The United States may still be the largest and most lucrative market in the world, but China is clearly where the growth is. The fact that this nation of unique potential and challenges holds the keys to the future for many of the world’s biggest players and brands in the retail industry is both good and bad.
“We are in great difficulty with China’s zero Covid policy, in terms of profit and the livelihoods of our employees,” said CEO of Uniqlo’s parent company, Fast Retailing, Tadashi Yanai. told reporters Thursday (April 14), warning that the company’s problems in China would lead to a sharp drop in profits this year.
Two days before, global conglomerate of fashion, perfumes, leather and spirits LVMH told investors that its Asian revenue excluding Japan — its largest geographic region which accounts for 37% of global revenue — saw first-quarter growth slow to 8% this year from 86% in 2021.
“Asia continued to grow in the quarter despite the impact of tougher health restrictions in China in March,” said LVMH’s press release.
And two weeks earlier, sportswear giant Nike issued a similar warning, when it said in late March that its $2.1 billion in sales from Greater China in the last quarter – about 20% of his world total – were down 8% for the three months ended February 28 on a currency neutral basis.
While the sportswear company’s management went to great lengths on a conference call with analysts to tout the benefits of the Winter Olympics, the opportunities of ongoing promotions in the Year of the Tiger as well as the brand’s local influence after being voted a favorite and ‘No.1 Cool Brand’ in China, the severity of the setback was clear as its stock saw a 10% sale over two weeks.
Too big to bail
To be sure, the “opportunity vs. challenge” conundrum in China is not a new phenomenon, nor one confined to fashion and clothing, as the ebb and flow of political, economic and social trends in the most populous nation in the world have grabbed headlines and fueled boardroom debates for decades.
And yet, through it all, the balm that has allowed multinational corporations to navigate through difficult times has always been growth. Despite all of China’s troubles and government interference, the growth potential of a country of 1.5 billion people that is now home to more billionaires than anywhere else on earth, was too great to ignore.
But now, as Asia’s engine of growth falters, companies that have grown accustomed to the double-digit expansion the country has offered and have invested heavily in factories and physical outlets to capture it , have found themselves in a position where China has become too big to bail – even if they wanted to – and clearly neither plan to do so.
This means the value of product and retail innovation, the ability to connect with existing Chinese consumers and also attract new ones to where they are and how they want to be met, as well that the ability to take a longer-term view will all be increasingly important in the weeks and quarters to come.
In his First quarter results update released on Thursday, French fashion house Hermès, for example, mentioned the same COVID-related crimps in China that had rattled many of its global peers and rivals, but its revenue in Asia excluding Japan rose 20% at exchange rates. constant and accounted for 52% of its total worldwide sales for the first three months of this year.
While that pace of growth was down from the previous year, the Paris-based luxury brand’s only remarks about China were that it was staying the course there while hoping for a quick fix to the latest lockdowns. COVID and the return of normal shopping once again.