Amid China’s Slowdown, Consumers Root For The Home Team (Of Retailers)

In retail and in eCommerce, to make inroads into a new market is challenging … especially if consumers root for the home team.

But in many cases, the biggest consumer-focused companies must look abroad to keep growing. China, with more than 1.3 billion citizens, looms large.

The Wall Street Journal reports that U.S. companies have seen China as a new market for top-line boosts and untapped markets that would pay long-term dividends through a huge installed base of would-be customers.

The tide is turning, it seems, to the point where U.S. firms are encountering a more resistant Chinese consumer, one who sees comparable quality with goods and services on offer from Chinese companies.

Status means a lot, and in a series of anecdotes, the WSJ reported that Chinese consumers’ tastes may be shifting. In one example, Li Ning, a Beijing sportswear brand, has captured attention and share of wallet where Adidas and Nike once loomed large. We’ll note that at least in some cases, western companies enjoy a healthy growth rate in China, and likely don’t lose too much sleep – Nike, for example, saw 22 percent sales growth in the country, as measured year over year by its latest quarterly results.

But in another example, roughly 70 percent of smartphone sales eight years ago came from three makers based outside China, including Nokia, Samsung and Apple. Now, about 70 percent of smartphones sold in the country come from Huawei, Oppo and Vivo, three Chinese firms.

The trade war that has dominated headlines – and, until very recently, existed as a series of tariff one-upmanship – has had the effect of turning consumers inward when it comes to all manner of products, from tech to luxury goods. In the latest data point from over the weekend, China’s U.S. denominated imports fell 8.5 percent in September as measured year over year, more than the roughly 5 percent economists had expected. Imports were down 5.6 percent in August.

The tariff war will likely have a lasting impact that may transcend any turnaround from this month’s announcement by the Trump administration that the first phase of a multi-pronged trade deal has been struck. As far back as a year and a half ago, online campaigns popped up on social media to boycott U.S. firms.

At the same time, the trade war, a reduction in Chinese exports and the slowing Chinese economy have trickled down into a slowing growth rate for retail sales. The slowdown may not bode well, especially for companies like Tiffany, which, as noted back in June, said that lower near-term guidance was tied to “dramatically” lower spending by tourists – in particular, Chinese tourists.

Last week, as Reuters reported, there was a bright spot in the retail data, as spending on retail goods got a boost during the week-long National Day holiday, which ran from Oct. 1 to Oct. 7. Sales were up 8.5 percent to a USD equivalent $212.6 billion. But that boost may be short-lived, as overall monthly consumer goods sales have slipped to low single-digit growth rates for more than a year and a half, even with subsidies and expanded retail. The growth rate was low double digits in previous years.

A shrinking pie (retail sales) and more nibbling at the existing pie by Chinese firms does not augur well for U.S. brands that had banked – and still may bank – on China for growth.