Starbucks to Nike report steep sales drops brought by China’s lockdowns

GLOBAL consumer giants selling everything from jewelry to T-shirts in China recorded tumbling sales in their most recent quarter, as Covid Zero lockdowns hammered consumer demand in the world’s second-largest economy.

Starbucks Corp was particularly hard hit, reporting a more than 40 per cent drop in sales in the quarter ended Jul 31. The company began the period with about a quarter of its Chinese stores shut due to Covid policies; its 940 locations in Shanghai were locked down for about two-thirds of the financial quarter. 

Luxury goods also bore the brunt of Covid chaos. Burberry Group, Richemont and Adidas each reported at least a 35 per cent drop in their most recently reported quarterly results. Kering, which owns Gucci, saw a more than 30 per cent drop. Yum China Holdings Inc and Uniqlo fared slightly better, with declines of about 13 per cent each.

Apple Inc held up the best among major foreign brands, with Greater China sales slipping just 1.1 per cent in its third quarter, though the company did offer a rare sale of some top-tier iPhones and related accessories last month in an acknowledgment of weak local sentiment. 

For many brands, the most recent quarter captured the unprecedented 2-month shutdown of the financial hub of Shanghai, which came to exemplify the lengths the Chinese authorities would go to in order to stamp out the virus. While there’s been some pick up in demand since the worst of the city’s curbs were eased, flare-ups in other parts of the country have been met with harsh containment measures, damping consumer sentiment and hurting retail sales.

It’s stoking concerns about the outlook for China’s economy, which is also facing a property crisis, record-high youth unemployment and a severe drought that’s led to power cuts. The leadership has privately acknowledged the country’s annual growth target of about 5.5 per cent is not achievable. 

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Starbucks’ chairperson for China, Belinda Wong, described the recent quarter as “pretty difficult”, with mobility restrictions and lockdowns implemented faster and eased more slowly under Covid Zero, and the company expects its recovery will be non-linear. 

Still, the global giants insisted they had long-term confidence in the world’s biggest consumer market. Starbucks’ Wong said she’s “super confident” on China, where growth would accelerate once all Covid restrictions are lifted. Adidas’s chief financial officer Harm Ohlmeyer said the company will continue to invest in the market as they “remain committed to China and convinced about its potential for the years to come”. BLOOMBERG