China’s retailers face grim outlook post disappointing 618 shopping festival

Chinese retailers are bracing for a tough near-term future following a dull performance during the mid-year online shopping festival, which has cast a shadow over the recovery projections of China’s economy.

For the first time, e-commerce sales declined during the 618 festival, reflecting growing pressures on retailers amid a fierce price war.

The 618 festival, named after the founding date of e-commerce giant JD.com, has evolved into China’s second-largest annual sales event, only surpassed by Singles Day in November.

Both events have highlighted the strong growth of Chinese consumerism, providing a boost in sales for platforms and brands.

However, this year’s 618 festival showed the challenges of getting consumers to spend, as Alicia Garcia-Herrero, Asia Pacific chief economist at Natixis, stated, “If they’re not spending during this (618 sale), when on earth are they going to consume?”.

The pandemic has led to year-round discounts from retailers aiming to attract cautious consumers, which has diluted the impact of major shopping festivals. Last year, Singles Day sales grew by just 2 per cent.

Although discounting has slowed the migration of consumers from platforms like JD.com and Alibaba’s Tmall and Taobao to low-cost competitors such as Pinduoduo, it has not boosted consumer spending.

Alibaba’s domestic e-commerce revenue grew by only 4 per cent in recent quarterly results, while its shares are down about 5 per cent this year, and JD.com shares have fallen over 3 per cent.

The greater concern is the constantly weak consumer sentiment since 2022.

A Bank of America survey in June indicated further weakening, with only 45 per cent of respondents planning to increase spending in the next six months, down from 55 per cent in April.

Moreover, only 31 per cent expect an income increase over the same period, a 10-point drop from April.

Josh Gardner, CEO of Kung Fu Data, which manages online stores for numerous global brands, explained that Chinese e-commerce is often called “Everest commerce” due to its sales peaks during events like 618 and Singles Day.

He noted that these peaks might become less pronounced as consumers gravitate towards everyday discounts, such as those available through livestream shopping on platforms like Douyin. Gardner observed, “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”.

Chinese consumers’ reluctance to spend, driven by concerns over personal wealth amid a real estate slump, slow wage growth, and high youth unemployment, threatens China’s economic growth target of “around 5 per cent” this year.

Festivals like 618, instead of boosting consumption, might hinder recovery by encouraging frugality. Kang Li, a 45-year-old sales worker in Changsha, exemplifies this trend. She focused her 618 purchases on essentials and planned not to buy more until Singles Day.

Jason Yu, Greater China Managing Director at Kantar Worldpanel, warned that retailers face a challenging period ahead as consumers stockpiled essentials during 618, leading to what he termed an “overdraft of future consumption potential.” He forecasts that July will be particularly tough for retailers.

Garcia-Herrero of Natixis forecast that retail sales in the second half of the year would grow only in low single digits, reducing consumption’s contribution to China’s GDP. “This is terrible news for rebalancing the global economy because China will continue to have to export its way out of trouble,” she said.

(With inputs from Reuters)