SHANGHAI — China’s era of lower but more stable economic growth — dubbed “the new normal” — has raised questions over the vigor of consumer sentiment.
But as the country enters the Year of the Sheep, the outlook for retailers appears anything but sheepish.
Last year, China’s retail sector glided into the New Year period with steady growth. The run-up to this year’s holiday period has been longer — with the Lunar New Year or Spring Festival season kicking off Wednesday — and less certain. Statistics released in January revealed that China missed its 2014 GDP growth target of 7.5 percent — though only marginally, at 7.4 percent — indicating slower growth across most retail sectors, with the exception of online and outlet malls. Volatility in the Shanghai stock market also caused tremors for investors.
Retailers remain optimistic, though. One reason is that this year’s holiday buildup coincided with Valentine’s Day, helping spur sales of watches, jewelry and lifestyle categories. Another bonus is that travel retail is increasing, and with gift-giving back, this is good news for luxury brands.
While neither the Chinese government nor major retail organizations seem to be releasing Chinese New Year sales forecasts, FocusEconomics Media predicts that mainland China’s nominal retail sales in the first quarter will climb 12.3 percent over the corresponding period in 2014. But the Hong Kong Retail Management Association, citing economic uncertainties, said it expects Chinese New Year retail sales to grow 8 percent this year — a more-cautious forecast than that of previous seasons.
The association said retail sales slowed in 2014 as mainland visitors spent less, and it will be difficult to regain the double-digit sales growth seen from 2010 to 2013. Retailers have been slashing prices or launching special sales promotions earlier in the season, the association added.
Even with a slowdown, 8 percent growth remains strong on a global basis.
“As the Year of the Sheep approaches, it seems that retailers are set for a strong period of New Year consumption,” said Jon Copestake, chief retail and consumer goods analyst at The Economist Intelligence Unit. “Despite softening demand in China, retail growth is still leading much of the rest of the world and, if the record-breaking sales enjoyed by Singles’ Day are anything to go by, this crucial shopping period looks likely to see further gains.”
Following China’s Singles’ Day on Nov. 11, e-commerce giant Alibaba Group reported more than $9 billion in sales, highlighting the importance of romance in the retail calendar. Last year’s spring holiday sales figures reported by the official Xinhua News Agency, citing the Ministry of Commerce, revealed China’s retail and catering sales rose to $101 billion during the seven-day period, 13.3 percent higher than in 2013.
For the luxury sector, the upcoming season offers a unique opportunity.
“Luxury firms in particular will be ramping up their marketing efforts to capitalize on a rare occasion where gifting is socially acceptable in the current anticorruption climate,” Copestake said.
Many shoppers will travel to buy luxury goods, and tourism continues to characterize the season, underpinned by newly urbanized families going on short breaks, even if just for a day.
“With a strong foundation in tourism, Suzhou Village is proving to be a key destination for the high-spending Chinese customer during all holiday periods,” said Mark Israel, chief executive at Value Retail Management China, developers of Suzhou Village, a luxury discount mall 50 miles west of Shanghai. “As such, we are very confident for this upcoming Chinese New Year period and expect significant visitation and spend over the holiday.
“While the growth rate of the market overall has slowed, there is still significant growth at the individual brand and category level,” Israel said. “Handbags, accessories and small leather goods from luxury and premium brands are as popular as ever at Suzhou Village. Furthermore, niche or emerging brands will have greater chances to succeed in China as we are seeing our high-end customers becoming more willing to try out and experiment with brands they hadn’t purchased before.”
Andrew Keith, president of Lane Crawford, said the luxury retailer’s stores continue to experience double-digit and high-triple-digit sales growth versus the year before despite the disruptions of the pro-democracy protests in Hong Kong and a slowdown in the growth of the Chinese luxury market.
“We expect this positive growth over last year to continue through Chinese New Year,” he said.
At the same time, shoppers are traveling further afield. According to Global Blue, a tourism shopping tax-refund company headquartered in Switzerland, China was the biggest-spending nationality in 2013, accounting for 27 percent of tax-free spending.
“Luxury firms in Europe and North America have increasingly tailored their offerings to accommodate retail tourism from the mainland. Meanwhile, with the Occupy [Central] movement coming to an end in Hong Kong, firms there such as Burberry, who may have seen declines in October or November, will be keen to reestablish any lost footfall,” Copestake said.
According to Ctrip, a mainland-focused travel agency, Bangkok and Seoul have overtaken Hong Kong as the two most-popular New Year’s destinations for Chinese tourists this year, with Taipei and Singapore coming in fourth and fifth place, respectively.
“Thailand has become the most-popular destination as Chinese tourists do not need to pay visa fees anymore, and the political situation [in Thailand] has become more stable since last year,” said William George, a Ctrip representative.
In addition to East and Southeast Asian countries, increasing numbers of Chinese tourists are traveling to European and Middle Eastern countries. This Spring Festival, the United States ranks fifth in the outbound list; Australia is ranked seventh, and the United Arab Emirates is 10th, making the top 10 for the first time. The three most-popular European countries are still Italy (12th), the U.K. (14th) and France (15th).
Ashley Micklewright, ceo of Bluebell Group, which markets and distributes luxury brands in Asia, said he expects Chinese New Year sales in Hong Kong to be “at best flat,” with more Chinese traveling to Europe, South Korea and Japan.
“During the Chinese New Year, zodiac gold products and various gold items are most popular as Chinese like to buy these products symbolizing abundance, luck and joy.
Back on the mainland, heavily regionalized consumer trends are emerging. Meimei Ding, ceo at DFO, a retail consultancy and buying office based in Shanghai, said some of her mainland retail partners sell more in the one-week holiday period than in three months total.
“In Southern and Central China (Shenzhen, Guangzhou, Hangzhou), where people have white-collar jobs and regular salaries, shoppers are looking for bargains and value discounts; because of this, discounted items from the [previous] autumn/winter collections tend to sell well. In the big Western cities (Chongqing, Chengdu), you have high concentrations of rich, second-generation kids spending lavishly on fashion. Their priority is to look glamorous and unique — they want the newest and most different clothes, so they care less about discounts. They tend to buy from the forthcoming spring/summer collections,” Ding said.
Maureen Fung, general manager at Sun Hung Kai Properties, expects double-digit growth in sales and footfall at the high-end Shanghai offerings. To capitalize on the rush of seasonal bargain hunters, the company is offering redemptions schemes at its IAPM and IFC malls, for example, allowing shoppers to claim a Marie Desbons limited-edition chocolate music box with certain purchases.
For e-commerce players, the picture is slightly different. Seasonal trends during the New Year period are much more in line with those present throughout the year.
“Based on current trends, we expect that for this January to February period, we will see triple-digit growth versus the same period in 2014,” said Thibault Villet, ceo of Glamour Sales, a private sales e-commerce company with more than 4 million registered users.
The ceo cited watches and jewelry as one of the company’s top-performing categories, with the average customer spend valued at $240 to $325, an increase of 25 percent from last year.
Home decor and lifestyle are also star performers. “[This year] customers are looking for more decorated items. Utilitarian and functional products are giving way to products that combine design and functionality, which fits into a broader trend of our customers becoming more sophisticated,” Villet said.