Retailers in China are offering discounts, pointing to deflationary pressure3 August, 2012, 15:01. Posted by Zarathustra
China’s deflationary pressure has been shown in the past couple of months in the month-on-month changes in CPI. Just as we expected, the high level of debt in the economy as well as weak real estate market point to slow loan growth and, eventually, falling prices as debt deflation kicks in (although the real estate market seems to be coming back to life, we do not believe that is sustainable).
Bloomberg reports from Beijing that restaurants and retailers are offering discounts in hope to boost sales volume at the expense of profit margin and volumes. Notably, McDonald (MCD) is offering discounted dinners amid slowing same-store sales growth.
This wave of discounts does not limit to fast food chain. Electronics and apparels retailers are doing the same as sales slows and inventory build-up.
China’s second-largest electronics retailer, Gome Electrical Appliances Holding Ltd. (493), in July forecast a first- half loss even as its website offered discounts of as much as 50 percent. I.T Ltd. (999), a department store that sells brands including Levi’s and Puma in Greater China, cited discounting for narrower gross profit margins in the year ended February. Slower sales have left Nike Inc. (NKE) with too much inventory in China, its second-largest market after the U.S.
The discounting and weaker sales reflect the escalating pressure on local and global brands in China, where two years of economic growth of more than 9 percent encouraged companies to expand. International brands have relied on Asiato offset a spending slump in the U.S. and Europe.