In this Supply Chain Matters posting, we highlight reports of muted sales growth for this year’s 618 online shopping festival across China along the implications for industry supply chains.
There are two significant online shopping festivals that occur across China, one being Singles Day that occurs in November, and the other being the 618 festival which occurs on June 18. The latter Singles Day has been anchored by online shopping platform provider Alibaba, and the 618 event by online platform provider JD.com.
Various published reports indicate that the 618 festival that occurred this past weekend had disappointing sales volumes. This year’s online event further included shopping data related to physical stores.
Chinese online consumers reportedly purchased the equivalent of $56.5 billion of goods on the JD.com platform which represented a 10.3 percent increase on a year-over-year basis. A published report by Reuters cited data indicating that across the major online platforms of Alibaba, JD.com and Pinduoduo, the equivalent of $86.7 billion worth of merchandise was purchased, representing a nearly flat comparison to last year’s activity.
Most reports we reviewed indicate a trending of declining retail sales in the country. Government data indicated that retail sales across China declined by 6.7 percent in May, after declining 11.1 percent in April. Much of this decline is attributed to the Covid-19 Omicron related lockdowns that have crippled the country’s large cities including Beijing and Shanghai.
A published report from the South China Morning Post indicated that the country’s younger consumers have been cutting back their purchases to essential goods as a result of both pandemic related lockdowns impacting personal income along with concerns about the overall economy. The stated notion is that with the country’s strict measures and the ongoing supply chain related disruptions, business and consumers are likely becoming more cautious.
Added Supply Chain Matters Perspectives
This latest sales development related to the 618 festival can be interpreted as global wide consumers beginning to cut back on discretionary spending as a result of historic wide inflation levels and concerns related to the global economy and to heightened geo-political tensions. Then again, there were signs of muted online growth during last November’s Singles Day festival with a reported muted growth level of just 8.5 percent.
A related development was Amazon’s unexpected report of an operating loss in the most recent quarter, and an admission that the online provider was too aggressive in its efforts to add capacity and headcount to support a continued explosive growth rate in online buying activity. Amazon’s next test of consumer’s added interest in online buying deals will come with the Prime Day shopping event planned in mid-July. With merchants and retailer’s likely holding excessive amounts of late arriving inventory, there will likely be high levels of discounting to spur online sales. That was the plan for the 618 festival in China and the result was noted as muted and disappointing.
Overall, these online shopping developments are added cautionary signs to industry supply chains catering to retail focused consumers or businesses. Assumptions of the past do not necessarily translate to the future given the high levels of uncertainty surrounding global economies. The World Bank recently warned that global economy is likely headed for added months of weak growth, rising prices and potential economic recession risks or stagflation. Noted is that over the next two years, growth could be stagnant.
All of these ongoing developments are reinforcement that caution is advised in overall sales and operations planning. Assuming that boom online growth periods will continue unabated is now wise as is the assumption that added inventory hedges all risks. This a period of rigorous analysis and scrutiny of sales and related business data.
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