China Retail Slowdown Spreads From Boutiques to Big Box Stores

Same store sales at China’s largest hypermarket chain will fail to grow in 2014, and the owners of the RT-Mart stores blame it on the country’s slowing economy. The announcement from Sun Art Retail Group on August 14th hints that China’s consumers are cutting back on mid-market items as well as high-end luxury goods this year, and the disappointing results for the retailer could be tied to slowing home sales.

While the Taiwan-French joint venture store operator posted an 8.5 percent increase in first-half net profit to RMB 1.71 billion ($278 million), this was achieved primarily by expanding into lower-tier cities in China, according to company officials speaking at a press conference to present first-half financial results.

Lower Sales of Appliances

Sun Art Chief Financial Officer Jean-Patrick Paufichet blamed the lower profits in part on a dip in sales of electrical appliances. This year Chinese makers of everything from air conditioners to TVs and microwave ovens have reported lower sales as fewer consumers buy and fit out new homes.

China’s National Bureau of Statistics reported last week that new home sales in China dropped 10.5 percent during the period from January to July this year. The slowdown in house shopping is commonly blamed on buyers happy to wait for further price decreases as housing costs slide, and banks unwilling to lend to the real estate industry.

Anti-Corruption or Slowing Growth?

The slowdown in sales at that bargain-priced hypermarket chain seems to reinforce the viewpoint that China’s slowing retail sales are due to changes in the economy more than to concerns over the government’s anti-corruption drive.

After seeing the economy expand at double-digit rates as recently as 2010, China’s GDP growth slowed to 7.5 percent last year, with many believing that growth is slowing still further during 2014.

When luxury retailers began reporting shortfalls in store openings and same-store sales earlier this year, many were quick to blame the change in direction on a new sense of discretion among the corrupt officials that paid for many of these purchases at high end boutiques.

However, with a similar trend popping up in the clearly more proletarian Sun-Art shopping spectrum, analysts may have to come to grips with a scenario where consumers caught between continually rising costs and slowing GDP growth may just have less cash in their pockets to spend. Even at the big box stores.