China is easing its Covid restrictions, offering some potential relief to retailers

China’s zero-Covid policy meant that, for months, malls in the country were shut, people were stuck inside their homes, ports were crowded, and all in all, retailers were having a hard time.

But now, the country is easing up.

Renewed hope: Shanghai, for example, recently said that it will forgo “unreasonable” restrictions on businesses, allowing some malls to reopen and customers to return to shopping.

• Beijing is also loosening some restrictions this week—though a few remain, like businesses being capped at 75% capacity.

Reopening malls will help retailers “substantially,” John Mercer, head of global research at Coresight, told Retail Brew in an email, “as evidenced by [the] corresponding slump in retail sales that occurred in April in response to lockdowns.”

• Retail sales in China dropped ~11% that month, he noted, “with key discretionary sectors such as fashion, beauty, and jewelry each down by around one quarter, year over year,” citing Coresight data.
• Burberry said in May that ~40% of its distribution in China was impacted as stores were shuttered, while Estée Lauder lowered its forecast.

Slow and steady: But it’s not just the foot traffic in stores that will pick up. With workers returning to ports, Mercer believes that the global supply-chain crisis is likely to see improvement. This might be especially significant for ports like Shanghai, which processed 3.4 million 20-foot containers in May alone, according to the Shanghai International Port Group.

The recovery, however, might not be swift as Covid outbreaks could spark more restrictions, Mercer added. “Two years ago, we saw something of a ‘revenge spending’ trend, but retail in China now appears to be operating with the sword of Damocles hanging over it, with any further Covid-19 outbreaks likely to prompt further lockdowns,” he said.—JS