By Casey Hall
SHANGHAI (Reuters) – China’s retailers face a difficult near-term future after a disappointing mid-year online shopping festival that cast a shadow over the recovery prospects of the world’s second-largest economy.
E-commerce sales fell for the first time during the so-called 618 Festival that ended last week, reports said, reflecting mounting pressure on retailers already locked in a brutal price war.
The festival, named after the founding date of e-commerce provider JD (NASDAQ:.com) on June 18 but embraced by all platforms, is China’s second-biggest annual sales event after Singles’ Day in November and is seen as a leading indicator. From home consumption.
Both events once demonstrated the rampant rise in Chinese consumerism, providing a reliable boost in sales for platforms and brands alike. The last time Ali Baba (NYSE:) announced Singles’ Day revenue, in 2021, with sales reaching $84.54 billion during the duration of the event.
This year, 618 instead proved how difficult it is to get consumers to spend at all.
“Chinese spending has been mainly focused on sales opportunities and coupons. If they don’t spend during this (618 sale), when will they consume?” said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis.
To be fair to the event, discounts have become available year-round since the pandemic, with retailers offering them competitively to attract belt-tightening consumers, thus helping to dampen sales growth during big shopping festivals.
Sales during last year’s Singles’ Day shopping boom rose just 2%.
While discounting has helped slow the flow of consumers away from platforms like Alibaba-owned JD.com, Tmall and Taobao, to lower-cost players like Pinduoduo (NASDAQ:), did not increase consumer spending – recent quarterly results showed that revenue for Alibaba’s domestic e-commerce arm rose just 4%.
Investors also remain unconvinced, with Alibaba shares trading down nearly 5% this year and JD.com shares down more than 3%.
But the biggest concern is weak consumer sentiment, which has remained stubbornly low since 2022.
A new Bank of America survey of consumers in China showed that sentiment declined further in June.
The percentage of respondents who plan to spend more over the next six months fell to 45% in June, compared to 55% in April. Only 31% of respondents expect an increase in income over the next six months, a decrease of 10 percentage points from April.
“Everest trade”
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 “commerce Everest” due to its massive sales, which peak around the year 618 and Singles’ Day. .
But these peaks may become less pronounced as sales periods lengthen and consumers lose interest, turning instead to daily discounts offered, for example through live shopping on platforms such as ByteDance-owned Douyin.
“I think what we’re seeing this year is a shift away from full-price retail altogether… it’s more rational, careful consumption and value-seeking,” Gardner said.
Consumers in China have been reluctant to spend amid concerns about their personal wealth fueled by a real estate slump, stalling wage growth and high youth unemployment, putting China at risk of meeting its stated economic growth target of “around 5%” this year.
But instead of stimulating consumption – as they once did – festivals like 618 may be reversing the boom in consumption in a year like this as everyone focuses on buying what they need at the lowest possible price.
Kang Li, a 45-year-old mother of one who works in sales in the southern city of Changsha, is among those who have become more frugal and avoid buying non-essential items.
“(I bought) household supplies, some clothes and shoes for my baby, as well as my skin care products,” Kang said, referring to her 618 purchases this year.
“Basically, I stock up on them when shopping events like 618 come around, so I don’t have to buy them again for half a year,” when Singles’ Day begins, she added.
Jason Yu, managing director of market research firm Kantar Worldpanel in Greater China, warned that the coming months will be difficult for retailers as people bought what they needed during 2018.
“This behavior of loading provisions represents an overdraft on future consumption possibilities…July will be a very difficult month,” he said.
Natixis’ Garcia Herrero expects that the second half is likely to see retail sales grow in the low single digits, meaning that consumption’s share of China’s GDP will shrink rather than expand as many economists believe it needs to.
“This is very bad news for rebalancing the global economy, because China will continue to have to export to get out of trouble,” she said.