It seems that every meeting I attend these days features a discussion of daqi (??). Quite how to render this into English is problematic – premium, added value … they’re not quite accurate but approximate. How to provide some daqi in products designed for sale in China is crucial – consumers are demanding that little bit extra. Car interior designers, clothing designers, gadget designers: They’re all talking about daqi.
Some analysts are arguing that there is a massive slowdown occurring in consumer spending. True, the growth in consumer spending is perhaps down a percent or two over last year, but that’s hardly massive. The problem with this theory of rapid slowdown in consumption is that if it’s true then there must have been a similarly massive acceleration in investment, otherwise the trade surplus wouldn’t be shrinking. None of the data – either actual or anecdotal – I’m seeing supports this interpretation.
Some retailers have put out numbers that show a slight slowdown over the first half of the year – mostly this is a slow down in growth in their same store sales (SSS) or like-for-likes rather a real decline, but it’s got the stock analysts worried. Many think this shows that Chinese consumers are spending less, are worried about their finances and future and are pulling their horns in. But the overall retail sales figures don’t support this. In many cases the weaker numbers just indicate the reality that there is more of everything in China these days. Carrefour, which reported some slower SSSs, wasn’t up against a formidable competitor like Tesco a year ago in Shanghai and three years ago it didn’t have to compete with Wal-Mart. The same is true everywhere from sportswear to gadgets and luxury goods to regular clothing – there are more brands, more retailers and more outlets, meaning the pie gets sliced a little thinner for many. Ultimately, this is a sign of maturity and the market working but it does mean that some retailers will lose out. The question is how do you stand out from the ever enlarging crowd? That will be the focus of the retail sector for the next few years.
And choice just keeps on getting more varied. Britain’s Marks and Spencer opens up this month in Shanghai, introducing the concept of a large private label retailer to China. Next year we could see a range of new brands entering the market from Topshop and Urban Outfitters to American Apparel and the Gap. More of everything as new retailers come in and existing players open new stores. It’s getting crowded out there.
There’s always an exception to a rule and, in the case of consumption growth slowdown, it is cars. Unsold inventory is rising fast, almost to the record levels of a few years ago. By the end of the year, inventory levels, e.g. the number of new cars leaving the factory to do nothing more than sit in giant car parks, could be at an all-time high. A number of factors seem to be affecting consumers when it comes to cars – taxes on big engine vehicles, the June gas price hike and the belief that we’ll see another price hike before the end of the year.
Of course Chinese consumers are also a canny bunch and they know that if inventory is building then the manufacturers and dealers will ultimately have to slash prices. We’re talking cars here, not rice, so people can afford to wait a few months and see what happens to prices. There are also the factors nobody in the car business likes to talk about: Have most people who can afford to buy a car now bought one, meaning that the market will be increasingly about replacements and second-hand sales? Or, more pertinently in cities like Shanghai, has everyone with access to a parking space already bought a car to park in one? Interestingly, imports of cars grew by nearly 50% in the first half of the year. BMW and other high-end marques may be making cars in China but many consumers still want the prestige of a German-made car – which brings us back to where we started: It’s all about the daqi.