China’s recovery from pandemic lockdowns is positively impacting the sales of U.S. companies such as Procter & Gamble, Starbucks, and MGM Resorts International. As consumers in their domestic markets become more cautious with their spending, these companies highlight that China’s economic revival is boosting their overall sales.
Due to its significant population size and growing middle class, China represents an attractive market for numerous multinational corporations whose U.S. operations may have reached a mature stage. However, the country’s zero-Covid policy, which involved implementing strict measures to contain the virus, adversely affected both China’s economy and the revenue of U.S. companies that rely on selling goods or services in China.
Since relaxing the zero-Covid policy in December, China’s economy has experienced a growth rate of 4.5% in the first quarter. U.S. companies are now reporting a resurgence in demand from China, which is contributing to increased sales for these companies at a time when many U.S. consumers are reducing their spending.
However, the pace and magnitude of the recovery have not met the optimistic expectations of many investors. Most companies are still striving to surpass their pre-pandemic sales figures in China. Particularly, the travel retail sector is facing a more prolonged recovery process. Notably, Apple experienced a decline in sales in its China region, which encompasses the mainland, Hong Kong, and the nearby self-governing island of Taiwan.
According to a research note by Morgan Stanley analyst Kelly Kim, the firm’s China consumer team anticipates the recovery to unfold in three stages. Firstly, a “spring break” period from February to April, followed by a phase of summer “revenge spending” spanning from May to July. Finally, a stable recovery is expected to commence in August.
U.S.-based restaurants witnessed a return in demand in China, but their sales have not yet fully recovered to the levels seen in 2019.
Starbucks announced that its same-store sales in China increased by 3% in its most recent quarter, reversing the previous declines. However, some analysts on Wall Street had predicted a continued decline in same-store sales for Starbucks, considering China as its second-largest market.
In the preceding year, the coffee giant had suspended its annual forecast due to factors including the lockdowns in China. During that quarter, Starbucks’ same-store sales in China had declined by 23%.
Yum China, the master franchisee of Yum Brands in China, also reported an 8% growth in same-store sales during the first quarter. China represents KFC’s largest market and Pizza Hut’s second-largest.
Joey Wat, CEO of Yum China, mentioned during the company’s conference call with analysts that they had benefited from increased mobility, leading to over 40% growth in transportation and tourist-related sales. However, same-store sales at these locations in the first quarter remained 20% to 30% below the levels seen in 2019.
As restrictions in China lift, Chinese consumers are once again engaging in travel, visiting theme parks, and casinos. This increase in travel and leisure spending has benefitted various U.S. companies in the early part of the year.
Disney has reported “improved financial results” at its Shanghai and Hong Kong resorts, expressing satisfaction with the rebound after pandemic closures. Macao, the world’s largest gambling hub, has experienced a surge in tourists since dropping testing requirements for inbound travelers from mainland China, Hong Kong, and Taiwan. MGM Resorts International has seen a swift return to profitability in its Chinese casinos, with foot traffic reaching pre-pandemic levels.
Airbnb’s Asia-Pacific division has witnessed significant year-over-year growth in nights and experiences booked, as China lifted travel restrictions. However, outbound recovery is expected to be gradual due to limited flight capacities. While many U.S. businesses are benefiting from China’s recovery, the travel retail sector is still awaiting a similar rebound.
Luxury skin-care brand SK-II, owned by Procter & Gamble, has observed sales bouncing back in China, except for its travel retail segment. Tapestry, the parent company of Coach, Kate Spade, and Stuart Weitzman, has noted an uptick in domestic Chinese travel, although global Chinese tourism remains below pre-pandemic levels. Coty, a beauty giant, has seen consumer traffic returning to retailers and reported strong sales at duty-free shops and tourist destinations.
Despite inventory challenges, Coty’s sales in China have surpassed previous periods, and the company’s strategic investments and product launches in the region are expected to drive market outperformance.
Overall, while there are positive signs of recovery in China for various U.S. companies, the full rebound in travel retail and global Chinese tourism is still awaited.