China’s Covid-19 Lockdowns Hurt Sales of Starbucks Coffee, Adidas Sneakers

The first three months of 2022 would have been financially stronger “if we didn’t have…the China drag,” said

Paul Edgecliffe-Johnson,

IHG’s chief financial officer, during an earnings call earlier this month. IHG’s China revenues per available room were down 42% in the first quarter compared with the same period in pre-Covid 2019, though it doesn’t break out its China revenue.

In a reversal for many Western firms accustomed to relying on China as a prime source of growth, weak consumption in the world’s second-largest economy is offsetting strong sales in the U.S. and elsewhere. Chinese retail sales declined 11.1% in April from a year earlier, according to official data released last week. In the U.S., retail sales were up 8.2% in April.

Falling consumer demand in China is the latest global challenge facing multinational companies, which are also grappling with supply-chain disruptions caused by the Covid-19 pandemic and fallout from the Ukraine war.

Rising inflation is also pushing up fuel and labor costs for companies, while putting pressure on consumers’ disposable income.

Scores of lockdowns have affected tens of millions of people across China over the past two months. While the effects have been severe locally, they have also rippled far beyond the affected areas, with unemployment rising and consumers cutting spending.

“I’ve had to cut back on my spending,” said Sandy Guo, who was recently laid off from her job in customer services at an international bank in the southern tech hub of Shenzhen. “No more Starbucks.”

Ms. Guo, 35 years old, previously spent money on snowboarding trips but said she was forced to cut back on travel as her investments in the Shanghai stock market fell in value on top of losing her job.

Major cities including Shenzhen and Shenyang were locked down in March. Shanghai, China’s financial capital, followed suit in April.

The impact of the continuing Shanghai lockdown has been especially profound given its importance to the Chinese economy as a business hub, major port and home to millions of the country’s most affluent consumers. Most shopping malls and stores have been closed for almost two months while much of the e-commerce world was halted—and consumers are stuck at home. Shanghai authorities said earlier this month that they would begin a phased reopening in June, provided Covid-19 cases continue to decline.

Still, that timetable all but guarantees that the second quarter of this year will be even tougher than the first for many companies operating in China across a range of sectors.

With domestic travel curtailed and international travel almost nonexistent in China, hospitality companies have faced a slump in demand.

Hilton Worldwide Holdings Inc.

reported a 45% drop in China revenue in the first quarter of this year from a year earlier. Nationally, hotel occupancy rates were 34% in mid-May, according to Bernstein Research, far below what would normally be expected.

The drop in retail sales is putting pressure on consumer brands like Starbucks. Its China store sales declined 23% for the quarter that ended in March from a year earlier and a third of its 5,400 outlets in the country were closed as of early May, pointing to another tough quarter in the making, executives said on a recent earnings call.

“Conditions in China are such that we have virtually no ability to predict our performance in China in the back half of the year,” Chief Executive

Howard Schultz

said. That unpredictability means Starbucks won’t issue earnings guidance for the coming quarters ending in June and September, Mr. Schultz said.

Similarly, KFC operator

Yum China Holdings Inc.

said its sales fell by more than 20% in March and April from a year earlier.

Adidas’ China sales were down 35% from a year earlier in the first quarter, the company said, while revenue at fashion house

Moncler

SPA declined by 30% to 35% in April and May from a year earlier, Chief Executive

Remo Ruffini

said.

The Estee Lauder

Cos. saw China sales decline by a mid-single-digit percentage in the quarter from a year earlier despite a 25% surge in online purchases, said

Fabrizio Freda,

the company’s chief executive.

Lockdowns have forced “a significant chunk of the [store] network to close,” said

Jean-Marc Duplaix,

chief financial officer of Gucci owner

Kering SA

. Disruption to a major marketing initiative planned for this year would affect sales beyond cities facing Covid-19 outbreaks, he said.

Despite a broad acceptance that China revenue will take a severe hit in the quarter ending June 30, many executives expressed optimism that the market would rebound quickly in the second half of 2022. Some companies have continued to invest in China accordingly.

IHG opened five hotels in China in the quarter that ended in March and has eight more ready to open pending the granting of licenses, Mr. Edgecliffe-Johnson said. Pent-up demand for hotel rooms would be released later this year as lockdowns ease, he said.

Rival hotel group Hilton is making a similar bet, opening 20% more hotel rooms in China this year than in 2021.

Kevin Jacobs,

Hilton’s chief financial officer, said demand would be strong once authorities lift restrictions on the movement of people.

Despite some upbeat forecasts for the second half of 2022, Chinese authorities remain publicly committed to the strict Covid-19 policy that included lockdowns. And in a sign the situation may not normalize quickly, officials said this month that China was pulling out of hosting the next Asian Cup soccer tournament—in June 2023.

In the central city of Changsha, Pilates trainer You Kangkang said she was reining in her spending by switching from relatively costly foreign brands like

Lululemon

to local alternatives when buying sportswear. It is a precaution given that many of her clients are themselves spending less, the 22-year-old said.

“The outlook is darker than in 2020 when everyone believed the pandemic would soon end,” Ms. You said. “Now there’s no end in sight.”

—Grace Zhu contributed to this article.

