Chinese forced to forgo luxury

Building Brics: The retail industry in China is feeling the chill winds of an economic slowdown. But luxury brands are managing to weather the storm.

Customers in the Wangfujing shopping street in Beijing. Figures from the country sugest retail sales growth is slowing. Mark Ralston / AFP

Consumers in China are becoming more conservative in their spending as they face more challenging economic times. As the owner of a shoe shop in the capital points out, optimism is hard to find during a slowdown.

Looking across at an empty shop, Dou Chen, who works for the French beauty products chain L'Occitane en Provence in Beijing, admits business has slowed.

The upmarket store in The Malls at Oriental Plaza in the centre of the Chinese capital sells products ranging from luxury hand creams to moisturisers for men.

But as growth in China's economy slows, it seems fewer people are keen to spend as much as 150 yuan (Dh87.7) for a modestly sized jar of cream.

"The obvious thing you can say is that fewer customers are coming here to buy our products. That's mainly due to the overall economic slowdown," says Ms Dou, while adding that she believes some of the company's other outlets in the capital are busier.

"I imagine all the retailing industry is affected by the slowdown, no matter whether it's high-end products like perfumes, expensive clothes or daily necessities."

Sales at her store, she estimates, are down between 5 and 10 per cent compared with the same period last year.

The company's competitors in China also appear to be facing tougher times. Bloomberg News reported that Natural Beauty Bio-Technology, which is listed in Hong Kong and also sells skincare products, announced in an August filing that "consumers have generally become more conservative in their spending". Nationally, retail sales growth is slowing, even if China is still a long way from suffering an overall decline.

In August, there was a 13.2 per cent year-on-year increase in China's retail sales to 1.67 trillion yuan, a significant change from the second half of last year, when monthly increases were 17to 18.1 per cent.

Shops in a variety of sectors in Beijing admit the economic climate is challenging.

At the Jerroit Silk Suitcase store north of the capital's main shopping precinct, Wangfujing, sales assistant Shen Lin warns trade has been affected "quite obviously" by a slowdown in growth.

"We are selling less, that's for sure. Around June or July it started," says Ms Shen, whose store offers modestly priced silk scarves, bags, shoes and traditional qipao dresses.

"Things are getting more expensive, but incomes are pretty much the same. It pushes people to think whether it's necessary to buy and whether you should wait and save money," she adds.

Even basic canvas footwear of the type that has long been popular in China is not being bought at the same rate as before, according to retailers.

Ling Congmei, the owner of Old Beijing Canvas Shoes in the centre of the capital, admits this year has been lacklustre, with turnover down about 10 per cent. "I think it's just that people are earning less and the slowdown makes people less optimistic about spending money. But I haven't come up with any promotions or discounts because that's a business cliché and people don't appreciate that."

Just as retail sales are stuttering, so the double-digit growth the Chinese economy achieved during much of the 2000s seems like a more distant dream.

In the second quarter of this year, GDP growth was just 7.6 per cent, representing the sixth successive quarter in which it has slowed.

With increases in China's factory output having declined for 11 months in succession, and with the Shanghai Composite Index falling to a three-year low, it is no surprise shoppers are hesitant to open their wallets.

"I think I've heard of factories closing down and businesses finding difficult times. It does make me think when I spend my money," says Chen Dingyi, a chef and father-of-one who was window-shopping last week.

"I might not buy a new mobile phone just because there's a new update," he says. "It's wasteful spending. But for other things, necessities like clothes, I spend as much as I used to."

Yet others are upbeat, buoyed by a decade in which average incomes in China have more than tripled. In the Pew Research Centre's Global Attitudes Survey published in July, Chinese shoppers were more positive about the economic outlook than people from any other country.

About 83 per cent predicted living standards would improve. "Most people are optimistic and confident. They think the economy will remain robust," says Liu Gao, 66, a retired defence industry worker.

Similarly, Dong Mingming, 21, a student, points out that talk of a slowdown "hasn't affected my own spending at all".

Although expansion has declined, it still remains in double digits for many brands in the key luxury sector.

The trendy clothing chain Burberry achieved 16 per cent sales growth in China from January to March, a disappointment only when compared with the 67 per cent recorded in the first three months of last year.

In the second quarter of this year, Chow Tai Fook Jewellery, based in Hong Kong, also achieved a 16 per cent sales increase, down from 61 per cent last year.

Even so, many of Beijing's luxury stores, in contrast to some of the lower-end outlets, report that sales have held up well.

At the Moiselle women's clothing store in central Beijing, there are still plenty of customers for coats, skirts or cardigans priced at about 5,000 to 6,000 yuan.

"Most of our customers are established old clients. They come here to pick up their wardrobe and there isn't an obvious change in their spending mood," says the store's Rubby Zhang Qing.

"We just keep track of the ladies' collection launches by the brand names, and they come here and find their favourite. They don't care about the overall economic situation."

Also enjoying "steady growth compared to last year" isLi Jingjing, a store owner whose outlet in the capital sells upmarket watch brands.

"I think it's more about people having a taste for the luxury brand names. It used to be the case that they couldn't afford these products and they didn't fancy them. But since the economy is robust and everyone is getting a good salary, these things are affordable," she says.

Yujun Qiu, a Planet Retail analyst based in the Chinese city of Qingdao, talks about the slowing growth in retail spending.

What are the latest indications on how the retail sector is doing?

a In the past few days, many, many Chinese people have been travelling [during the Mid-Autumn Festival holidays] and spending a lot of money, so I would say that consumers still have cash. After saying that, they're also saving. They're tightening their belts and not spending on unnecessary products.

What is happening in the luxury sector?

For the high end, it's definitely slowing down. People are feeling that the economy is going through a change. It's not that they cannot afford [to buy things], but they worry about the future. They're saving their money.

Are there sectors that have not been affected by the tailing off in growth?

For the grocery sector, I don't see any slowdown because people still have to buy things and the government is doing a great job in controlling prices.

Over the next year or so, do you believe growth will pick up again and reach the high levels reached previously?

I am not sure about the Chinese economy, because [it] depends on the export industry very much, and that's not doing very well at the moment. Personally, I don't believe it's going to be as good as before in the short term.

Further ahead, what is the outlook for retailers?

The Chinese economy will have to slow down a lot in the next five years, so for consumers they have to get used to that. For the retailers, they have to adjust and they have to find new products, such as more value-added items.