(Yicai Global) Feb. 8 -- China's luxury goods market is expected to swing back to growth this year after contracting for the first time in five years in 2022 because of the impact of the Covid-19 pandemic, according to a new report by US consultancy firm Bain & Company.

The Chinese market for luxury products will likely return to positive growth by the end of this quarter and recover to the level of 2021 by the middle of the year, said the report, published yesterday.

Affected by continuous Covid-19 outbreaks, a weak real estate market, income uncertainties, and poor consumer demand, the country’s luxury goods market shrank 10 percent last year from 2021, ending a five-year expansion.

The consumption fundamentals of the luxury goods market in China remain solid, with the ranks of middle- and high-income consumers set to double by 2030 compared with last year, the report said.

Goods categories with a high share of sales through online channels were impacted less last year. Sales of cosmetics, which are sold online half the time, fell only 6 percent from the year before. Watches, fashion and lifestyle products, and jewelry and leather goods declined 20 percent to 25 percent, 15 percent to 20 percent, and between 10 percent and 15 percent, respectively.

Duty-free stores in China’s beach resort province of Hainan have made significant contributions to China's luxury goods market in recent years. But because of Covid’s impact on tourism, duty-free sales on the island fell 30 percent to CNY3.5 billion (USD516.3 million) last year, with the number of shoppers dropping 35 percent, according to Bain.

To tackle the challenges brought by Covid, tourism retailers tapped into e-commerce. China Tourism Group Duty Free, the country's largest tax-free store operator, saw its duty-free business revenue plunge 34 percent in the first half of 2022, while its e-commerce business rose by 5 percent.

This year, Hainan will return as a major destination for Chinese consumers, Bain noted, adding that the demand for cross-border travel will also rebound, with Hong Kong, Macao, and Southeast Asian countries becoming the first to welcome back travelers from the Chinese mainland.

Editor: Futura Costaglione