Political unrest and economic instability overshadow the typically big-spending week-long national holiday in China this year.
China’s consumer retail market is undeniably huge – it grew 8% in 2018 to RMB38.1 trillion (£4.36 trillion). And Golden Week, which this year celebrates the 70th anniversary of the People’s Republic of China between 1 and 7 October, is the second-biggest shopping bonanza after Chinese New Year. Last year domestic tourists spent almost RMB600bn (£66bn) during the week – a 9% increase from 2017.
However, this year, growing political unrest in Hong Kong is just one factor taking the shine off Golden Week. Both protests and the police’s hard-line response to them were reported to be intensifying in the run-up to the anniversary tomorrow. Meanwhile, a trade war with the US and an a spate of overseas brands getting caught up in PR scandals for insulting Chinese culture are some of the other pressures facing fashion retail.
Hong Kong’s Travel Industry Council predicts travel to the territory, usually one of the most popular holiday destinations during Golden Week, will drop 86%, as big-spending domestic tourists stay at home.
Beating a retreat
The number of retailers abandoning their China operations in the last year shows just how difficult the market has become.
New Look announced it was closing all of its 120 shops in the country last October as they had “not achieved the necessary sales and profitability to support the significant future investment required to continue operations”. Read why New Look failed to break China
Young fashion retailer Forever 21 said it would close its China business in April this year, and even Amazon has said it could not compete with China’s home grown etailers Tmall (owned by Alibaba) and JD.com.
Topshop parted ways with its Chinese partner ShangPin in August last year, having failed to open any of the 80 stores proposed when they forged their agreement in 2014.
The protests in Hong Kong, a backlash to rules imposed by Beijing which protestors say go against their “one country, two systems” legal structure, have had a huge impact on retailers in the region. Trade has been disrupted by the demonstrations since June.
Hong Kong Retail Management Association has said many retailers expect a double-digit drop in June sales year on year among its 8,000 members.
Ray Clacher was executive vice-president at Hong Kong fashion group Trinity, which owns Kent & Curwen, Gieves & Hawkes and Cerruti 1881, up until July 2019. Currently working on a new, undisclosed venture, he believes brands will be looking closely at their operations in the territory.
“Hong Kong is a unique situation and I hope it gets resolved soon. The rents and rates are some of the highest in the world so they’re really feeling it. I wouldn’t be looking to open in Hong Kong any time soon and I think the luxury space is looking at downsizing in that market.”
The protests may be having an indirect impact in mainland China, too, through the heightened political sensitivity of consumers.
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Givenchy, Coach, Asics and Calvin Klein have all had to issue apologies for labelling products as made in territories Hong Kong and Taiwan, instead of using “made in China”, which some feel is unpatriotic.
“The recent diplomatic tensions in China surrounding the ongoing Hong Kong protests may also be contributing to the recent spike of incidents that have sparked patriotic consumer outrage,” says Athena Chen, senior editor for Asia-Pacific at WGSN Insight. “The reason Chinese consumers are so outraged by brands who misstep the ‘one-China policy’ is because this is nothing new.
“The Chinese government has previously called out hotels and airlines for listing territories as countries. Brands definitely need to step up efforts in working with local teams to ensure they audit their online channels and offline products, and ensure the messaging and content they have in place works for the current system.”
Despite the challenges, consumers in mainland China are still feeling optimistic about their spending.
David Liu, analyst at the Shanghai-bsed China Market Research Group, says its recent surveys show confidence despite the turbulence: “The majority of consumers say that the US trade war and Hong Kong protests will not have strong impacts on their consumption decisions, as for now they have not seen the actual impact of them on their income and on the overall price level of consumer goods.”
Some fashion retailers are feeling similarly confident. Andy Long, CEO of Pentland Group, which sells in China via ecommerce and wholesale accounts, as well as four Speedo stores in the Shanghai area, plans to open more stores across mainland China in 2020.
The majority of consumers say that the US trade war and Hong Kong protests will not have strong impacts on their consumption
“Although the Chinese market represents a relatively small proportion of our business, it’s growing fast and represents a major focus for us. The potential for growth as consumers gain more discretionary income is significant and China is on track to be in the top three markets globally in the categories in which we operate over the next few years. As a consumer market China is only just getting going.”
The US trade war could dampen this opportunity, though. Since July last year, the US has imposed tariffs on more than $360bn (£291.74bn) of Chinese goods including shoes, bags and many types of apparel and China has responded with tariffs on $110bn (£88.94bn) worth of US goods. If it is not resolved soon, many US brands may consider ceasing manufacturing in China, putting jobs at risk and affecting the disposable income of people in areas where the local economy is heavily reliant on manufacturing.
While economic growth is not what it once was in China – in the second quarter of 2019 the economy grew 6.2%, the lowest rate of growth since the first quarter of 1992 – ecommerce continues to be promising. Online shopping was up 24% year on year, compared with 9% growth for in-store sales, and now accounts for about 24% of overall sales, states KPMG’s China Economic Monitor.
Even this booming sector is not without its challenges for international brands, though.
“They are so far ahead in digital and social – well ahead of how British retailers sell,” says Jamie Powell, group retail and marketing director at the British House in Beijing, which sells premium brands such as John Smedley and Simon Carter. “There is absolutely still a huge appetite for Britishness, but it is a challenging market: the language is different and the expectations are different.”
PWC’s Global Consumer Insights Survey 2018 found that 50% of Chinese consumers buy products online weekly and 79% of these transactions happen on a mobile. Same-day or next-day delivery is considered a standard with 65% of consumers expecting their purchase to arrive in this time frame. What’s more, 67% expect online retailers to have up-to-date information on them and personalise their experiences accordingly.
Clacher has noticed the boom, too: “[Chinese customers] have a love of online shopping but they want an Amazon-style next-day delivery and they’re not quite ready to buy luxury online yet.”
Despite the numerous difficulties, Chen is optimistic for the future of international brands in China but advises it will take a significant research investment.
“China is still a market with plenty of potential, but lack of local understanding is what has led to the past failure of foreign brands entering the market. It is critical to spend time understanding and mapping out the differences of Chinese customers and their western counterparts, investigating how the consumer market and distribution channels vary between different regions within the country, and fully researching any political and regulatory barriers that could create challenges or block market entry, as the political climate in China is quite prone to change.”
This week’s 70th anniversary Golden Week may be more muted than in the past but China is still a lucrative market. Nevertheless, it is not immune to the difficult trading conditions facing British brands on home soil. Keeping apace of fast-changing politics, technology and consumer attitudes in China will be an ongoing process for retailers and brands, who need to keep their eyes open and ears to the ground.