Retailers set for difficult times ahead

Retailers in the Chinese mainland may be in a long, cold winter, as a depressed stock market and gloomy predictions for the global economy dampened consumer enthusiasm, analysts said.

During the nation's seven-day Lunar New Year holiday at the end of January, the value of sales for large retail and catering companies rose to about 470 billion yuan ($74.46 billion) from a year earlier, an increase of 16.2 percent, compared with a growth rate of about 19 percent in 2011, according to data released by the Ministry of Commerce (MOC).

This pace of growth was the lowest since 2009, when the financial crisis hit retailers.

"In the first half of this year, the growth in consumer spending may cool to a record low, and some retail companies may register losses," said Kuang Zhenxing, deputy president of the Beijing Modern Plaza shopping mall.

The weak gains and negativity in the stock market have restrained consumer spending on high-end goods and services. "Their pessimistic investment expectations have led people to deposit money in banks or buy into safe havens, such as gold," said Kuang.

"I know that the number of new stores was increasing in January, but the profits of individual retailers were rising at a slower pace," Kuang said.

A report from the research company Bain & Company Inc showed that luxury goods retailer may suffer this year as a result of the economic downturn.

Some luxury brands decided to slow the expansion of their businesses in the mainland last year, and concentrated on maintaining high sales volumes in their existing stores, the report said.

The growth of luxury sales on the mainland is slowing, said Ouyang Kun, chief executive officer of the World Luxury Association's China office.

He said that high prices, restricted choice and poor quality have driven an increasing number of consumers to the overseas markets to purchase luxury goods.

Retailers in Hong Kong also have low expectations.

"Sales of jewelry and expensive watches during the Lunar New Year were quite disappointing," said Caroline Mak, chairman of the Hong Kong Retail Management Association, according to Bloomberg News. "Sales growth of more than 30 percent last year is unsustainable against a worsening macroeconomic backdrop."

Some members have reported that customers are buying smaller diamonds than previously, said Mak.

The Hong Kong-based cosmetics retailer Sa Sa International Holdings Ltd, which generates a large chunk of its sales from mainland visitors, said that sales in its Hong Kong and Macao stores rose by 17 percent during the Lunar New Year holiday compared with the previous year, falling short of the company's expectation.

"Though mainland tourist spending in our Hong Kong and Macao outlets registered double-digit growth, the growth rate is below our expectations. This may be due to the fact that the arrival of mainland tourists has been spread more evenly throughout the year as the development of the infrastructure has allowed mainland tourists to visit the city with greater ease than before," said Sa Sa's Chairman, Simon Kwok, in a statement.

In 2011, China's total retail sales of consumer goods was 18.12 trillion yuan, a growth of 11.6 percent from a year earlier, according to the National Bureau of Statistics. Growth was 2.2 percentage points lower than the increase in 2010. This year, the government is expected to take preferential measures to boost domestic consumption to maintain a moderate growth rate amid weaker demand for exports and a cooling real estate market.

However, Zhu Haibin, chief economist with JP Morgan in China, said that retail sales might maintain steady growth in 2012, although both internal and external headwinds may add pressure. Zhu predicted GDP growth of 8.4 percent this year, compared with 9.2 percent in 2011. Consumption may contribute about 4 percentage points of the increase in GDP, he said.