China’s economy is showing signs of weak recovery as luxury goods consumption slows down. European skincare company Beiersdorf reported on Wednesday that its half-year sales fell short of expectations. Several American industry giants operating in China also indicated in their financial reports that the Chinese market was weighing down their performance.
Beiersdorf, the manufacturer of Nivea, stated on Wednesday that the slowdown in China’s luxury goods market has impacted the sales of its La Prairie brand, resulting in lower-than-expected half-year operating profit.
The company’s shares dropped by as much as 5.9% to 123.65 euros in early trading, marking the lowest point since November of last year.
Due to economic uncertainties, spending among China’s middle-class consumers is tight, with even those capable of purchasing luxury goods being cautious about flaunting wealth, leading to a slowdown in sales of high-end beauty products in China.
As a result of the challenging market environment in China, Beiersdorf’s luxury brand La Prairie experienced a 7% sales decline in the first half of 2024.
According to Reuters, analysts at investment firm Stifel mentioned in a report that the softness in La Prairie sales was a significant factor contributing to disappointing second-quarter sales figures in the consumer goods sector, casting a shadow on Nivea’s performance for another strong quarter.
The Hamburg-based group reported that organic sales growth in the consumer business segment for the second quarter was 6.1%, slightly lower than analysts’ expectations of 7.4%. At the group level, organic sales for the first half of the year increased by 7.1%, reaching 5.2 billion euros (5.7 billion US dollars), slightly below analysts’ forecasted 7.2% growth by Vara Research.
French competitor L’Oreal also mentioned that the lack of rebound in the Chinese market has had a negative impact on their business, anticipating a small negative growth in the Chinese market for the second half of the year.
Beiersdorf reiterated its annual organic sales growth forecast of 6% to 8%, with CEO Vincent Warnery stating during a conference call that he would be disappointed if sales growth falls at the lower end of that range. CFO Astrid Hermann mentioned that the company’s growth for 2024 will depend on La Prairie’s performance in the second half of the year.
Meanwhile, a common theme emerged in recent financial reports of major US companies, indicating that the Chinese market was dragging down their performance amidst the backdrop of strained US-China relations.
McDonald’s Chairman and CEO Christopher Kempczinski highlighted the soft consumer confidence in China when discussing the fast-food giant’s quarterly performance ending June 30, mentioning that “consumer confidence in China is quite weak.”
McDonald’s noted that amid decreased sales in China, the international operated markets department experienced a 1.3% decline in sales compared to the same period last year.
Coca-Cola’s Chairman and CEO James Quincey mentioned during a financial conference call that the macroeconomic conditions in China are generally weak due to structural issues in areas like real estate and pricing.
General Mills CFO Kofi Bruce stated that following a strong start to the year, the quarter ending May 26 saw a tangible deterioration in consumer confidence, affecting traffic to Haagen-Dazs stores and the company’s premium dumpling business.
Organic net sales for the company in China declined by double digits this quarter.
Starbucks reported a 14% decline in same-store sales in China for the quarter ending June 30, significantly higher than the 2% drop in the US. The revenue from its 7,306 stores in China during the same quarter dropped by 11%.
Coca-Cola noted that consumer confidence in China was “weak,” leading to a decrease in sales. In the quarter ending June 28, the net operating revenue in the Asia Pacific region dropped by 4% year-on-year, reaching USD 1.51 billion. However, growth was observed in Southeast Asia, Japan, and Korea.
Chinese businesses are also facing challenges, with the national retail sales growth in June increasing by only 2% compared to a year earlier.
Luckin Coffee, with beverage prices half that of Starbucks, reported a 20.9% decline in same-store sales for the quarter ending June 30.
UBS Securities’ China stock strategist Lei Meng mentioned in a report on July 23 that earnings in the first quarter in the mainland Chinese stock market may have hit rock bottom. Several American consumer giants echoed this declining trend in their latest financial reports.
Apple noted a 6.5% decline in sales in the Greater China region for the quarter ending June 29. Johnson & Johnson described China as a “very volatile market,” with one of the major business segments falling below expectations.
Regional performance has also impacted the long-term prospects of companies.
Procter and Gamble reported a 9% decline in sales in China for the quarter ending June, with CFO Andre Schulten stating during last week’s financial conference call that they do not expect to return to pre-pandemic double-digit growth rates in China.
Hotel operator Marriott International revised its revenue per available room (RevPAR) growth rate expectation for this year downward to 3% to 4%, with one of the main reasons being the expected continued weakness in performance in the Greater China region.
In the quarter ending June 30, Marriott hotels in the Greater China region saw a roughly 4% decrease in RevPAR.