Richemont and Burberry sales disappoint, dragged down by China’s Covid-Zero strategy

China’s Covid-Zero approach remains the biggest challenge facing the luxury industry as the pandemic enters its third year.

Lockdowns, strict testing requirements and a near collapse in Chinese international tourist travel hit Richemont and Burberry Group Plc last quarter as investors worried about the future of arguably the world’s largest luxury market.

Richemont, the maker of Cartier jewelry and Vacheron Constantin watches, saw sales in mainland China drop 37% in the three months to June. Burberry’s comparable sales fell 35% in mainland China due to restrictions and store closures.

“The biggest impact in China is really Covid-related as opposed to any broader economic impact,” said Julie Brown, chief operating and finance officer of Burberry. “40% of distribution was effectively closed at the start of the quarter.”

While the two companies said the situation in China started to improve in June, Covid-19 cases are on the rise again in the country, raising the threat of further shutdowns. That prospect weighed on their shares, said Jean-Philippe Bertschy, an analyst at Vontobel in Switzerland.

Richemont fell 6% in Swiss retail, while Burberry fell 6.6% in London.

Europe and the United States

Outside of China, appetite for luxury goods is rebounding, even in the face of economic headwinds and soaring inflation. Richemont sales rose double digits in Japan, Europe and the United States, as Europe benefited from “robust domestic demand and a return in tourism spending,” the company said. In France, sales jumped to three digits.

Same-store sales at Burberry rose 1% in the April-June quarter. Excluding mainland China, sales were up 16%, showing the impact of the shutdowns.

The British fashion brand kept its medium-term outlook stable as it “actively manages” the impact of lockdowns in China and soaring inflation in its UK home market.

By Andy Hoffman and Deirdre Hipwell

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