In China, it seems the worst is over. After months of lockdown, Chinese residents were finally able to emerge from their homes and resume their day-to-day lives. And with it, an emergence of the term “revenge spending.”

Reports on the phenomenon of revenge spending is far and wide in the media circles, from defining what it is — first coined in the 1980s when China consumer demands boomed following the years after the Cultural Revolution; to its impact on the global economy — will it help the market recover?

Just this week, WWD reported that Hermès’ second-largest Guangzhou flagship in China, which reopened last Saturday, saw a massive rebound of luxury consumption. In a single day, the store reportedly achieved $2.7 million in sales, a figure believed to be the highest daily haul for a single boutique in China.

Brands everywhere in China are reporting a modest jump in sales, in both brick and mortar stores and e-commerce. And with the outbreak showing no signs of letting up any time soon in the West, emphasis on domestic shopping will only grow.

But, revenge spending won’t last — experts are already calling on the fallacy of it. The National Bureau of Statistics (NBS) in China released new data on Friday that confirmed that China’s economy has shrunk by 6.8 per cent in the first quarter of 2020, the first time since 1976, due to Covid-19’s death grip on the country. But industrial production, retail sales and fixed asset investments continue to shrink in March, pointing to the huge challenge posed to restarting the country’s economy.

And so, if revenge spending can’t save China — it will not make an iota of difference in spending in other countries, particularly since travel bans and lockdowns are still in place for most of the world. And even when things get better, tourism retail in the US, Europe, Southeast Asia and elsewhere will still struggle as the Chinese government will continue to push domestic tourism to stabilise its own economy.

A Change in Luxury Consumption

With China’s economic slowdown, ongoing trade friction and regional challenges, there were enough factors to make people spend less; the outbreak that worsened over Chinese New Year only added to the ongoing trend. In the 2020 China Luxury Forecast, jointly done by Ruder Finn and Consumer Search Group which surveyed 2,100 consumers in December 2019, results already foretold that consumers were planning to spend less in the next 12 months.

People in China are not buying for the sake of buying, nor are they buying to reclaim “face” as some articles would suggest. When we spoke to Daniel Sum, one of the founders of the Shanghai Watch Gang about the fallacy of revenge spending and “face,” he says, “Let’s say I’m going back to work and I splash out on a luxury watch, what are all my co-workers going to think of me? You definitely lose face. It’s not the other way around, it would be worse. Right now, family and education is most important.”

He adds: “Everybody knows Chinese people have money, now consumerism is about culture. Am I cultured? And also rich? Because that puts me at a different level. That’s what people care about. And that’s still related to ‘mian zi‘ [the concept of face] because I know something more than you do.”

Also, it is extremely difficult to generalise the actions of all Chinese luxury consumers, as people have vastly different spending behaviour in different tier cities. Revenge spending might be spurred on by the aspirational middle class, but for China’s high net worth individuals, they have long since looked past luxury goods to alternative investments in private healthcare options or retirement plans.

In fact, since the pandemic happened, this has only grown more important. Another report on the high net worth consumer segment, as reported by Jing Daily, shows that consumers have shifted towards conscious spending, anything from choosing sustainable brands to saving more money for retirement.

A Shift Towards Calculated Spending

Jing Daily reports that there is a shift towards conscious spending in that in times of social and economic crisis, people mentally just aren’t prepared to spend. Jing Daily spoke to top-tier Chinese influencer Becky Li, who says that there is a greater attention paid towards “the importance of saving” among Chinese millennials. “My team members are mostly post-1990 and post-1995 youngsters, and they all agreed that they wouldn’t spend carelessly anymore,” she says. “This outbreak has reminded everyone, from individuals to business owners, about the crucial importance of having an emergency fund.”

But within the watch community itself, it’s more than just conscious spending, it’s a calculated one. Global phenomena like the “Rona Deals,” where clients are snapping up Rolex Daytonas more so than ever, and Sotheby’s stellar results in its weekly online sales, aren’t instances of reckless spending but of collectors parking their assets in worthwhile investments while the stock market is still volatile.

Watch dealers across the board are also seeing the same trend. Super high-end and desirable pieces are still selling like business as usual, it’s only the lower end and middle market that is suffering. If you’ve had to spend months saving up to buy your one grail watch, these uncertain times have certainly made that a non-priority.

An Eye on the Prize

“People in Shanghai are really good at bargaining,” says Sum. “They will bargain with you to the last cent. Sometimes it doesn’t look like it, it looks like they’re just spending their money, but they know exactly what they’re doing with their money. It’s a very calculated spending. The only reason why they would spend way above that is because there is a value or benefit apart from just the watch. We know the market value of the watch. That’s also mian zi.”

Chinese collectors are too sophisticated to buy recklessly. And with the offload of new references on pre-loved retailers like Chrono24, it’s a waiting game.

“Everybody’s looking at the prices. I think it’s going to drop,” explains Sum. “We know that a lot of watch brands can’t move stock, so they’re going to try and move it onto the grey market. We actually looked at the last four weeks of Chrono 24 and there were an extra 40,000 watches listed. Some aren’t real, but still, it’s an increase of 40,000.”

Says Sum: “I know dealers who’re going to wait for another month or two because they think that’s the potential sweet spot and then buy. You know that too. People that really buy watches repeatedly all know the prices and they’re keep looking.”