Shoppers in buy mode even as hope of discounts tarry

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By Liu Jie (China Daily)
Updated: 2009-05-15 08:04

Ask any Chinese merchant and he would say it is better to buy when prices are on the rise than when they are sliding. That has also dictated Chinese consumers' spending pattern for generations.

And, for that reason, retailers are paying special attention to the decline in the consumer price index, or CPI, since the latter part of 2008.

Recent government data showed that CPI fell 1.5 percent year-on-year in April, and 0.2 percent from March. More worrisome to retailers was the fall in the producer price index, or PPI, which peaked at 10.1 percent last August and has been on a downhill ride since, as the deepening financial crisis triggered the collapse of commodity prices and slowed the nation's growth. The PPI registered negative growth last December and dropped by 6.6 percent from a year earlier this April.

To be sure, economists have insisted that the dreaded deflationary cycle has not taken hold. Official data showed that retail sales were on the rise, a clear indication that expectations of a further price fall were not strong enough to discourage consumers from spending now, analysts said.

So far, investors have remained bullish about retailers' prospects.

Bailian in demand

Share prices of Shanghai Bailian Group Co Ltd, the nation's largest retail chain in terms of sales, increased 59.29 percent from 8.13 yuan apiece on December 15 to yesterday's 12.95 yuan. Dalian-based Dashang surged 59.6 percent to 28.09 yuan apiece. Meanwhile, the Shanghai Composite Index jumped 33.66 percent to close at 2639.89 points.

Indeed, the combined sales revenue of 40 retailers listed on the Shanghai A-share market increased 3.47 percent from a year earlier.

But retailers noted that the increase in sales in the past several months was largely induced by heavy discounts and other promotional incentives that were not reflected in the CPI. The discounting, they said, was most noticeable in the consumer durables sector. Sales of big-ticket items, such as flat panel television sets, air conditioners, refrigerators and washing machines, were hit the hardest by the lowering of consumer confidence as the prospect of the Chinese economy remained clouded by the decline in overseas demand.

"We need to slash our prices (of consumer durables) to move stocks," said a marketing manager of a Suning Appliance store in Beijing.

The executive, who asked not to be named, said sales at his store slumped around 7 to 8 percent, while profit dropped at least 10 percent from a year earlier. The rebound in sales in May was largely "stimulated by sharp discounts, a frenzy of promotional activity, as well as traditional shopping enthusiasm during holidays", he said. "We didn't make much of a profit despite the sales spurt."

Eye-catching signs and posters announcing discounts have been greeting customers who walk in to this Suning store.

Falling prices

Even without the discounts, prices of telecommunication products, including mobile phones, fell an average 18.7 percent year-on-year last month, according to the National Bureau of Statistics. Prices of televisions and video and audio equipment slumped an average 10.1 percent.

The performance of Suning, China's second largest consumer electronics retail chain is representative of the industry as a whole, stock analysts said. For retailers of Suning's size and reach, the alarm bell was ringing as early as the latter half of 2008.

"It's difficult for not only Suning but also all other retailers to reverse the down trend in sales," said Zhao Xueqin of CITIC Securities.

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