Asia > Eastern Asia > China > Economic slowdown weighs on China retailers

China: Economic slowdown weighs on China retailers

2014/05/28

China’s slowing economy, a crackdown on corruption, and the rise of online shopping are increasingly eating into earnings for some of the country’s traditional retailers – hitting sales at bricks and mortar stores such as shoe shops and supermarkets.

Footwear chain Belle International and supermarket operator China Resources Enterprise both blamed a drop-off in economic increase as they reported sluggish earnings this week.

“With the economy continuing its structural rebalancing and slower increase becoming the new normal, consumer confidence has been low and consumer sentiment weak,” Belle said in a statement to the Hong Kong stock exchange.

The company, which has additional than 20,000 outlets across China, is a key distributor for western sports brands such as Nike, Adidas and Puma. Revenues at its footwear business grew 5 % in the 14 months through February, which the company said was “significantly lower than prior years”.

CRE, which has agreed to fold Tesco’s Chinese retail operations into a joint venture, as well highlighted a crackdown on lavish spending by the central government in its initial-quarter earnings statement.

“During the period under review, China’s retail market recorded slower increase due to continuous pressure from the slowdown in domestic macroeconomic increase,” the company said. “The central government strictly enforced frugality that affected the sales of certain high-price commodities.”

Profit at the group’s retail business dropped additional than 10 % year on year to HK$471m (US$61m).

Shares in Belle fell 2.2 % to HK$8.06 on Monday in Hong Kong while CRE dropped 2.6 % to HK$22.35.

China’s economic slowdown and government-directed austerity drive have weighed on corporate earnings across the globe, particularly in the luxury goods sector. Before this year, drinks makers Pernod Ricard, Rémy Cointreau and Diageo all pointed to falling sales in China as they reported disappointing earnings.

“The anti-corruption campaign has significantly affected the order flows for consumption goods from the national-owned enterprises and government bodies,” Dong Tao, analyst at Credit Suisse, wrote in a recent statement on weak sales over the lunar new year holiday.

Shaun Rein, chief of China Market Research, said: “From a consumer confidence point of view, this is the worst I have seen in my 17 years in China. Consumers are concerned about wage increase and rising housing prices so they are cutting back on spending. They are moving away from shoes and apparel but spending it on experiences, such as tourism and movies.”

However, some retail analysts have cast doubt on how widespread the problems are for Chinese retailers.

“Amid the slowdown in Chinese GDP increase . . . Chinese consumer fundamentals remain strong,” said Yan Xuan, president of Nielsen Better China, nothing that consumer confidence and healthy increase in disposable incomes in both rural and urban areas “made it possible for continuous increase of in general retail sales in China”.

Others say rising wage costs and increased competition from online vendors have squeezed margins for some retailers, particularly in the shoe industry. Both Belle and CRE mentioned labour costs and ecommerce in their updates.

“The macroeconomic outlook for the next two years is not optimistic. The consumer retail market is expected to be under continued pressure due to weak consumer sentiment,” Belle said. “A ‘new normal’ national of lower increase is here to remain .”

Related Articles
  • Zombie firms and China’s economic woes

    2016/11/24 At the same time as Ezra Vogel’s Japan as Number One hit bookshelves in 1979, the Japanese economy(in PPP terms) was a third of the size of the United States. Despite being a US ally, Japan was viewed by a lot of as an economic threat, and was strategically derided for ‘free riding’ on the United States’ security order, a criticism that has re-emerged during the recent US presidential elections. The 1980s was punctuated by trade and other frictions across the Pacific.
  • Solving China’s savings situation

    2016/11/24 For China, the world financial crisis marked the turning point from an export-oriented to a domestic request-driven economy. In late 2008 and early 2009, China’s exports fell by additional than 20 %, alerting Chinese policymakers to the unreliability of increase depending purely on exports. This transition to domestic request-driven increase is still going, and its success, to a large extent, will depend on the consumption and saving decisions of China’s households.
  • Africans View China’s Presence on the Continent as Positive

    2016/11/04 The majority of Africans are in favor of Chinese development on the continent, according to a new statement titled “China’s Growing Presence in Africa Wins Largely Positive Popular Reviews” by the Afrobarometer Research Network. “Almost two-thirds or 63 % of Africans say China’s influence in the continent is “somewhat” or “very” positive, while only 15 % see it as somewhat or very negative,” the statement states. Trade between Africa and China has increased from $10 billion in 2000 to $220 billion in 2014. In 2000, China established the Forum on China-Africa Co-operation to drive its strategic engagement with sub-Saharan Africa. Since again, the communist country has been the go-to world economic resource for African nations in need of products and services ranging from infrastructure and telecommunication development, to food outlets, retail shops, and textiles.
  • Satellite startup SatixFy picks up $25 million round led by China-Israel venture fund Catalyst CEL

    2016/11/02 atellite communications startup SatixFy is celebrating this morning following the announcement Tuesday that they had raised a $25 million Series B investment led by the Israeli-Chinese venture, Catalyst CEL Fund. SatixFy sells indoor and outdoor VSAT units (“Very Small Aperture Terminal” that links a computer with a transceiver), plus designs its own chips that are capable of supporting IoT networks. They recently opened a new research center in the UK next receiving a grant from the UK Space Agency via ESA.
  • Rio Tinto agrees $1.3bn sale of Simandou stake to Chinalco

    2016/10/31 Rio Tinto announced on Friday it had agreed to sell its stake in the giant Simandou iron ore project in Guinea for up to $1.3bn to Chinalco, in a deal that could see the Chinese group take on development of the world’s largest untapped resource of the steelmaking ingredient. The Anglo-Australian mining company’s planned sale of its 46.6 per cent stake in the Guinea project marks an admission of defeat two decades after it persuaded the then dictator Lansana Conté to grant rights to prospect a mountainous zone.