Two-head beasts

– A trip to Hong Kong to see consumer analysts startled me with the vast difference between the financial community who follow retail and those of us working directly with retailers and brands in China. The financial analysts veer between bullishness and bearishness with nothing in between. Two years ago, we were cautioning analysts not to overstate the strength of domestic consumption. Now, with some retailers seeing flatter growth rates, analysts are sinking into despondent bearishness. Sales growth has certainly slowed in some non-food sectors, but overall, consumers are still a fairly contented lot, coping with inflation and still spending.

– Analysts often miss the most interesting brands. For example, I am impressed by the performance of the sports brand Kappa (owned by Hong Kong-listed China Dongxiang Group). Passing through Suzhou recently, the streets were full of kids in Kappa shirts – as is the case in tier-two and tier-three cities across China. Of course, it’s fashion and maybe next year no one will be wearing Kappa. The trick for Dongxiang is to acquire a series of old Western brands and revitalize them for the Chinese market. Then, when one brand is selling well, another will be just getting started, ensuring a steady flow of revenues.

– There’s no escaping the environment these days. The ban on plastic bags is working well and forcing some retailers to be imaginative. As a result, the non-plastic bag is becoming a brand-building tool. Mary Kay launched a green shopping bag design contest with the Chongqing Evening News and some 10,000 bags made from the winning designs were distributed free to consumers. In all, Mary Kay has handed out nearly 150,000 shopping bags to the public and its sales staff. Amway’s doing something similar and customers are responding.

– I’ve long complained that Western brands don’t always do as much about the environment in China as they do in their home countries, where consumer pressure is both more organized and intense. But this seems to be changing. I went along to see a new Tesco store in Shanghai, the UK supermarket giant’s first low-energy outlet. Everyone is wary about green-washing, but this seems to be the real deal – total energy consumption has been cut by 13% and the plan is to save even more next year. Tesco recycled 15,000 tons of cardboard in China last year and should surpass 16,000 tons this year. It will also soon begin recycling all of its plastic trays, pallets, bottles and cans. Tesco doesn’t always get good publicity globally, but its Shanghai store seems to be a big step in the right direction.

– I’m ever more convinced that the Li Ning story can’t last much longer. The economic odds are against the company and it may well become a victim of China’s success. Li Ning has pitched itself as the great domestic brand against Adidas and Nike, but Chinese consumers, while patriotic, don’t (apart from those cheap ‘I   China’ t-shirts) wear their nationalism. Incomes are rising faster than expected, while Nike and Adidas are rolling out new stores at a rapid pace. Most of us thought Li Ning would have a few sunny years before consumers started trading up to Nike and Adidas, but the time frame has shrunk considerably.

– This month’s buzzword in the analyst community as far as consumption is concerned is “negative wealth” – the theory being that, with the stock market in the pits and property transactions down, consumer spending will slow considerably. It makes sense if you spend all day watching a Bloomberg terminal, but down in the trenches we aren’t really seeing it. Negative wealth would kick in to slow spending if people felt nervous about their jobs or wage rises, but they don’t – life is better, wages are up, non-food prices are still competitive and people are feeling confident to spend. It’s the difference between the analyst community and the retail community once again.