Mid-year shopping fest disrupts China’s retail outlook

Retailers in China face a challenging near-term outlook after a weak mid-year online shopping festival that also clouded the recovery prospects of the world’s second-largest economy.

According to reports, e-commerce sales fell for the first time during the so-called 618 festivals that ended last week, reflecting increasing pressure on retailers who are 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 surge in Chinese consumerism, providing reliable sales growth for both platforms and brands. The last time Alibaba reported Singles’ Day revenue was in 2021, when sales reached $84.54 billion during the event.

This year, 618 showed how difficult it is to get consumers to spend money at all.

“Chinese spending was basically focused on sales opportunities and coupons. If they don’t spend (618 sales) in that time, 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. Only 31% of respondents expect their income to increase over the next six months, down 10 percentage points from April.

“The 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.

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

“I think this year we’re seeing 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 money due to concerns about their wealth due to the collapse of the real estate market, stalled wage growth and high youth unemployment, which threatens China’s achievement of this year’s economic growth target of “around 5%”.

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 a salesperson in the southern city of Changsha, is among those who are increasingly saving money and avoiding purchasing non-essential items.

“(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 618.

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

Natixis’ Garcia-Herrero forecasts that retail sales in the second half of the year will likely grow by only a low single-digit gain, meaning consumption’s share of China’s gross domestic product (GDP) is likely to shrink rather than expand as many economists believe considered necessary.

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