanwhile, only managed to absorb losses (-1.4%), partly due to a slowdown in sales by the group’s flagship Gucci brand.

So, on the stock markets at least, 2020 was anything but an “annus horribilis” for luxury groups. Despite plummeting tourism, economic recession, a second wave of coronavirus infections and a drop in consumer spending, the sector has remained in favour with investors who, looking ahead, see the new generation of connected Chinese consumers as the engine that will relentlessly drive luxury spending. Provided, that is, brands know how to engage them, reassure as to their sustainable and responsible behaviour, and deliver absolute authenticity. China will remain an important part of the equation for luxury multinationals and, more immediately, the key to growth in the coming months.