Although Business Monitor International (BMI) forecasts China’s real GDP to grow 7.5 percent in 2012 and 7.1 percent in 2013, which would be the economy’s worst performance since 1999, population expansion and increasing individual wealth are keys to ensuring substantial growth in China’s retail sales.
Regulatory reform following China’s accession to the World Trade Organisation (WTO) in 2001 has allowed foreign retailers to make significant inroads into the market, satisfying demand from young and aspirational consumers and contributing to a trend that is likely to see the value of the retail segment increase significantly.
The country’s future retail growth remains positive, with a double-digit rise in annual sales expected. Consumer price inflation has decreased since the beginning of 2012, to 2 percent in January 2013, with the last six months’ consumer price index for consumer durables much more stable than in previous years.
Household appliances Between January and September 2012, sales turnover in the Chinese household appliances retail market decreased 4.4 percent year-on-year, to CNY1.155 trillion (USD). This came as no surprise, since retailers in this sector had benefited greatly in 2011 from a government programme of subsidies to encourage consumers to sell their household appliances to recycling companies and buy new ones: the so-called ’Old for New Policy‘. Since this programme has ended, businesses have generally seen their profits weakened, especially those selling white goods such as air-conditioners, refrigerators and washing machines.
At the same time, fierce market competition in the Chinese home appliances industry has affected retailers’ profit margins. We have noted that some large household appliances retailers have set up online sales channels in recent years, triggering price wars and further squeezing profitability in the industry.
However, the general equity strength of household appliances manufacturers is still relatively sturdy, as most market players are quite large corporations. The sales value of several Chinese home appliances enterprises is in excess of CNY10 billion (USD), with sales of a single product exceeding 10 million units.
These companies have a significant share of the global market. Although in 2012 the performance of the household appliances sector dipped somewhat, the situation is expected to improve in 2013 with the recovery of house sales and local government moves to boost affordable housing. The current subsidy programme ’Encouragement of energy savings’ might also play a positive role. In January 2013, the sales value of televisions and air-conditioners grew 0.6 percent and 13.6 percent year-on-year, respectively.
For refrigerators and washing machines, although sales volume dropped slightly, sales values increased 2.3 percent and 1.9 percent, respectively. However, the price war between several of China’s consumer retailers has led to massive discounts, which will put price pressure on suppliers upstream.
The growth of internet shopping is also fuelling competition and eroding profit margins. At the same time, many low-end consumer durables manufacturers are forced to increase prices to maintain their profit margins and counter higher production costs, caused mainly by rising labour costs.
According to the country’s Employment Promotion Plan, minimum wage levels in China will grow by at least 13 percent a year until 2015. Conversely, mid- and high-end household appliances manufacturers are wary of increasing prices as they try to maintain market share.
While their profit margins are also affected by increasing costs, these remain at an acceptable level. Furniture According to the Ministry of Industry and Information Technology, turnover in the furniture industry increased 13.8% year-on-year in 2012 after a 1.1 percent decrease in 2011. Profits also increased, by 19.4 percent. With continuing improvements in household living standards and rising disposable incomes, Chinese consumers are buying more furniture items. Moreover, demand for furniture is closely related to the development of Chinese real estate market: China’s top economic planners are encouraging local governments to continue to boost affordable housing development, and public financial support for affordable housing increased in 2012.
Meanwhile, government measures to cool the residential sector took effect in 2012, as residential real estate prices have risen sharply in recent years. China’s real estate market for residential housing has slowed amid government efforts to rein in speculators and control prices, and the situation will not change much in 2013.
However, the recent construction boom in many major Chinese cities has resulted in a significant growth in office space – and a consequent demand for office furniture as companies upgrade both their offices and their office furnishings. This has provided a boost to the middle and upper end office furniture markets. In addition, the development of the tourism industry has led to the construction and refurbishing of hotels, creating a healthy market for the hotel furniture segment.