Analysis: China’s retail outlook deteriorates after mid-year shopping festival debacle

By Casey Hall

SHANGHAI (Reuters) – China’s retailers face a discouraging near-term future after a disappointing mid-year online shopping festival that also clouded prospects for the recovery of the world’s second-largest economy.

According to reports, e-commerce sales fell for the first time during the so-called 618 festival, which ended last week, reflecting the pressure on retailers already locked in a grueling price war.

The festival, named after e-commerce provider JD.com’s June 18 founding date but spanning all platforms, is China’s second-largest annual sales event after November’s Singles’ Day and is seen as a key indicator of household consumption.

Both events showcased the once-rampant rise of Chinese consumerism, providing reliable sales growth for both platforms and brands. The last time Alibaba reported Singles’ Day revenue in 2021, sales reached $84.54 billion during the event.

This year, the 618 brand proved how difficult it is to get consumers to spend money.

“Chinese spending was basically focused on sales opportunities and coupons. If they don’t spend during this time (618 sale), when on earth will they start consuming?” said Alicia Garcia-Herrero, chief economist for Asia-Pacific at Natixis.

To be fair to the event, since the pandemic, discounts have been available year-round and retailers are offering them competitively to attract belt-tightening consumers, thereby helping to stem sales growth during major shopping festivals.

Sales at last year’s Singles’ Day Christmas event were up just 2%.

While the discounts have helped slow the exodus of consumers from platforms such as JD.com and Alibaba’s Tmall and Taobao to low-cost players such as Pinduoduo, it has not resulted in an outsized increase in consumer spending – recent quarterly results showed Alibaba’s domestic e-commerce revenues only increased at 4%.

Investors also remain unconvinced, with Alibaba shares down about 5% this year and JD.com down more than 3%.

However, a greater concern is weak consumer sentiment, which has remained consistently low since 2022.

A new consumer survey from Bank of America in China showed sentiment weakened further in June.

The percentage of respondents who plan to spend more in the next six months fell to 45% in June, down from 55% in April. And only 31% of respondents expect their income to increase in the next six months, which means a decrease of 10 percentage points compared to April.

“EVEREST TRADE”

Josh Gardner, CEO of Kung Fu Data, which manages online stores for a dozen global brands, said e-commerce in China is commonly called “commerce on Everest” due to huge sales peaks around 618 and Singles’ Day.

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However, these peaks may become less visible as sales periods lengthen and consumers lose interest and turn instead to daily discounts, for example through live shopping broadcasts on platforms such as ByteDance’s Douyin, he said.

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

Consumers in China are reluctant to spend due to concerns about their personal wealth as the housing market collapses, stagnating wage growth and high youth unemployment threaten China’s achievement of its economic growth target of “around 5%” this year.

But instead of stimulating consumption – as they once reliably did – festivals like 618 can counteract the surge in consumption in a year like this when everyone is focused on buying what they need at the lowest price possible.

Kang Li, a 45-year-old mother of one who works as a salesperson in the southern city of Changsha, is among those choosing to shop more thriftily and avoid non-essential purchases.

“(I bought) household items and some clothes and shoes for my baby, as well as my own skin care products,” Kang said, referring to her 618 purchases this year.

“I generally stock up on them when shopping events like 618 come up, so I don’t have to buy them again for six months,” she added as Singles’ Day approaches.

Jason Yu, managing director of research firm Kantar Worldpanel in China, warned that the coming months would be difficult for retailers as people bought what they needed during the 618 period.

“This pantry-loading behavior means exceeding future consumption potential… July will be very difficult,” he said.

Natixis’ Garcia-Herrero forecasts that retail sales will only grow by a low single-digit gain in the second half, meaning that consumption’s share of China’s GDP will decline rather than increase as many economists believe.

“This is terrible news for rebalancing the global economy, as China will continue to need to export to get out of trouble,” she said.

(Reporting by Casey Hall and the Shanghai newsroom; Editing by Miyoung Kim and Muralikumar Anantharaman)