Following a dismal mid-year online shopping festival that has also cast doubt on the recovery hopes of the world’s second-largest economy, retailers in China face a difficult future.

According to estimates, e-commerce sales experienced a dip for the first time during the so-called 618 festival, which concluded last week. This decline was reportedly caused by increasing pressure on merchants, who are already embroiled in an intense pricing war.

The festival is China’s second-biggest annual sales event after “Singles Day” in November and is seen as a crucial indication of household spending. It is called after the June 18 foundation date of e-commerce company JD.com, but it is accepted by all platforms.

The two occasions once demonstrated the unrelenting rise of Chinese consumption, giving platforms and businesses alike a consistent boost in sales.

Sales reached $84.54 billion throughout the course of the event the previous time Alibaba, announced Singles Day revenue, which was in 2021.

Rather, 618 has demonstrated this year how difficult it is to convince customers to spend any money at all.

“The main focus of Chinese spending has been on discounts and sales chances. When in the world are they going to buy if they aren’t buying during this (618 sale)?” Alicia Garcia-Herrero, head economist for Asia Pacific at Natixis, stated.

To be fair to the occasion, since the epidemic, discounts have been offered all year long by merchants in an effort to entice frugal shoppers and impede the rise of sales during major shopping events.

After the announcement, the stock rose by around 50% over the course of several hours.

Sales increased by barely 2% on last year’s famous Singles Day shopping spree.

Although the discounting has helped slow the consumer migration from low-cost players like Pinduoduo to platforms like JD.com and Alibaba-owned Tmall and Taobao, it hasn’t significantly increased consumer spending; according to recent quarterly results, revenues for Alibaba’s domestic e-commerce division increased by just 4%.

With JD.com down more than 3% and Alibaba shares down over 5% this year, investors are likewise not persuaded.

The larger issue, though, is the persistently low level of consumer sentiment that has persisted since 2022.

According to a recent Bank of America China consumer survey, mood declined even further in June.

In June, just 45% of respondents said they intended to increase their spending over the next six months, down from 55% in April. Furthermore, just 31% of respondents—a decrease of 10% from April—expect a rise in income during the next six months.

The CEO of Kung Fu Data, Josh Gardner, noted that e-commerce in China is known as “Everest commerce” because of its massive sales peaks around 618 and Singles Day. Kung Fu Data operates online storefronts for over a dozen multinational companies.

However, he added, when sales periods get longer and consumers lose interest, these peaks can become less sharp. Instead, they might switch to regular discounts, like those given by livestreaming purchases on ByteDance-owned Douyin.

“I think what we’re seeing this year is a shift away from full price retail altogether… It’s more rational consumption and caution and looking for value,” Gardner said.

Due to concerns about their personal wealth stoked by a real estate collapse, sluggish wage growth, and high rates of youth unemployment, Chinese consumers have been hesitant to spend, which has put China’s declared objective of “around 5%” economic growth this year in jeopardy.

But in a year like this, when everyone is focused on getting what they need at the best price, events like 618 may be working against a consumer rebound rather than stimulating it, as they previously consistently did.

One mother of one, 45-year-old Kang Li, works in sales in Changsha, a city in southern China. She is one of many people who are becoming more economical and avoiding buying non-essential products.

Kang, who has done 618 shopping trips this year, said, “(I bought) household essentials, plus some clothes and shoes for my kid, plus my own skincare products.”

When Singles Day arrives, she continued, “basically, I stock up on these when shopping events like 618 come around so I don’t need to purchase them again for half a year.”

The general director of Kantar Worldpanel’s larger China division, Jason Yu, issued a warning to businesses, saying that the upcoming months will be difficult as consumers purchased necessities during 618.

“This habit of stockpiling food in the cupboard is an overdraft of anticipated future consumption… It’s going to be really difficult in July,” he remarked.

According to Garcia-Herrero of Natixis, retail sales will probably only rise by low single digits in the second half. This means that rather than increasing as many economists assume it should, consumption’s percentage of China’s GDP will decrease.

“This is terrible news for rebalancing the global economy because China will continue to have to export its way out of trouble,” she stated.

(Adapted from NedwsWav.com)

Categories: Economy & Finance, Regulations & Legal, Strategy