Regional rating outlooks are diverging. A net negative trend is worsening among entities in China within S&P Global’s coverage, driven by demographics and consumer trading-down patterns, which are hitting luxury, travel-specific retail and volume sales of premium products.
Rating trends should remain stable in Japan in 2025 backed by solid cash flows among entities, it predicts. This is despite a slowdown in domestic revenue growth as consumers learn to cope with 40-year high inflation. Higher labor and logistic costs could hinder improvement in profitability this year in the country.
On a brighter note, the Pacific region should see higher household purchasing power flowing from falling interest rates. This is more so for Australian consumers, which will benefit from a resilient labour market, recent tax cuts and government stimulus to alleviate inflationary pressure, S&P Global said in a note.
Margins are flattish for larger players in the APAC. Corporations are focusing on cost efficiency to counter raising wages (in Japan and Australia), and downtrading. Larger corporations tend to have the resources to invest and subsequently roll out new products to maintain or grow their market share.
In general, smaller players in the local markets are losing share; many are exiting markets entirely as unfavourable cost structures makes operations unsustainable.
Key watch points include low utilisation of government stimulus due to soft consumer demand and unhealthy price competition in China; pressure from activist shareholders in Japan that may prompt corporate realignments like mergers, acquisitions or alliances; and the outcome of regulatory scrutiny of supermarket operators in the Pacific, with a focus on pricing and marketing practices.
Fibre2Fashion News Desk (DS)