The much-touted biggest retail market of China seems to be wearing off its sheen, as reflected in the latest Beijing's retail figures in the first half of the year serve as the latest evidence that the Chinese capital has witnessed a steeper-than-expected economic slowdown. Meanwhile, they also reflect shoppers' migration from brick-and-mortar shops to online retailers, a significant trend that will change the landscape of the retail industry.
According to the Beijing Municipal Commission of Commerce, a total of 535 major retailers saw their sales grow by 11.7 percent to 183.6 billion Yuan (US$28.8 billion) from January to June. The growth rate of 11.7 percent is nothing to be proud of, given the fact that China's retail sales braved the financial crisis in 2008-09 to register a growth of about 15 percent. To be sure, any growth rate in retail sales that is lower than 15 percent can be called sluggish in China. In that sense, it is safe to conclude that Beijing's consumer demand is very weak. Residents of the Chinese capital are not willing to dig deeper into their pockets amid the economic slowdown. A few other figures also buttress this conclusion.
High-end shopping malls did not fare well. Shops at Shin Kong Place, which is famous for its collection of international brands, saw their sales slip by 14.9 percent in the first half of the year. The growth was down by 27.9 percentage points compared with a year ago. Scitech Plaza, another premium shopping mall in central Beijing, even witnessed a sales decline of 6.2 percent from a year earlier. A year ago, the shopping mall, which is about 10 minutes drive from Tiananmen Square, notched up 3.4 percent growth in sales. Although high-end retailers suffered setbacks, discount shops and supermarkets were doing well.
Beijing Scitech Premium Outlet Mall and Sunrise Duty Free, two well-known discount shops that house many international brand names, both saw their sales jump more than 30 percent in the first six months of the year. Most operators of supermarkets and convenience stores maintained double-digit growth. Those data showed that Beijing residents were not reluctant to spend, but they were spending more cautiously and wisely. That is the typical consumption pattern when the economy is not doing well. People would continue to buy daily necessities and discounted products instead of luxury and high-end brands.
Meanwhile, more people tend to shop online. Online retail shops included in the Government survey registered a 64.7 percent increase in sales at 18.7 billion Yuan from January to June. The phenomenal surge in online shopping also prompted some traditional commerce operators to expand on the internet. The online arms of these operators sold a total of 12 billion yuan of products in the first half, up by 84.7 percent from a year ago. The online shopping boom was the result of a surge in the Web population and the rise of a group of tech-savvy young people who call themselves homebodies.
According to a report issued last month by MEC, a Chinese media agency, and WebInsight, an internet information analysis company, among 89,381 Chinese in 46 cities, 49 percent prefer to stay at home during non-working hours. Such a lifestyle has prompted these young people to buy things by clicking the mouse of their computer instead of visiting a brick-and-mortar shop. The online shopping spree may seem to be good news for retailers as it shows an emerging segment of the industry. But in fact, it does not bode well for the sector as a whole.
In China, goods sold online are far cheaper than the same goods sold at brick-and-mortar stores. More people shop online because they want to get good bargains. That means residents are cautious in opening their wallets amid a sluggish economy. According to the figures released at end-July, Beijing ranked at the bottom among 24 provincial-level regions in China in terms of gross domestic product growth. Its economy expanded 7.2 percent in the first half of the year, slowing from an 8 percent growth pace a year ago. Beijing's economic slowdown was the result of a combination of factors, including Government curbs on home and car purchases.
This article was originally published in the Stitch Times magazine, October, 2012.