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Famous Western brands in China are feeling the chill brought by the sluggish consumption in China.
From luxury cosmetics company Estee Lauder to clothing manufacturer Canada Goose and iPhone seller Apple, several companies have reported weak performance, with some claiming that consumers have not reopened their wallets nearly a year after the lifting of quarantine measures.
Estee Lauder's share price fell 17% last Wednesday, the lowest level in many years. Previously, the company lowered the financial year performance outlook of M.A.C and Clinique and other brands, partly because of the slowdown in sales recovery of high-end beauty and skin care products in Chinese Mainland. At the close of last Friday, the stock's performance remained sluggish.
This New York based company currently expects its sales range for the 2024 fiscal year to decrease by 2% compared to the previous year to increase by 1%, with a previous goal of increasing sales by 5-7% year-on-year.
Fabrizio Freda, President and CEO of Est é e Lauder, said that the growth of Est é e Lauder's retail sales in Asia and China has slowed down, as evidenced by pre-sales during the Double Eleven shopping festival. Pre sales refer to customers being able to place orders in advance to purchase discounted products, and then complete payments on November 11th.
After the COVID-19 epidemic prevention and control measures were canceled last year, Chinese consumers basically remained cautious. This spring, driven by tourism and other service consumption, consumption experienced a brief explosive growth, but in recent months, the recovery momentum of consumption has weakened.
Estee Lauder has been hit to some extent by the slowing sales recovery in Chinese Mainland.
An official data shows that consumer confidence has hardly improved in the past year, hovering at historical lows.
With the continuous decline in housing prices across the country, the spiral decline in the real estate market has led many families to feel less wealthy than before. The pressure on the labor market, especially the record high youth unemployment rate set this summer, has prompted many people to cut back on expenses.
These trends are prompting more and more consumers to choose cheaper products, which may benefit more domestic brands such as cosmetics and cars, rather than foreign products that are usually considered more upscale.
Alicia Guan lives in Zhejiang, one of the wealthiest provinces in eastern China. She said her cabinet used to be filled with luxury skincare products such as La Mer, a brand owned by Est é e Lauder, as well as products from other Japanese and Swiss companies.
During the epidemic, she closed her clothing online store and subsequently reduced expenses. Her new shopping creed is: "From complexity to simplicity, from expensive to cheap
Alicia, 36 years old this year, said, "I don't think there is any difference between Chinese brands and more expensive brands." She also said that upgrading skincare products will only be considered after the economy improves.
Apple also faces increasing scrutiny from the Chinese government and more intense competition from local companies.
Apple announced last Thursday that global sales have declined for the fourth consecutive quarter. In the company's third largest market, China, sales decreased by 2.5% from the previous quarter to $15.1 billion, which was lower than analysts' expectations.
The company also faces increasing scrutiny from the Chinese government and more intense competition from local leading companies such as Huawei. In recent months, Huawei has started selling a smartphone that can achieve ultra fast data connectivity, posing a direct challenge to Apple.
When asked about the demand in the Chinese market during a conference call with investors, Apple CEO Tim Cook said that sales have been impacted by fluctuations in foreign exchange rates, and that Apple has had four best-selling phone models in urban areas of China over the past year.
Canadian winter clothing manufacturer Canada Goose lowered its annual sales forecast last Wednesday, stating that it expects revenue for the 2024 fiscal year to be between C $1.2 billion (approximately $879 million) and C $1.4 billion, lower than previous expectations of C $1.4 billion to C $1.5 billion.
When it comes to China, we see that in terms of the impact of the economy on Chinese consumers, there are still certain challenges in the overall environment, "said Jonathan Sinclair, the company's Chief Financial Officer, in a call with investors
Just five years ago, China's consumer market was still dominated by foreign brands, and local brands were unable to compete. Chinese brands used to be hindered by poor quality and poor marketing, but now they are quite common on online shopping malls and store shelves.
Some Chinese companies are also feeling the above pressure.
Yum China, which operates KFC, Pizzahut and Taco Bell stores in China, failed to meet expectations in its fiscal third quarter results last Tuesday, while warning that consumer demand has declined.
Andy Yeung, Chief Financial Officer of Yum China, stated in a conference call with investors that consumer demand slowed down in late September and October, describing China's post pandemic recovery as "wave like" and "non-linear".
Yu Jian, General Manager of CTR Media Convergence Institute in Greater China, a market research company, said that the wealth effect brought by the Chinese stock and real estate markets has basically disappeared. He believes that the pressure on the Chinese stock market and housing prices together has amplified the tendency of Chinese consumers to tighten their belts.
He said that people used to believe they would make more money in the future. But after the epidemic, people no longer think that way.
Not all companies are so pessimistic. Starbucks announced its fourth quarter revenue growth last Thursday, mainly due to increased customer consumption and increased ordering times. Starbucks' sales in China have increased by 5%, and the coffee chain is facing more fierce competition from local companies in China. Starbucks is still recovering after several months of COVID-19's epidemic prevention and control last year, which led to a sharp drop in the same store sales.
The company expressed confidence in achieving its previously proposed goal of opening 9000 stores in China by 2025, up from 6806 at the end of this quarter.
Yum! Brands China, which operates KFC in China, has warned of a decline in consumer demand.
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