Due to a lackluster showing at the mid-year online shopping festival, which has clouded China’s economic recovery estimates, Chinese retailers are preparing for a difficult near-term future.
During the 618 festival, e-commerce sales fell for the first time, indicating mounting pressure on businesses in the midst of a severe price battle.
The 618 festival, which takes its name from the day that the massive online retailer JD.com was founded, has grown to become China’s second-biggest yearly sales occasion, eclipsed only by Singles Day in November.
Platforms and companies have seen an increase in sales as a result of these events, which have demonstrated the rapid rise of Chinese consumerism.
The difficulties in persuading customers to spend money were highlighted by this year’s 618 festival, as noted by Alicia Garcia-Herrero, chief economist for Asia Pacific at Natixis, who said, “If they’re not spending during this (618 sale), when on earth are they going to consume?”
The pandemic has caused retailers to offer year-round discounts in an effort to draw in wary customers, lessening the impact of significant shopping events. Sales on Singles Day increased by just 2% the previous year.
Discounting has not increased consumer spending, while slowing the flow of users from high-end competitors like Pinduoduo to low-cost rivals like JD.com and Alibaba’s Tmall and Taobao.
In recent quarterly data, Alibaba’s domestic e-commerce revenue increased by just 4%. The company’s shares have declined by almost 5% this year, and JD.com’s shares have decreased by more than 3%.
The persistently negative customer perception since 2022 is the bigger worry.
Further weakness was indicated by a June Bank of America survey, in which only 45% of participants planned to increase spending in the next six months, compared to 55% in April.
Furthermore, only 31%—a 10-point decrease from April—expect a rise in income over the same time frame.
The CEO of Kung Fu Data, Josh Gardner, explains why Chinese e-commerce is sometimes referred to as “Everest commerce”—it experiences sales peaks on occasions like 618 and Singles Day. Kung Fu Data operates online stores for many international brands.
He pointed out that when customers move toward regular discounts—like those obtained through livestream purchasing on sites like Douyin—these peaks may become less noticeable. Gardner noted, “This year, we’re witnessing a complete departure from full-price retail. It involves more cautious spending, value-searching, and reasoned consumption.
China’s economic growth target of “around 5 per cent” this year is in jeopardy due to the country’s consumers’ reluctance to spend, which is fueled by worries about personal wealth in the face of a real estate crisis, sluggish wage growth, and high youth unemployment.
Festivals such as 618 may actually impede recovery by encouraging conservative spending, rather than increasing it. This pattern is best illustrated by 45-year-old Changsha salesperson Kang Li. She decided to save her 618 purchases for necessities and reserve her further purchases for Singles Day.
The managing director of Kantar Worldpanel for Greater China, Jason Yu, issued a warning to shops, stating that they will encounter difficulties in the coming months as people hoard necessities during 618, resulting in a “overdraft of future consumption potential.” According to his forecast, shops will have significant challenges in July.
According to Garcia-Herrero of Natixis, China’s GDP will be less from consumption in the second half of the year as retail sales expand at a rate of only low single digits. “This is terrible news for rebalancing the global economy because China will continue to have to export its way out of trouble,” she stated.
