China's retail scene has been flat this year, but with segments of strong growth. Photo / 123RF
China's retail scene has been flat this year, but with segments of strong growth. Photo / 123RF
China’s retail sector has been flat this year but opportunities are still there for New Zealand exporters, a Shanghai-based retail expert for Deloitte, Tian Bing Zhang, says.
Zhang, who is lead partner for the consumer and retail Deloitte Asia Pacific, was in New Zealand and Australia, talking to the likesof Coles and Fonterra about the current state of play in the PRC.
He told the Herald in an interview that the commercial landscape in China had changed since the onset of the Covid-19 pandemic and Russia’s war with Ukraine.
Zhang noted that China’s retail sales had been flat this year after a period of strong growth last year.
There was now a lack of consumer confidence and a lack of investor confidence resulting from the sharp downturn in China’s property market.
“So this is why people are starting to look at the discount store, as a format, for value for money.”
At the same time, other retailers such as US retail giant Costco - which set up shop in China in 2019 - have proven highly successful.
“The entrance of CostCo in China has been very successful and so is Sam’s Club [Walmart].”
Walmart has two brands in China, the Walmart hypermarket format and Sam’s Club, which uses a membership model similar to CostCo’s.
“So the success of these two retailers in China indicates that there is a segment of consumer - particularly in the tier one and two cities - who are looking to upgrade their lifestyles and consumption.
“The first trend [post-Covid] was to go for value for money - more calculated spending.
“But another trend was for people to go in for a change and an upgrade of their lifestyles.
Zhang said CostCo sources its products through its global supply chain, which has made the retail giant successful.
“This is where I see great market opportunities for exporters in New Zealand.”
The success of Costco and Sam’s Club had not gone unnoticed by China’s big retailers.
“Seeing the success of CostCo and Sam’s Club, the local retailers are now trying to source these products internationally. That’s the trend.”
While overall daily spending has been constrained, there have been changes in the different categories of spending.
People have tended to overlook the trends within that total spend, with some categories registering explosive growth 50 to 100 per cent.
Zhang says the infant formula market has been subdued, while pet care products were taking off.
China's retail sector has flattened off. Photo / 123RF
“In infant formula, not a lot of people are getting married, and not a lot of those who marry want to have a baby.
“On the other hand, because couples are not having babies, the whole pet care industry has been booming.
“So you see the whole change in the demographic has created different opportunities for the different product categories.
“Understanding the dynamics of that is really, really important because if you only look at the total, it does not make a lot of sense.
“If you are able to target a certain segment of consumer, and if you are able to target the product categories that are on the rise because of the shift in lifestyles and demographics, then you will have a great opportunity,” he said.
Anecdotally, Zhang said Shanghai’s cafes and restaurants appeared to be back to their normal patronage.
“The only part that’s not coming back are the shopping malls and department stores.
“This is due to an extremely high level of digital penetration in online shopping.”
The takeup of online shopping in China is huge.
About 27 per cent of all retail sales are done online, compared to the low single digits in the West, and the malls and department stores are struggling.
So when will China be back to its usual, dynamic self?
“I get that question a lot,” Zhang, who travels extensively, says.
Tian Bing Zhang, consumer products lead for Deloitte in Shanghai.
“I take it as a question of whether China can grow at like 5 or 6 per cent.
“I do not personally think that we should expect China to continue to grow at that pace.
“Then there are geopolitical tensions that you can see - the rivalries between China and the US and the rest of the world.
“So that overall growth is not going to be the same as you would expect in the past.”
Zhang said “new normal” for China could mean growth of 3 to 5 per cent, similar to America’s.
“With that slower growth, what are the opportunities in a country of that size, with dynamic changes taking place in people’s lifestyles?
“That is the right question to ask, and the right one to focus on.”
As for the general outlook, Zhang said: “We are definitely in a very turbulent time and it’s very different to where we were prior to Covid and prior to the war in Ukraine.”
In terms of the geopolitical climate, he said more tension and uncertainty lay ahead.
But he said balance would still be achieved “at another level”.
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
