Starbucks to Adidas report steep China sales drop on Covid-19 lockdowns

Starbucks was particularly hard hit, reporting a more than 40 per cent drop in sales in the quarter ended July 3. PHOTO: REUTERS

BEIJING (BLOOMBERG) - Global consumer giants selling everything from jewellery to T-shirts saw sales in China tumble in their most recent quarter, as Covid-19 lockdowns hammered consumer demand in the world's second-largest economy.

Starbucks was particularly hard hit, reporting a more than 40 per cent drop in sales in the quarter ended July 3. The company began the period with about a quarter of its Chinese stores shut due to Covid-19-zero policies, and its 940 locations in Shanghai were locked down for about two-thirds of the financial quarter.

Luxury goods also bore the brunt of Covid-19 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 drop of more than 30 per cent. Yum China Holdings and Uniqlo fared slightly better, with declines of about 13 per cent each.

Apple held up the best among major foreign brands, with sales in Greater China 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 captures the unprecedented two-month shutdown of the financial hub of Shanghai, which came to exemplify the lengths that the Chinese authorities would go to in order to stamp out the virus. While there has been some pickup 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.

This is 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 has led to power cuts. The country's leaders have privately acknowledged that the country's annual growth target of about 5.5 per cent is not achievable.

Starbucks China chairman Belinda Wong described the recent quarter as "pretty difficult", with mobility restrictions and lockdowns implemented faster and eased more slowly under Covid-19-zero, and the company expects its recovery to be non-linear.

Still, the global giants insisted that they had long-term confidence in the world's biggest consumer market.

Ms Wong said she is "super confident" about China, where growth will accelerate once all Covid-19 restrictions are lifted. Adidas chief financial officer Harm Ohlmeyer said the company will continue to invest in the market as it remains "committed to China and convinced about its potential for the years to come".

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