Write to Trefor Moss at Trefor.Moss@wsj.com

The first three months of 2022 would have been financially stronger “if we didn’t have…the China drag,” said

Paul Edgecliffe-Johnson,

IHG’s chief financial officer, during an earnings call earlier this month. IHG’s China revenues per available room were down 42% in the first quarter compared with the same period in pre-Covid 2019, though it doesn’t break out its China revenue.

In a reversal for many Western firms accustomed to relying on China as a prime source of growth, weak consumption in the world’s second-largest economy is offsetting strong sales in the U.S. and elsewhere. Chinese retail sales declined 11.1% in April from a year earlier, according to official data released last week. In the U.S., retail sales were up 8.2% in April.

Falling consumer demand in China is the latest global challenge facing multinational companies, which are also grappling with supply-chain disruptions caused by the Covid-19 pandemic and fallout from the Ukraine war.

Rising inflation is also pushing up fuel and labor costs for companies, while putting pressure on consumers’ disposable income.

Scores of lockdowns have affected tens of millions of people across China over the past two months. While the effects have been severe locally, they have also rippled far beyond the affected areas, with unemployment rising and consumers cutting spending.

“I’ve had to cut back on my spending,” said Sandy Guo, who was recently laid off from her job in customer services at an international bank in the southern tech hub of Shenzhen. “No more Starbucks.”

Ms. Guo, 35 years old, previously spent money on snowboarding trips but said she was forced to cut back on travel as her investments in the Shanghai stock market fell in value on top of losing her job.

Major cities including Shenzhen and Shenyang were locked down in March. Shanghai, China’s financial capital, followed suit in April.

The impact of the continuing Shanghai lockdown has been especially profound given its importance to the Chinese economy as a business hub, major port and home to millions of the country’s most affluent consumers. Most shopping malls and stores have been closed for almost two months while much of the e-commerce world was halted—and consumers are stuck at home. Shanghai authorities said earlier this month that they would begin a phased reopening in June, provided Covid-19 cases continue to decline.

Still, that timetable all but guarantees that the second quarter of this year will be even tougher than the first for many companies operating in China across a range of sectors.

With domestic travel curtailed and international travel almost nonexistent in China, hospitality companies have faced a slump in demand.

Hilton Worldwide Holdings Inc.

reported a 45% drop in China revenue in the first quarter of this year from a year earlier. Nationally, hotel occupancy rates were 34% in mid-May, according to Bernstein Research, far below what would normally be expected.

The drop in retail sales is putting pressure on consumer brands like Starbucks. Its China store sales declined 23% for the quarter that ended in March from a year earlier and a third of its 5,400 outlets in the country were closed as of early May, pointing to another tough quarter in the making, executives said on a recent earnings call.

“Conditions in China are such that we have virtually no ability to predict our performance in China in the back half of the year,” Chief Executive

Howard Schultz

said. That unpredictability means Starbucks won’t issue earnings guidance for the coming quarters ending in June and September, Mr. Schultz said.

Similarly, KFC operator

Yum China Holdings Inc.

said its sales fell by more than 20% in March and April from a year earlier.

Adidas’ China sales were down 35% from a year earlier in the first quarter, the company said, while revenue at fashion house

Moncler

SPA declined by 30% to 35% in April and May from a year earlier, Chief Executive

Remo Ruffini

said.

The Estee Lauder

Cos. saw China sales decline by a mid-single-digit percentage in the quarter from a year earlier despite a 25% surge in online purchases, said

Fabrizio Freda,

the company’s chief executive.

Lockdowns have forced “a significant chunk of the [store] network to close,” said

Jean-Marc Duplaix,

chief financial officer of Gucci owner

Kering SA

. Disruption to a major marketing initiative planned for this year would affect sales beyond cities facing Covid-19 outbreaks, he said.

Despite a broad acceptance that China revenue will take a severe hit in the quarter ending June 30, many executives expressed optimism that the market would rebound quickly in the second half of 2022. Some companies have continued to invest in China accordingly.

IHG opened five hotels in China in the quarter that ended in March and has eight more ready to open pending the granting of licenses, Mr. Edgecliffe-Johnson said. Pent-up demand for hotel rooms would be released later this year as lockdowns ease, he said.

Rival hotel group Hilton is making a similar bet, opening 20% more hotel rooms in China this year than in 2021.

Kevin Jacobs,

Hilton’s chief financial officer, said demand would be strong once authorities lift restrictions on the movement of people.

Despite some upbeat forecasts for the second half of 2022, Chinese authorities remain publicly committed to the strict Covid-19 policy that included lockdowns. And in a sign the situation may not normalize quickly, officials said this month that China was pulling out of hosting the next Asian Cup soccer tournament—in June 2023.

In the central city of Changsha, Pilates trainer You Kangkang said she was reining in her spending by switching from relatively costly foreign brands like

Lululemon

to local alternatives when buying sportswear. It is a precaution given that many of her clients are themselves spending less, the 22-year-old said.

“The outlook is darker than in 2020 when everyone believed the pandemic would soon end,” Ms. You said. “Now there’s no end in sight.”

—Grace Zhu contributed to this article.

Write to Trefor Moss at Trefor.Moss@wsj.com