PARIS - Birkin bag maker Hermes is opening a new, enlarged store in China's Nanjing city, signalling the luxury industry's confidence in a strong return of Chinese shoppers after three years of tough COVID-19 restrictions.

Hermes, which first opened a store in the city in 2010, has now relocated to the upscale mall Deji Plaza, with a wider product selection spread across two floors, from silk scarves to leather goods, as well as home decor, jewellery and clothing. European luxury houses have continued to invest in China, expected to become the sector's largest market by 2025, despite a turbulent year marked by disruptions as the country imposed strict curbs to contain the spread of the coronavirus.

News in late December that the country was relaxing travel rules pushed up the share prices of global luxury companies including the world's largest, LVMH.

Hermes and LVMH both generated around 30% of annual sales in China in 2020, according to UBS. Mainland China, where Hermes counts 27 stores, has been a strong focus for the leather goods specialist. Last year, Hermes opened a larger store in Wuhan, and set up its first shop in Zhengzhou, in Henan province.

China is expected to serve as an important source of growth in the coming months as Europe faces an energy crisis and the U.S. economy cools. Bernstein analyst Luca Solca forecasts luxury sales could grow between 25% and 35% in the country this year while in the West they are expected around 5% to 10%.

(Reporting by Mimosa Spencer; Editing by Emelia Sithole-Matarise)