Is luxury a potential problem in China? Maybe.

Global governments and economists are expecting a global recession in the coming months, and even China would not be immune. Luxury online retailer Secoo’s bankruptcy filing could be the first salvo that portends a wider disruption to come.

Asian media said Beijing Siku Shangmao Co, the parent company of Nasdaq-listed Secoo Holding Ltd., filed for bankruptcy this week in a Beijing court. Secoo has been embroiled in contract disputes over alleged non-payment, and the petition follows a recent legal loss from Prada, which demanded a Shanghai court freeze more than $1.6 million in assets of Secoo for a year.

Secoo saw a 48% drop in revenue in 2021, a bigger loss than in 2020. In December, it received a warning letter from Nasdaq saying its stock price was below the requirement for minimum listing and that its shares would be delisted if it could not regain compliance. Secoo’s IPO in 2017 raised $140 million. The company’s founder, chairman and CEO, Richard Li Rixue, tried to take the company private in January 2021, but withdrew his proposal this year in May.

Secoo has withdrawn the liquidation petition it filed in January. It reached an agreement in May to refinance a $175 million convertible note with Great World Lux ​​Pte. Ltd, a subsidiary of Secoo’s strategic partner, L Catterton Asia. The refinancing was to be completed “in the near future,” according to an investor relations notice from Secoo. On Wednesday, Secoo’s parent filed for bankruptcy.

The company, founded by Richard Li Rixue, launched in 2008 as a second-hand handbag store before transforming into a platform for exchanging luxury goods.

China has been hit hard by the Covid-19 pandemic, and periodic outbreaks have led to temporary shutdowns in line with the government’s zero-Covid policy. Shanghai lifted restrictions in June after a two-month lockdown.

Luxury fashion companies doing business there have also seen their sales take a hit. Tapestry Inc., owner of the Coach, Kate Space and Stuart Weitzman brands, said Thursday that sales in China fell 32% in the fourth quarter due to Covid disruptions. And Hermès, LVMH Moët Hennessy Louis Vuitton and Kering’s first-half sales suffered from Asian restrictions in April and May. All three declined to provide estimates for the second half. Sales growth resumed after the shutdowns ended, and they saw a surge in other regions, such as the United States and Europe, when tourism returned.

Hermès, which said first-half net profits rose 39.8%, saw demand pent up in mainland China and Hong Kong when restrictions were lifted, leading to the sale of goods in June, the chairman says executive Axel Dumas.

LVMH reported first-half group profit up 23% to 6.53 billion euros ($6.66 billion) on a 28% revenue gain to 36.73 billion euros ($37.45 billion), with Asia showing weaker growth due to lockdowns. And Kering, whose first-half net profit rose 34% to 1.99 billion euros ($2.03 billion) on a 23% rise in revenue to 9.93 billion euros (10. $13 billion), noted that foot traffic in China – a huge market for the luxury group – remained low as consumers were not on the move. Rising interest rates have reduced real incomes and consumer purchasing power, although savings could “buffer any cyclical downturn”, he added.

While Covid has largely impacted China’s economic growth, there have been other issues as well. Last fall, China experienced a power problem, which rattled global supply chains via power outages along major manufacturing hubs. And in December, in the midst of what many have described as a spiraling real estate bubble, Chinese property developer Evergrande defaulted on its overseas debt, and its overall corporate debts were reportedly in the region of 300 billions of dollars. The debt crisis worsened, other Chinese developers Sunac China Holdings Ltd. and Shimao Group also defaulted on their payment obligations this year. And now many middle-class Chinese homeowners struggling with unfinished homes are refusing to pay their mortgages.

If those worries weren’t enough, China is this week in the midst of a brutal heat wave that could last a few months. The intense heat began in July, especially in the Yangtze River basin, which is currently struggling with power outages. The impact on the global supply chain remains unknown, especially for energy-intensive industries.

And while the Chinese government was aiming for a 5.5% GDP rate for 2022, growth is slowing. For the second quarter, GDP growth was only 0.4%, mainly due to Covid lockdowns. But on Thursday, weaker demand coupled with housing problems, energy problems and an uncertain zero-Covid policy, Goldman Sachs cut its GDP growth estimate for China this year to 3% from 3.3%. Nomura cut its forecast to a growth rate of 2.8% from 3.3%.