Casey Hall
SHANGHAI (Reuters) – Retailers in China face a daunting near future after a disappointing mid-year online shopping festival also clouded recovery prospects for the world’s second-largest economy.
Reports said e-commerce sales fell for the first time during the so-called 618 festival, which ended last week, reflecting growing pressure on retailers already locked in a grueling price war.
The festival, named after e-commerce provider JD (NASDAQ:.com)’s June 18 founding date but supported by all platforms, is China’s second-biggest annual sales event after Singles’ Day in November and is seen as a key indicator. household consumption.
These two events once demonstrated the rampant growth of Chinese consumerism, delivering robust sales growth for both platforms and brands. Lately Alibaba (NYSE:) reported Singles’ Day revenue, with 2021 sales reaching $84.54 billion during the event.
Instead, this year the 618 proved just how difficult it is to get consumers to spend money at all.
“Chinese spending has largely focused on sales opportunities and coupons. If they don’t spend money during this (618 sale), when are they going to consume?” said Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis.
To be fair, discounts have become available year-round post-pandemic and retailers are competitively offering them to attract belt-tightening consumers, thereby helping curb the surge in sales during major shopping festivals.
Sales during singles shopping day were up just 2% last year.
While discounts have helped slow the exodus of consumers from platforms such as JD.com and Alibaba-owned Tmall and Taobao to low-cost players such as Pinduoduo (NASDAQ:), consumer spending hasn’t picked up – recent quarterly results showed that Alibaba’s domestic e-commerce unit grew just 4% in revenue.
Investors also remain unconvinced, with Alibaba shares down about 5% this year and JD.com shares down more than 3%.
But the bigger concern is weak consumer sentiment, which has remained low since 2022.
A new survey of Chinese consumers by Bank of America showed sentiment worsened further in June.
The share of respondents who plan to spend more over the next six months fell to 45% in June, down from 55% in April. And only 31% of respondents expect income to increase over the next six months, down 10 percentage points from April.
‘EVEREST COMMERCE’
Josh Gardner, CEO of Kung Fu Data, which operates online stores for more than a dozen global brands, said e-commerce in China is commonly referred to as “Everest commerce” due to huge sales peaks around 618 and Singles’ Day.
But those peaks could become less sharp as sales periods lengthen and consumers lose interest, turning instead to daily discounts offered, for example, by live shopping on platforms such as ByteDance-owned Douyin, he said.
“I think we’re seeing a complete shift away from full-price retail this year…It’s more sustainable consumption, being cautious and looking for value,” Gardner said.
Consumers in China are reluctant to spend money amid concerns about their personal wealth caused by a slump in the real estate market, lagging wage growth and high youth unemployment, threatening China’s stated economic growth target of “around 5%” this year. year.
But rather than encouraging consumption (as they once reliably did), festivals like 618 may be working against a rebound in consumption in a year like this, when everyone is focused on buying what they need at the lowest price possible .
Kang Li, a 45-year-old mother of one who works in sales in the southern city of Changsha, is among those becoming more frugal and avoiding shopping for essentials.
“(I bought) household essentials, as well as clothes and shoes for my baby, as well as my own skin care products,” Kang said, referring to her 618 purchases this year.
“Basically, I stock up on them when shopping events like 618 happen so I don’t have to buy them again for six months,” she added when Singles’ Day rolls around.
Jason Yu, managing director of research firm Kantar Worldpanel in China, warned that the coming months would be challenging for retailers as people bought what they needed during the 618 period.
“This pantry load is beyond future consumption potential…July will be very difficult,” he said.
Natixis’ Garcia-Herrero forecast that retail sales are likely to grow by only single digits in the second half, meaning consumption as a share of China’s GDP is more likely to shrink than increase, as many economists believe.
“This is terrible news for rebalancing the global economy, as China will still have to export its products to get out of the crisis,” she said.