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 .”

Comments

Related Articles
  • China and India get iPhone 6 models

    2014/10/18 iPhone fever hit China afresh as the 6 and 6 Plus handsets officially went on sale there on Friday. Software security concerns raised by government regulators had delayed their launch in the world’s major smartphone market. Apple won approval to sell the phones next it reassured Beijing they do not have security “backdoors” through which US intelligence agencies could access users’ data.
  • Chinese consumer prices slowed slightly additional than expected in September

    2014/10/16 Chinese consumer prices slowed slightly additional than expected in September, figures from the National Bureau of Statistics showed on Wednesday. Consumer prices grew 1.6 % year-over-year in September following the 2 % rise in August. Economists had expected inflation to slow to 1.7 %. This marked the second consecutive month of slowing. a Part the major sub-categories, food prices advanced 2.3 % in September, contributing 0.78 % points to the in general increase in consumer prices.
  • China Trade Data Due On Monday

    2014/10/13 China will on Monday release September figures for imports, exports and trade balance, highlighting a modest day for Asia-Pacific economic activity. The trade balance is expected to show a surplus of $41.40 billion, down from $49.84 billion in August. Imports are expected to slide 3.0 % on year next falling 2.4 % in the previous month. Exports are called higher by 13.0 % next jumping 9.4 % a month before.
  • China’s Inscrutable Contraction

    2014/10/13 Kenneth Rogoff former chief economist of the IMF, is Professor of Economics and Public Policy at Harvard University. While virtually each country in the world is trying to boost increase, China's government is trying to slow it down to a sustainable level. As China shifts to a additional domestic-request driven, services-oriented economy, a transition to slower trend increase is both inevitable and desirable. But the challenges are immense, and no one should take a soft landing for granted. As China's economy grows relative to the economies of its trading partners, the efficacy of its export-led increase model must inevitably fade. As a corollary, the returns on massive infrastructure investment , much of which is directed toward supporting export increase, must as well fade.
  • Golden Rule Why Beijing Is Buying gold

    2014/10/10 If China were to convert a relatively modest part of its $4 trillion foreign exchange reserves into gold, the country’s currency could take on unexpected strength in today’s international economy. It would be a gamble, of course, for China to use part of its reserves to buy enough gold bullion to displace the United States from its position as the world’s major holder of monetary gold. (As of spring 2014, U.S. holdings amounted to $328 billion.) But the penalty for being wrong, in terms of lost interest and the cost of storage, would be modest. For the rest of the world, gold prices would certainly rise, but only during the period of accumulation. They would likely fall back once China reached its goal. The broader issue -- a return to the gold standard in any form -- is nowhere on anybody’s horizon. It has few supporters in today’s virtually universal embrace of fiat currencies and floating exchange rates. From presently on gold has appropriate properties that no other currency, with the possible exception of silver, can claim.