Ahead of New Shoe Tariffs, Alibaba’s Earnings Prove Chinese Consumers Are Spending, but Trouble Looms

With relations between China and the U.S. seemingly deteriorating by the day, all eyes are on the Chinese economy for a glimpse at how it’s weathering the escalating trade war.

Alibaba’s latest earnings report paints a better-than-expected picture, with sales rising 51% year over year for both the fourth quarter and fiscal year. Revenues for the quarter reached 93.5 billion yuan (about $13.6 billion), ahead of the consensus estimate of 91.5 billion yuan. Diluted earnings per share were $1.27, up 39.5% over the same period last year and beating Wall Street’s forecast of 95 cents per share.

The e-commerce behemoth credited the growth in its core commerce segment — which made up the lion’s share of revenues at 78.9 billion yuan, an increase of 54% year over year — as well as increased penetration in less developed cities. It also pointed to the expansion of its New Retail program, which helps brick-and-mortar retailers digitize through proprietary technology; and is testing monetization of recommendation feeds, which use algorithms to personalize customers’ shopping experience.

Looking ahead, though, Alibaba said it expects revenue growth of at least 33% in the next year, a sign its rapid expansion could be cooling somewhat.

The news comes as China’s overall economy continues to slow down. On Monday, the country said that retail sales grew only 7.2% year over year in April, the smallest increase since May 2003. Economists were expecting a less dramatic slump to 8.6%, from 8.7% in March. Sales of clothing, shoes and accessories fell during April for the first time since 2009, dropping 1.1%.

The data could be a sign of what’s ahead as President Donald Trump and Chinese president Xi Jinping go tit for tat on tariff increases. For shoe brands and retailers that have been focused on Asia as a growth region, the prospect of a sales slowdown in China is particularly worrying, especially if Trump’s proposed 25% hike in duties cuts into U.S. revenues.

“The proposed tariff on footwear would be devastating for the industry,” Steve Madden CEO Ed Rosenfeld told FN this week. “It would result in big increases in shoe prices for U.S. consumers as well as significant job losses and potentially bankruptcies for U.S. footwear companies.”

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