SHANGHAI — China’s tumultuous stock market should have minimal impact on actual retail sales in the medium-to-long term, retailers and analysts say.
Instead, brands should be more concerned about the shift to online consumption and a growing number of e-commerce companies offering options to order products overseas as well as a decline in demand for products from mass luxury brands.
“I don’t think that this will have a big impact right now,” said Benjamin Cavender, a senior analyst with the Shanghai-based China Market Research Group consultancy. “We are going through a massive shift. There is more and more shopping online, more buying overseas and importing and then a move towards mass-market shopping. The money to spend is still there, but brands need to really be paying attention to what the consumer is looking for and what they want to buy.”
Over the past several weeks, an inflated Chinese stock market has been on a rollercoaster ride with stock prices taking dramatic slides, the Chinese government halting new IPOs, and, most recently, hundreds of listed companies freezing the trading of shares on Wednesday to try to fend off further losses.
Many institutional investors anticipated that the bubble would eventually burst, moving money out of Chinese markets ahead of the near free-fall, which started in late June and has resulted in share prices in Shanghai losing a third of their value in recent weeks, Cavender said. Those who are likely hurt the most are investors who came late to the market, or in other words, Chinese citizens who know little about stocks other than a belief that Chinese markets were the new way to make a quick buck.
“In the past several decades, stories like overnight money boom are everywhere, and it does happen all the time,” said Will Zhang, a 26-year-old entrepreneur and investor. “China’s stock market started the new round of boom. The decline of China’s stock market and its possible chain reaction does draw more of my attention to the overall health of China’s economy. I am afraid if the government policies and regulations are not effective in saving the market, the panic and recession may spread to other areas.”
Still, Zhang added that he does not think economic worries are widespread, particularly among older generations. “People in my father’s generation have experienced more difficult times than this, and they have confidence in the government,” he said. “And for most of the people, I don’t think they have knowledge about either the stock market or the whole economic picture.”
Beijing has been trying to mitigate the market mayhem by lowering interest rates as well as infusing capital into the market and requiring major funds to purchase a certain number of shares. In recent weeks, many government attempts to halt the decline have been ineffective. Yet on Thursday there was a slight rebound in mainland and Hong Kong exchanges after the government stepped in this week with further efforts to prop up the market, including banning shareholders of major listed companies from offloading their holdings. Chinese media is also trying to paint a rosy picture, with major state-run news outlets publishing editorials stating that confidence is “more precious than gold.” Two newspapers based in inland China published reports on how villagers in the country’s interior who have invested remain confident in the market.
According to Cavender, even though many more Chinese have decided to gamble on stocks, it is still a relatively small percentage of the country’s population. There may be short-term psychological impact on consumer confidence, but it is unclear whether those hurt the most, likely individuals or families who borrowed money to invest in stocks that have dramatically decreased in value, match the profile of Chinese who consume foreign brands.
“No one knows how exposed a lot of people are,” said James Rogers, managing director of CR-Retail, a Shanghai-based retail consultancy. “Because of the opaque nature of China, I think a lot of people are trying to connect the dots to see how many people are linked to this — not in terms of how they are actually contributing to the downturn but how people are exposed.”
Rogers added that retailers may go through a slight sales slump due to the market chaos and that they “should be cautious but not panic.”
“While the economy is going through some testing times, the long-term outlook is very positive,” he said. “Therefore retailers should not do anything in the short-term which could jeopardize the future growth of their China business.”
Godwin Lam, managing director of Trinity Ltd.’s China operations, which manages a number of high-end men’s wear labels, said sales have been down over the past couple of weeks, but he thinks it will be short-term. Beyond stock market gyrations, Lam says he is more concerned about a growing trend in China where brands are offering deep discounts to offload surplus inventory.
“I think in the short-term, the stock market will affect everything, including food and beverage, including retail, including real estate. Everything,” Lam said. “In the long-term, I don’t think there will be any big impact. Chinese people have a very short-term memory. They will come back and keep spending. I am more concerned about brands that never offered any discounts before and now they have very big discounts. Either you follow them or you will be pushed out. So, in some sense, we have to give up the margins and follow the majority and go for top-line growth.”