Don’t Look to China’s Consumers For Strength

Friday, February 13, 2009 0:23
Posted in category Uncategorized

The Shanghai Daily article Luxury retailers worst hit as spending cut>has a chart on consumer sentiment that everyone selling into should take some time with as things are not looking good for retailers

Early on there was a hope that China’s consumers were going to be the consumers of last resort, and the Chinese government has done a lot to aid this process as well. However, many failed to fully account for the culture of fear that exists here.

Deeply rooted in culture, Chinese citizens have a long standing tradition of recoiling in the face of economic uncertainty. They are, thankfully, not like their American peers who will readily load themselves down with credit and blow their safety nets so readily, and that is going to dramatically alter some plans that retailers have. They prepare by reducing their costs, saving their money, and weathering the storm.

A preset response that is not likely to aid retailers any time soon.

In the words of one Italian luxury clothes label:

We were 30% below expectation in Q4, have seen a good January, and expect after Chinese new year that we go off the cliff.

It is a firm that once was expanding into China’s second tier cities, but now has had to rethink their strategies… and I have heard from many others in the luxury and middle brackets that they are seeing the same thing.

So, if the Chinese are not going to buy.. who is?

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7 Responses to “Don’t Look to China’s Consumers For Strength”

  1. Paul Denlinger says:

    February 13th, 2009 at 12:34 am

    Nobody is.
    That is the paradox of thrift. What is good behavior in the long-term will hurt like hell in the short-term. This means the businesses which will survive the best will be those that are able to survive the belt-tightening the longest, and are ready to climb out of the hole when the gradual recovery comes.
    And those that are not able to just won’t make it.

  2. Rich says:

    February 13th, 2009 at 1:25 am


    I share your concern, and what I am most concerned with is that in reading UBS/ news reports, that there are still a belief that China can turn the corner faster than anyone else… that the issues we face are solvable by simply throwing a load of money into the hole.

    to your point of the thrifty, I would also say that niche is king. I myself have seen this within a couple of my investments here related to sustainability/ CSR, and have friends in small PR groups who are doing well. While everyone is laying off, holding still, that will open up a lot of opportunities for the small and nimble.


  3. Rich says:

    February 13th, 2009 at 3:05 am

    Further to the above, the article Chinese offered consumer ticketshighlights just how desperate local governments are.

    That this is seen as an answer to anything is beyond me.

    Maybe we would have been better off taking all the money thrown into the banking system and just given it to Americans to pay off debt and buy more stuff…. I mean, that is if you believe that we can spend our way out of this mess.


  4. Lisa Reisman says:

    February 13th, 2009 at 9:23 am

    Interesting article from many angles! I actually think Americans are starting to realize that they need to act a whole lot more like the Chinese in terms of saving and hunkering down. One of the big debates about the stimulus package has to do with the fact that most of it will be used to pay back debt as opposed to new consumer spending at least that is what the GOP thinks. Everybody here is cutting back. I know of nobody using their credit cards to buy more “stuff”. The issue is that the hunkering Chinese style has been going on for some time. Whereas here, it takes a crisis for people to realize that they need to save. Retailers the world over are seeing the exact same behavior…and as you rightly say, he who lasts longest, or grows a niche wins!

  5. Paul Denlinger says:

    February 13th, 2009 at 4:21 pm

    Lisa: The Chinese have been saving for a rainy day for more than 2,000 years at least. That is just the way the Chinese operate. It is cultural as well as economics, and anyone who thinks that they can change behavior through marketing is just dreaming.
    The other issue is trade deficits. China has always had a trade surplus with the west, starting with the Roman empire and silk exports 2,000 years ago. The trade deficit so annoyed the British in the 1840s that they forced the Qing court to accept opium exports from India, and taking Hong Kong, all in the name of “free trade”.
    US society needs to go through a period of high savings before it will recover. The danger now though is that inflation will destroy the value of the US dollar. If that happens, when US society comes out the other end, the US standard of living will probably not be much higher than the Chinese.

  6. Rich says:

    February 13th, 2009 at 9:47 pm

    Hey Paul.

    .. and all this is only reinforced as everyone above the age of 50 remembers what it is like to have wealth taken away.


  7. Daniel says:

    February 16th, 2009 at 12:15 am

    Quite a few consumer goods and especially luxury goods are priced far higher in China Mainland than what you could find in Europe or even HK. Recently there were massive sales of luxury goods, very large discounts. There must have been at least one news source claiming a flood of chinese customers. I personally know 3 which went to the UK. If there’s -70% in the UK and +70% in China, which one would you chose?