As China's consumers tighten belts, retailers cut jobs, offer discounts

Lianhua Supermarket Holdings Co

15/03/2016 23:00

* Sales at top retailers down 6 pct at start of year 
    * Some firms' have 9 mths of stock vs normal 2 weeks - exec 
    * Consumption patterns shifting in China 
    * Even well-off shoppers going online, eyeing discounts 
 
    By Adam Jourdan and Donny Kwok 
    SHANGHAI/HONG KONG, March 16 (Reuters) - Retailers in China 
are shedding staff, slowing expansion plans and seeing stocks 
pile up in warehouses as shoppers tighten their belts - a major 
headache for a country that has pinned its hopes on consumers to 
drive economic growth. 
    With that growth running at its slowest in a quarter of a 
century, China's consumption patterns are changing, with wealthy 
middle-class households trading down from up-market to more 
affordable brands, and poorer families paring back on even basic 
purchases. 
    China's top 50 retailers saw sales fall 6 percent at the 
start of the year, and sales of basic goods from noodles to 
detergent grew just 1.8 percent at the end of last year, down 
from over 9 percent just three years ago, according to Kantar 
Worldpanel data.  urn:newsml:reuters.com:*:nL4N16I3BL 
    The weak sales of even cheap household goods underlines the 
challenge for China, desperate to get its 1.4 billion people to 
spend and give some fresh impetus to the economy.  urn:newsml:reuters.com:*:nL4N16F23S 
    "Maybe before, if I wanted something I'd just go and buy it. 
Now I only buy things I really need," said Yang Shunjie, 28, a 
Shanghai-based client manager at a state-owned firm, who earns 
between 10,000-15,000 yuan ($1,500-$2,300) a month. He said he 
also shops more online where prices are cheaper and will wait 
for end-of-season discounts to buy new clothes. 
    This is a problem for sectors from retail to luxury and even 
fast-food, where many international names have banked on 
continued growth.  urn:newsml:reuters.com:*:nL3N0KK33A urn:newsml:reuters.com:*:nL3N15K18Q 
    Procter & Gamble  PG.N , whose China products include 
Pampers diapers and Tide laundry detergent, said in January its 
sales were "significantly down" compared with 2014. Infant 
formula maker Mead Johnson Nutrition Co  MJN.N  said price 
competition and a shift to smaller shops and online hit sales. 
    "We are seeing shifts within retail. High-end luxury goods 
have had a very good few years, but that's coming to an end. 
Tastes are changing," said Mark Williams, chief Asia economist 
at Capital Economics in London. 
    Westpac's most recent consumer survey showed sentiment at 
its lowest since October. "The February update points to 
continued weak conditions and elevated job-loss fears again 
weighing on the consumer mood," said Senior Economist Matthew 
Hassan, adding that any loss of momentum for consumer demand 
could raise the risk that growth stays weaker for longer. 
     
    "CARNAGE" 
    Some firms are bucking the downturn.  
    International brands offering "affordable luxury" such as 
coffee chain Starbucks Corp  SBUX.O  and high-end sporting goods 
giants Nike Inc  NKE.N  and adidas AG  ADSGn.DE  have still 
grown. Adidas says it has not seen an impact on its business and 
plans to open some 3,000 new stores in China by end-2020. 
    But retail executives and consumer goods makers said China's 
slow growth is punishing the sector and forcing many to cut 
back, focus on smaller, faster-growing cities and offer more 
discounts. 
    "We are struggling to adapt as sales move online or to small 
mom-and-pop stores," said a senior sales executive at a major 
Western consumer goods firm. "At the moment, it's carnage." 
    He said inventory levels at some clients had jumped to as 
much as nine months, from a normal average of around two weeks. 
    For retailers and consumer goods brands alike, that means 
re-thinking their sales pitch. China-based advertising 
executives say some are adopting a two-tier marketing strategy: 
imported, premium ranges to target more affluent consumers, but 
also buying up popular and affordable local brands. 
    Reckitt Benckiser Group's CEO  RB.L  said last month its 
Chinese sore throat remedy Manyanshuning was a "local hero". 
     
    WARNING SIGNS 
    Already this year, weak consumer demand has triggered a 
spike in profit warnings from China-focused consumer firms. 
    Food group Tingyi  0322.HK , grocery chain Lianhua 
Supermarket  0980.HK , China Outfitters  1146.HK  and Man Sang 
Jewellery  1466.HK  are among those blaming poor sales on 
"weakening consumption" and an expectation of lower prices. 
    "This year hasn't been great, in fact up until now business 
has been slow," said Chen Lu, a sales assistant at household 
goods chain Enjoy Easy in Shanghai. Chen added shoppers who 
spent 100-200 yuan ($15-$30) per visit last year on products 
from clothes hangers to sponges were spending a lot less. "Now 
each person might spend just a few dollars." 
    Sun Art, China's second-biggest hypermarket operator, said 
last month that 2016 would be a "challenging year" for 
retailers. Its 2015 profits declined 16 percent. 
    The weakness has spread to Hong Kong, which often relies 
heavily on mainland visitors to drive demand. Retail sales there 
had their biggest fall in 13 years in 2015, and the slump has 
continued this year. 
    "Most of our members saw double digit falls in sales (in 
February)," Thomson Cheng, chairman of the Hong Kong Retail 
Management Association, said on a conference call this month, 
adding many retailers were cutting staff to stay afloat. 
    "We are all very worried about the situation." 
($1 = 6.5146 Chinese yuan renminbi) 
 
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China's gloomy retail growth    http://tmsnrt.rs/1SyGKpK  
On China's Main Streets: a need to keep shoppers shopping    
 urn:newsml:reuters.com:*:nL3N1544DQ 
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 (Reporting by Adam Jourdan in SHANGHAI and Donny Kwok in HONG 
KONG, with additional reporting by SHANGHAI newsroom; Editing by 
Clara Ferreira-Marques and Ian Geoghegan) 
 ((adam.jourdan@thomsonreuters.com; +86 21 6104 1778; Reuters 
Messaging: adam.jourdan.thomsonreuters.com@reuters.net)) 
 
Keywords: CHINA ECONOMY/RETAIL