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What 618 Festival Says About the State of the Chinese Consumer

China’s 618 Festival is set to wrap up Saturday, and the shopping event that started on June 1 could offer clues on the state of the Chinese consumer after months of restrictions affecting some of the nation’s biggest cities.

Though created 618 more than a decade ago, Alibaba and Tmall now tout their own sales during the 18-day stretch, which analysts closely monitor to gauge consumer spending, according to GlobalData. The London consultancy believes China’s zero-Covid policy could chill e-commerce sales through next year.

Lockdowns and restrictions had “a debilitating impact on consumer livelihoods and the economy,” GlobalData consumer analyst Bobby Verghese said, noting the rolling factory and retail shutdowns from March through mid-May. “The customer footfall in physical retail stores waned, while online retailers were unable to make deliveries due to supply chain disruptions.”

Alibaba Group and JD Retail have reported sharp sales declines in recent months, Verghese said. Alibaba’s stock is down 75 percent from October 2020. International brands sold on the platform, including Bulgari, Zara and Uniqlo suffered along with their digital hosts.

Manufacturers and retailers were counting on 618 to “unleash pent-up demand and reinvigorate the flailing retail sector,” but lifting lockdowns isn’t likely to restore consumer confidence, Verghese said, adding that people are “rationalizing” what they spend in case they’re subject to new restrictions in the near term.

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While online retail should be playing a “pivotal role in the post-Covid-19 recovery of the economy,” supply chain disruption and a liquidity crunch could “profoundly impact consumer and business sentiment,” he added.

Verghese believes China’s retail sector will lose steam this year into next. “The e-commerce industry, which is reeling from the government’s crackdown on technology giants since late 2020, can ill afford the stringent pandemic control measures of the government’s ‘Zero Covid’ policy,” he said.

Coresight Research head of Greater China advisory Echo Gong echoed the notion that China’s anti-Covid measures have “created lots of uncertainty.”

“No one knows when there will be a lockdown in the cities where they’re living, or for how long,” she said. “It has made people, especially low-income and some middle-class residents, choose to save more rather than spend on different things.”

China’s jobless population is rising in tandem with restrictions. Unemployment jumped to 6.1 percent, according to an April survey of urban Chinese residents, up from 5.8 percent the month before. Shanghai’s retail sales dropped 48.3 percent in April after restrictions began in mid-March. China’s total retail sales fell 11.1 percent during the same period. “Alibaba’s 618 Festival used to be one of the key shopping festivals for consumers and for retailers—however, this year, the situation on Alibaba’s Tmall and Taobao will be quite different,” Gong said.

There’s more going on than consumers choosing not to spend. “In recent years, short-video platforms such as Douyin—the Chinese version of TikTok—and Kuai, have accumulated lots of users,” she added. “Moreover, they have already started to allocate lots of resources to help brands to open stores and organize livestreaming events on their platforms.”

According to Coresight, Douyin’s GMV has increased 3.2 times year over year in 2022, with sales of more than 10 billion products. During the first quarter of 2021, Douyin’s daily active users reached 600 million. Meanwhile, short video platform Kuai said that the number of brands that opened stores or accounts had increased by 186 percent in November 2021 from the same period the year prior. The platform’s GMV reached 650 billion yuan ($97.2 billion) last year, and it targets 900 billion yuan ($134.6 billion) by the end of fiscal 2022.

China’s global business prospects are also at risk. “Long-term, China will still be one of the key supply chain hubs for many companies due to its efficient manufacturing setting, transportation and logistics infrastructures,” Gong said. “However, to diversify the risk and to have more control, companies have started to move some factories closer to the home countries.” Turkey, for example, is attracting European apparel, automotive and fast-moving consumer goods brands looking for close-to-market sourcing.

“Since early 2020, when the Covid-19 started to spread global wise, companies have already taken the regionalization approach,” Gong added.