Retail has been one of the sectors most obviously affected by the slowdown in China.
Although revenue and profit have both doubled in three years, according to Thomson Reuters figures, it has become increasingly difficult to maintain margin growth. UBS found that 45 percent of Chinese retailers surveyed fell more than 5 percent short of expected earnings in the first half 2012. And all of the large retail chains have revised growth plans to focus on profitability, according to William Shen, head of Greater China at Headland Capital Partners.
Shen says that retailers can no longer rely solely on China’s growth story. “It used to be that you open a store, and people would come – that’s no longer going to work,” he says.
But the slowdown hasn’t been bad news for everyone. The average Chinese person now actually has more disposable income, and wants more than just the bare necessities, explains Jie Gong, Morgan Stanley Alternative Investment Partners executive director. As such, certain subsectors of retail – like accessories, for example – have grown faster than those servicing basic needs.
An easy way to divide China’s $90 billion retail sector, according to Lunar Capital founding partner Derek Sulger, is by price range: high-end luxury, mid-market, and low-end generic goods. Slowing GDP growth is stifling both luxury and low-end sectors, since people are becoming more price-conscious and more suspicious of unbranded goods.