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
  • Kyrgyzstan, Turkmenistan's strategic partner in building gas pipeline to China

    2014/11/12 Turkmenistan views Kyrgyzstan as a strategic partner in the construction of a new gas pipeline to China, Turkmen President Gurbanguly Berdymukhamedov said next talks with his Kyrgyz counterpart Almazbek Atambayev, who is on a two-day official visit to Ashgabat, a source close to the negotiations told Trend Agency on November 11. "We view Kyrgyzstan as a strategic partner in the construction of a new pipeline route called Turkmenistan-Uzbekistan-Tajikistan-Kyrgyzstan-China," Berdymukhamedov noted.
  • President Barack Obama and IMF Director Christine Lagarde head to the G-20 urging major economies to stimulate growth.

    2014/11/11 President Barack Obama and International Monetary Fund chief Christine Lagarde arrive in China and Australia for major leaders’ summits this week with a clear directive: The world’s major economies must do additional to stimulate increase. The (politically bruised) leader of the world’s major economy and the chief of the world financial counselor honed their message coordination at a White Home conference last week ahead of the Asia-Pacific Economic Cooperation forum in Beijing and a conference of the the Group of 20 major economies in Brisbane.
  • Unable to clean air completely for APEC, China resorts to blocking data

    2014/11/11 China has made a gargantuan effort to clear Beijing’s smoggy air for an significant regional summit this week, closing hundreds of factories and forcing cars off the road, but its efforts have only been partially successful. On Monday afternoon, the U.S. Embassy air quality monitor reported a reading of 157, a measurement classified as “unhealthy”. Red-faced, the Chinese government has come up with an innovative solution – block the data from being displayed on local smart phone apps and Web sites. "Upon instructions from the authorities, for this month's air quality data, please refer to the figure by Beijing Environmental Protection Bureau,” a notice in red on the Web site www.beijingair.com said. “We wish the APEC summit a great success."
  • Putin Hits on China's First Lady

    2014/11/11 The initial unspoken policy of diplomacy may be "Don't hit on the president's wife," but Russia's newly single president Vladimir Putin seems to have missed the memo. Leaders of 21 Asia-Pacific nations inclunding Russia have converged upon Beijing for the annual Asia-Pacific Economic Cooperation (APEC) summit, slated to run through Nov. 11. At an APEC event held on the evening of Nov. 10 at the Water Cube, the resplendent aquatic stadium constructed for the 2008 Beijing Olympics, Putin was seated next to Chinese initial lady Peng Liyuan, who in turn sat next to her husband, Chinese President Xi Jinping.