For years we’ve heard American brands tout China as the next frontier for growth — an understandable goal given the country’s significant economic growth, flourishing middle class and spending power among its population of more than 1.4 billion.
Now, though, China’s booming economy appears to be slowing down, as retail sales growth slowed to 8.6 percent in October over the same period last year, according to the National Bureau of Statistics, missing analysts’ forecasts.
China’s GDP growth also decelerated to 6.5 percent in the third quarter, a lower figure than it has reported since the first quarter of 2009. Among the consequences of a cooldown is that consumers have less to spend on discretionary purchases like footwear and are choosing to save in the face of economic uncertainty, which could eventually put a dent in sales for some American companies doing business in the region.
“Anytime you have consumers slowing down their purchasing, no matter what country you’re in the world, it has an impact on U.S. brands because we sell our products all over the world, and obviously that supports U.S. jobs and the growth of American brands overseas,” Matt Priest, president and CEO of the Footwear Distributors and Retailers of America, told FN.
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“Because it’s not our No. 1 market, it’s not as big of a problem as it would be if it was the American market contracting, but it’s still concerning anytime consumers stop spending money and having disposable income to spend money on things like footwear.”
China’s latest report also indicates that more of the population is holding mortgage debt — a sign of a maturing economy but also a cost burden on households that can cut into consumer spending. And while the central government in Beijing has far more leeway than most international administrations to quickly implement plans to stimulate the economy, including cutting import duties and income taxes, it is facing an uphill battle with weakened consumer confidence and an ongoing trade war with the U.S.
If the slump does continue, some American companies are more exposed than others: Greater China was the fastest-growing segment of Nike’s business last quarter as well as for fiscal 2018 overall. In terms of revenues, the region brought in about $5.1 billion over the year — a much smaller share than the $14.9 billion generated by the North American market and the $9.2 billion grossed in Europe but still a sizable portion of the total.
Still, despite the ever-growing list of tariffs imposed on Chinese imports by the Trump administration, the country’s trade surplus with the U.S. has so far only widened, though it remains to be seen whether the surge is temporary and how much of the extra costs will eventually trickle down to the consumer.
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