The 618 shopping festival ended last week in China. Despite major e-commerce platforms offering significant discounts during this period, the e-commerce sales saw their first decline, signaling an unsettling future for Chinese retailers.
In China, the 618 shopping festival is the second-largest annual sales event after the “Double 11 shopping festival,” seen as a key indicator of household consumption. These two promotional events have symbolized the rise of Chinese consumerism, bringing reliable sales growth to e-commerce platforms and major brands.
However, this year’s 618 has proven that it is challenging for consumers in China to spend money amid the economic slowdown.
Alicia Garcia-Herrero, Chief Asia-Pacific Economist at Natixis, said, “Basically, Chinese consumer spending is focused on promotions and coupons. If they don’t spend during this period, when will they spend?”
She predicts that retail sales growth in the second half of the year may only be in single digits, indicating a shrinking share of consumption in China’s Gross Domestic Product (GDP), rather than the expansion many economists predicted.
“This is bad news for rebalancing the global economy because China will continue to have to rely on exports to overcome economic challenges,” she said.
Since the outbreak of COVID-19, Chinese retailers have been offering discounts throughout the year to attract reluctant consumers, hindering sales during major shopping festivals. During last year’s Double 11 shopping festival, sales only grew by 2%.
While discounts can slow consumer loss, they do not stimulate spending. Recent quarterly financial reports show that Alibaba’s domestic e-commerce sector’s revenue only grew by 4%.
Investors are also pessimistic, with Alibaba’s stock falling by around 5% this year and JD.com dropping by over 3%. Consumer sentiment remains weak, continuing to decline since 2022.
A recent survey by a US bank found that consumer sentiment in China weakened further in June.
The survey found that only 45% of respondents planned to increase spending in the next six months, down from 55% in April. Only 31% of respondents expect their income to increase in the next six months, a 10-percentage-point decrease from April.
Due to the sluggish real estate market, weak wage growth, and high youth unemployment rates, Chinese consumers are worried about their personal wealth and are reluctant to spend. Focusing on buying essential goods at the lowest prices, shopping festivals like 618 not only fail to stimulate consumption but may hinder a consumption rebound.
Kang Li, a 45-year-old saleswoman in Changsha with a son, is one of the growing number of people becoming more frugal and avoiding unnecessary purchases.
She told Reuters, “I bought essential household items, some clothes and shoes for my child, and skincare products for myself.”
She said, “Basically, I stock up during the 618 shopping festival so that I don’t need to buy anything else until Double 11 arrives in half a year.”
Jason Yu, General Manager of Kantar Worldpanel Greater China, warned that the coming months will be a challenge for retailers as people have already purchased what they need during 618.
“This stockpiling behavior is overdrawing future consumption potential…July will be very challenging,” he said.