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2019 Outlook of China Retail

I had been quite optimistic about the Chinese economy until later last year, when the effect of the trade war with the US surfaced.

The stock market is in its worst; property prices staggered and even fell in some cities; Local governments are in deep debts but still borrowing to build infrastructure in order to boost growth; No more restrictions on production this winter to save GDP growth, throwing the war against pollution away. Now I am worried.

One day in November, darker colour meaning heavier pollution. The government turned a blind eye to output limits of factories in order to save GDP growth.

Trade war did not cause all those but is the catalyst and it has been a big impact to both China and US. I heard that China had tried to make compromises several times but the US or most likely Trump pushed for more in the last minute. Nonetheless, it is almost certain the two giants will come to an agreement this year.

Shanghai stock market index has been falling since 2018, indicating a weakening economy.

Looking at the retail sector of China, offline retailers seem have survived mainly thanks to their cash flows. Grocery retailers are working hard on their private labels, believing PLs will be their salvation. Neighbourhood stores will see a boost in numbers but not quality while convenience stores will continue their advance but most with leading retailers. Hypermarkets will experience a really tough period and they must figure a way to retain customers and fight against supermarkets as well as e-commerce, focusing on one-stop shopping, experience, assortment and home delivery. For home delivery, there are already a few courier companies providing such services at a low price which retailers can leverage instead of building their own team.

The Fresh Legend store leads innovation in neighbourhood stores by a regional retailer and the retailer is aiming to concentrate expansion in its own region.

There will be only a few innovative retailers and others are waiting to copy their ideas. Regional retailers will have a better time considering their concentrated resources and local business networks. O2O is not profitable and still testing new ideas but retailers are growing tired of it.

As for e-commerce, players will expand further their platform and categories together with frequent promotions in order to maintain a reasonable growth rate. Despite another “successful” Single’s Day for Alibaba, the company has been conducting similar promotion for 12.12, New Year, Chinese New Year in the following 2 few weeks. And the promotion is getting much more complicated. All this means that Alibaba is having difficulties keeping up sales.

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Couriers from JD.com are waiting at an AEON store to pick up parcels, products selected by AEON staff, and deliver to customers’ home. AEON does not hire the courier service but make the sales.

However, for big e-commerce companies, retailing is a means of traffic and cash flow but not profits. Therefore, you can see Alibaba is making huge profits from advertisements while many vendors, including many I have purchased from before, on its platform have closed.

5G mobile technology will be launched later in 2019 which will bring many more AI hardware into life, which means more entrance for traffic and interactions with shoppers. Mobile phones might expire sooner than we expected and this could be a great challenge to e-commerce company and even a greater one to grocery retailers. Technologies are truly changing shopping behaviors and in a too fast way.

The good news is that, despite of a slowing economy, I do not see any shrinkage of individual consumption, except in luxury categories. I see Chinese people go travelling around the globe, shopping everywhere and there is no sign of any concerns on their excited faces. The demand of quality products will continue to grow fast and China is expected to further lift regulations on imported products. All good news for international suppliers!

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