HONG KONG—Chinese consumer spending is buckling under the country’s dual campaigns against rising property prices and Covid-19 outbreaks, flashing a warning for global companies that have pinned their hopes on a more free-spending Chinese customer.

Retail sales unexpectedly dropped last month and are expected to continue to struggle as Chinese authorities launch wide-ranging lockdowns to contain the latest fastest-spreading Covid outbreaks, and as easing measures do little to reverse a worsening property market meltdown.

Online commerce giant Alibaba Group Holding Ltd. posted a surprise net loss last week, just days after breaking with precedent by not disclosing a sales figure for its annual Nov. 11 Singles Day shopping extravaganza.

French luxury conglomerate LVMH Moët Hennessy Louis Vuitton SE said its Chinese business was effectively flat in the most recent quarter, even as it posted a 19% rise in global sales. “The Chinese market is not functioning or working the normal way,” LVMH Chief Financial Officer Jean-Jacques Guiony told investors last month. “We still have disruptions, both in terms of people being in lockdowns, some stores being closed.”

China hasn’t been an easy place for Western companies to do business, but it has been worth it because of the market size and potential growth prospects.

For a moment, the pandemic even appeared to highlight China’s attractiveness. At that time, China’s relatively quick rebound from the initial Covid-19 outbreak made it the only major world economy to grow in 2020, providing a lifeline to many Western companies.

Instead, China’s prolonged pandemic-induced pullback in retail spending looks set to extend into a fourth year, as China is battered by wave upon wave of Covid disruptions, particularly after the arrival of the highly transmissible Omicron variant—and Beijing’s continued insistence on snuffing out even small outbreaks.

Meanwhile, the slumping property market, the primary store of wealth for many Chinese households and a contributor of roughly a quarter of overall growth, according to some estimates, shows no immediate sign of easing as a monthslong slide in home prices accelerated in October.

While Beijing unveiled new loosening measures earlier this month to mitigate the toll of the policies, authorities in both cases reaffirmed the core principles underpinning their strict approaches to controlling property prices and the pandemic.

“These are difficult issues that will take a while to resolve,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics.

The policies could push companies to begin re-evaluating the prospects for the country as economists steadily lower their China growth forecasts for the rest of the decade.

China’s economy expanded by only 3% in the first three quarters of the year, putting it on pace to fall far short of the government’s official full-year target of around 5.5%.

Retail sales growth, meantime, is expected to grow by just 1% this year, according to economists. Retail sales grew at an annual rate of around 4% in 2020 and 2021, after rising by an annual average of around 7% or 8% in the five years leading up to 2019.

Economists have been steadily lowering their China economic growth forecasts for the rest of the decade.

Photo: Qilai Shen/Bloomberg News

Travel and restaurant dining have been particularly hard hit by a waning appetite for nonessential spending and consumer fears of being swept up in unpredictable Covid controls.

In October, an average of 1,400 of Yum China Holdings Inc. outlets, including the KFC and Pizza Hut brands, were either closed or forced to temporarily suspend in-store dining service—more than triple the number in July and August, the company said this month, with likely more lockdowns and consumer cautiousness ahead.

In Beijing, Li Xiangxue, a 46-year-old editor at a publisher, cut back spending on travel this year as her income fell and she fretted about being caught up in a sudden Covid lockdown—an increasingly common experience in China.

After a shopper in a mall where Ms. Li and her two daughters recently shared a meal was identified as a Covid-positive case, her family was ordered to remain at home for five days. She now regrets having taken the risk of eating out and has vowed not to do so again until the spring.

“After cooking and taking care of the children for a week, I was thinking of treating us to a good meal in a restaurant. Unexpectedly, it made things worse,” said Ms. Li. “I won’t do that again.”

The slide in housing prices has taken a particularly heavy toll. For decades, Chinese home prices rose steadily as households poured a collective 70% of their nest eggs into property, fueling a sense of growing wealth that underpinned consumer spending and prompting home buyers to splurge on home appliances, cars and other big-ticket purchases.

As Beijing has tightened the screws on the property sector, that state of affairs has gone in reverse. Official data released last week showed new home prices in 70 Chinese cities falling at their fastest pace in more than seven years.

Spending on consumer electronics, home decor and furniture has now contracted alongside the dropping home values, by 14.1%, 8.7% and 6.6% respectively in October from a year earlier, according to China’s statistics bureau.

Many are worried that as China’s strict zero-Covid rules stretch into a fourth year, it may leave lasting scars as job losses spread, prompting households to save even more and spend even less.

Layoffs in the technology and other sectors, coupled with lackluster domestic stock market returns and falling real-estate prices have stoked concerns in many households about shrinking nest eggs, said Matthieu David, chief executive officer of Daxue Consulting, a Shanghai-based market research firm.

“I think we’ll have a disappointing year until the confidence is back,” Mr. David said.

—Grace Zhu in Beijing contributed to this article.

Write to Stella Yifan Xie at stella.xie@wsj.com