Beauty, pleasure products top Shanghai’s post-lockdown ‘revenge spending’

Mother-of-two Yang Zengdong was ready to take her family on a long-awaited outing to mark Shanghai’s grand reopening from lockdown this week.

Her ambitions — head to a mall, see what is open and maybe buy a drink or some small toys for her young daughters — were modest, but even those simple pleasures have been impossible during the gruelling two-month lockdown.

Unfortunately for retailers desperate for a quick, “vengeful” return of shoppers of the sort seen in 2020 when China enjoyed a “V-shaped” recovery from its initial battle with the pandemic, the excitement that is palpable on newly bustling city streets is tempered by wariness about the future.

Shanghai's lockdown may be over, but China is sticking to its zero-Covid elimination strategy, fuelling worry in the city of 25-million that it could all happen again.

“A lot of my friends, people with families and kids, their idea is to buy a bigger fridge, or food — they aren’t interested in buying unnecessary stuff right now,” said Yang, a teacher.

The focus on necessities echoes e-commerce giant Alibaba Group CEO Daniel Zhang’s remarks last week.

“In all those different tiers of consumers, demand for essentials has gone up and there's been less price sensitivity. Whereas with respect to nonessential purchases, there has been more price sensitivity,” Zhang told analysts, saying consumers were also stocking up to prepare for future uncertainty.

Though Shanghai will inevitably see retail bounce-back, it will be coming off a low baseline, with retail spending in April plummeting 48.3% year on year.

Shopping is unlikely to be boosted by stimulus payments to consumers, as seen in other countries. China prefers to target such spending towards infrastructure and businesses, rather than consumers who are prone to saving.

Jason Yu, Greater China MD of market research firm Kantar Worldpanel, predicts an initial spending recovery at food and beverage outlets suited to pick-up and delivery, with coffee, bubble tea, cakes and other “categories related to pleasure” set to come back strongly.

Beauty is also poised to benefit from a return to public life, Yu said, adding that the “618" shopping festival — in which all major Chinese e-commerce platforms and many major brands participate — could provide a sales boost.

“There will be some pent-up demand for skin care and beauty categories, especially if premium brands are marketing themselves more aggressively with discounts,” he said.

Shanghai has long been a magnet for luxury retail and is home to 12% of luxury brand stores on the mainland.

“Many shops are offering incentives to bring shoppers back, including tripling the points they can earn in their loyalty programmes,” said Amrita Banta, MD of luxury consultancy Agility Research & Strategy.

Still, she isn’t betting on business-as-usual for Shanghai luxury spending.

“I would expect the initial few days of the opening up to see a lot of crowds, but this will also have the effect of keeping other people at home who do not want to risk being in busy areas,” she said.

Reuters