In China’s heartland, once-flush shoppers turn cautious

- REUTERS, ZHENGZHOU (China)

May 20, 2019-

Dressed in a smart black pantsuit behind the wheel of her pearl-white Audi, Zhao Na has come a long way from her roots in rural Henan province, in central China.

The 29-year-old real estate agent cheerfully admits to having shopaholic ways and a love of Louis Vuitton and Prada handbags, typifying a wave of free-spending consumers who have had the world’s top brands scrambling for a piece of China’s $5 trillion-plus retail market.

“When I am flush, I am happy to part with money,” said Zhao, who once splurged around 60,000 yuan ($9,000) on a clutch of handbags during a trip to Paris in 2017. “Spending makes me happy.”

But with China’s economy slowing, Zhao’s business has hit a wall and her income has plummeted, forcing her to shelve that source of happiness.

She has scrapped the European shopping trips and weaned herself off buying binges at her favourite mall, David Plaza, where giant digital screens flash advertisements for brands like Gucci, Lancome and Ermenegildo Zegna in the centre of Zhengzhou, Henan’s capital.

“Not being able to spend money as I like makes me feel lousy, but I cannot do much about it,” Zhao said.

An economic slowdown in China, after three decades of unbridled growth, is being felt especially keenly by consumers like Zhao in Henan. The province, with its 100 million people, is a key pillar of China’s aspirations to transform its economy by boosting domestic spending and raising living standards in the country’s interior.

But according to dozens of interviews with consumers and merchants across Henan, as well as trade group data, people in the province are spending less on everything from cars and household appliances to clothing and cosmetics.

Scaled-back consumption by inland urbanites like Zhao could have serious repercussions for China’s economic growth, already imperilled by an escalating trade war with the United States. It could also be a reality check for global retailers.

The Italian suit-maker Ermenegildo Zegna, the American luxury jeweller Tiffany, and Apple have all warned that consumers across China are paring back spending.

On Wednesday, China reported weak growth in retail sales, and a drop in spending on clothing for the first time in a decade.

Slowing spending in inland cities such as Zhengzhou could dent the ambitions of global retailers that have pinned their hopes on future growth in regions like Henan, the largest provincial economy beyond China’s prosperous coastal regions.

Long a dusty provincial capital, Zhengzhou’s transformation in recent years into a metropolis with a glittering skyline and fashionable malls has been staggering.

The city of 10 million is a key transportation hub on China’s Belt and Road network, linked by rail to Central Asia and Europe beyond, with high-speed connections to Beijing and Shanghai. The Taiwan contract manufacturer Foxconn has built an enormous iPhone factory in the city that employs 230,000 people.

Consumer confidence in provincial cities such as Zhengzhou fell slightly last year after hitting its highest level in at least nine years in 2017, according to Nielsen, a research firm. Retail sales growth in Zhengzhou fell to single-digits last year for the first time in nearly two decades.

“They used to buy a lot and spend their money rather carelessly,” said Li Mengru, the cosmetic sales manager at the Dennis Department Store who oversees brands including Chanel, Dior and Estee Lauder. “Now they are becoming choosier as they turn cautious about spending.”

Published: 20-05-2019 11:51

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