Most Recent Articles In Business
Latest Business Articles
- Inter Parfums SA Profits Rise 3% in First Half
- Calvin Klein Inc. Picks Up Accessories License for Calvin Klein Platinum
- H&M Sales Rise 16% in July
More Articles By
HARBIN, China — The downtown shopping area here, full of international stores set amid a well-preserved model of early 20th century stylish architecture, is packed with giddy tourists and sightseers ahead of the Chinese New Year festival. They’re window-shopping and posing for photos in front of high-end shops in famous Art Nouveau buildings.
This story first appeared in the January 26, 2009 issue of WWD. Subscribe Today.
But the cash registers aren’t ringing.
The global economic crisis has hit hard, even here, in China’s largest northeastern city, a former cosmopolitan outpost on the Trans-Siberian Railway. Chinese consumers are holding on to their cash rather than spending optimistically the way they did only a year ago. Home of the world’s largest ice sculpture festival, Harbin is China’s main winter tourism draw.
Though tourist agencies predict the largest year yet for visitors, sales are down in what is the biggest shopping period of the year. From Sephora to Armani Exchange to Nike, shops are bustling with browsers, but sales are light. Everywhere in the city’s shopping district there’s evidence China’s consumer boom is slowing.
“Last year, people would buy single items for 1,000 yuan ($146). Now we have to discount the same items to 300 yuan before they will buy it,” said Lingyi Gao, a clerk in a sporting goods chain store selling Nike and other brand products. “We’re selling less, of course, because of the economic crisis.”
Across the way at another sporting-goods retailer, clerk Hongqui Xu said last year he was selling about 30 jackets and sweatshirts every day during the Lunar New Year shopping period. This year, he’s selling about 10.
“People don’t want to spend as much money,” said Xu. “I hope it will get better.”
For most retailers in China, this week is the year’s most important shopping season, akin to the post-Thanksgiving rush of the U.S. but packed into fewer days. But this year in Harbin, as in other major cities across China, business is down, and retailers are struggling and cutting prices by extreme measures to draw in shoppers and make sales. In Beijing and Shanghai, stores say foot traffic hasn’t slowed much, but sales are down significantly from last year and certain to damage business as 2009 begins.
The government has yet to release new statistics on retail sales, but anecdotal evidence and analysts say there’s little doubt the global financial crisis has taken a bite out of China’s budding retail market. Data released Jan. 21 showed that economic growth in the fourth quarter of last year slowed to 6.8 percent — a far cry from the 13 percent growth rate of 2007. Overall, the Chinese economy grew by 9 percent last year, the slowest rate in a decade.
This slump comes at a time when China was committed to encouraging domestic demand and consumption to help counter its trade surplus and decrease dependence on an export-heavy economy.
Nationwide, retail sales grew overall by 28 percent in the first half of 2008, but that growth slowed to 10 percent by the second half of the year, according to official statistics. Luxury goods, furniture stores, chain clothing stores and electronics retailers have taken the hardest hits, analysts said. As stores turn to deep discounts to draw customers, analysts say the key to restoring faster growth is, as elsewhere in the world, boosting consumer confidence.
“People’s incomes have not decreased, so the purchasing power is still there,” said Guojian Gu, a retail analyst with the Shanghai College of Commerce. “The problem is consumer confidence. But I think as the government reveals more stimulus plans, at least consumption won’t decrease further.”
China’s exports have slowed dramatically in recent months, backsliding in December at the fastest rate in 10 years. Exports decreased by 2.8 percent in December from the same month a year earlier, indicating a sharp fall in global demand for Chinese-made goods. The trade surplus has also declined and experts are predicting a significantly lower growth rate (5 to 6 percent) this year. Rising unemployment and deflation have, within a matter of months, replaced record inflation as the country’s number-one economic concern.
Faced with all that data and millions of residents financially dependent on the country’s continued economic rise, government officials in November released plans for a $586 billion, two-year economic stimulus package. The plan includes tax restructuring, heavy investment in infrastructure and some industry-specific measures like the $1.5 billion just injected into the ailing auto industry.
Textile and apparel manufacturers, however, are still waiting to see if the stimulus plan will target their industries. The central government has adjusted export tax rebates in an attempt to fuel growth, but factory managers say they have yet to see results. In a recent speech, Premier Wen Jiabao urged industries to look for new and emerging markets to replace declining demand from the U.S. and Europe.
Thousands of factories have been shuttered in the past year, and analysts say the textile and apparel industry could see no growth this year, or even an actual decline. State media said 670,000 factories and related small businesses closed in the first half of 2008 in China, and the number increased through the second half, taking millions of jobs in the closures.
Gu said domestic demand, if stimulated and encouraged, could help make up the slack. Already, Gu said, there are indications that vast numbers of manufactured goods originally bound for the U.S. but now languishing in warehouses could be released to the domestic market.
“This is a very good thing, as it enriches the types of goods in stores and lightens the burden of these producers,” said Gu. “And I’m expecting more of these things to take place.”
As with low-end manufacturing, the consumer spending dip is expected to increase competition and drive smaller, poorly managed shops out of business. It may also contract plans for global brand expansions in China, though international companies maintain they are remaining optimistic about this market.
“Basically, stores with high-end and expensive goods will certainly be affected, while supermarkets and convenience stores will continue to grow,” predicted Tao Hong, an economics professor with the Beijing Technology and Business University. “The secondhand goods market will also continue to be lively.”
The onus for survival is now on retailers, said Hong, and global and domestic brands can no longer expect China to be the land of limitless potential consumer spending. Also, it’s not enough simply to be a well-known international brand. Companies will need to work harder to reach Chinese consumers in the coming year.
“To maintain growth, retailers must better control costs, be more careful in expansion, maintain regular customers and develop young customers,” said Hong. “They should pay more attention to potential markets, such as in rural areas, and get more aware of customers’ needs in such a big country with such a huge number of people.”