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Finance & Economy

Western companies are being forced to figure China out all over again as sales plummet


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Chinese Supermarket Customer

Foreign companies have long known that China’s economic slowdown—now upon us—could hit their earnings hard. They just didn’t expect they’d be hit by changing consumer buying habits and a rise in Chinese competitors at the same time.

Suddenly, foreign brands are finding it a lot harder to convince consumers in the world’s most populous country to part with their cash.

The net result has been a string of miserable earnings reports, company reorganisations, and cost-cutting announcements in recent weeks, particularly for the world’s biggest luxury and auto brands.

Italian luxury goods maker Prada reported a 44% drop in net profit to €59 million ($67 million) for the three months through April, well below expectations of €85 million. Executives pointed to weakness in mainland China and a drop in the number of shoppers heading to Hong Kong and Macau as a major driver for Prada’s poor performance, and warned that it is a trend showing “no signs of abating.”

Luxury companies have long charged mainland Chinese shoppers a premium of between 25% and 40% (paywall) compared to other markets, for the simple fact that consumers were willing to pay inflated prices for status symbols. Some of those companies are now slashing prices to keep consumers interested.

Auto makers are suffering too. Last week, BMW reported its first monthly year-on-year drop in sales in China, its largest market, in a decade. Earlier this year executives said they were surprised by the speed of China’s slowdown. Jaguar Land Rover’s profit fell 33% in the first quarter and this was also, it said, thanks to a China slowdown. The steepest drop in two years pushed the company to appoint a new China sales boss from Porsche to turn things around.

It has been no secret that the Chinese economy has been slowing in recent years, and a corruption crackdown has squeezed high-end spenders in particular. But an economy still growing at around 7% shouldn’t create the kinds of sales drop-offs reported by some Western brands, and the fact that many of these earnings drops were surprises for analysts and investors shows just how difficult some Western companies are finding the Chinese market to navigate.

Better domestic competition is part of the issue. The quality of Chinese brands is improving, as are their marketing chops (paywall) and domestic brands often predict Chinese consumers’ changing desires better than foreign brands can. In fact, some of the fastest-growing luxury brands in the world are now Chinese companies like jewelers Lao Feng Xiang and Chow Sang Sang.

Chinese consumer habits are another. Unilever, which owns brands from Dove soap to Magnum ice creams, saw sales in China fall 20% in the fourth quarter last year. Nestlé has been burning the coffee it couldn’t sell in China, according to the Wall Street Journal (paywall).

Unilever’s chief financial officer Jean-Marc Huët told the newspaper that it had failed to anticipate how quickly and thoroughly Chinese consumers would make the switch to buying online. Putting it bluntly, he said Western consumer goods companies were just “too slow to react to the changes in the marketplace.”

Contributed by “Sky in Company” – English/Chinese and Italian/Chinese translation service

Source: Quartz – Western companies are being forced to figure China out all over again

 

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About Sky In Company

I am Genevieve Cheung, originally from Hong Kong. After completing secondary studies, I moved to Australia where I completed a degree in Bachelor of Business Management at the VUT in Melbourne. After graduation I moved to Italy where I have been living for more than twenty years. My vast cultural background and extensive linguistic knowledge (speak and write fluent English, Mandarin/Cantonese Chinese and Italian), allow me to join our company- SKY IN COMPANY (HK/ITALY). We provide main services such as web-site translations from Italian/ English to Chinese/English, and SEO services for the Chinese search engine "Baidu". Our offices, based in Hong Kong and Italy, have a young and dynamic team with collaborators around the world. Sono Genevieve Cheung, originaria di Hong Kong; dopo aver completato gli studi secondari, mi sono trasferita in Australia, dove ho conseguito una Laurea in Bachelor of Business Management presso la VUT di Melbourne. Dopo la Laurea mi sono trasferita in Italia, dove vivo ormai da più di venti anni. Il mio background culturale e la vasta conoscenza linguistica (parlo e scrivo correntemente l’inglese, il cinese mandarino e l’italiano), mi consentono di partecipare in quest’attività di traduzione in Italiano/English/Cinese. La principale attività della nostra ditta – SKY IN COMPANY (HK), consiste nella traduzione in lingua cinese di siti web italiani, nonché di servizi di tipo SEO rivolti al motore di ricerca cinese “Baidu”. La nostra ditta principale, con base in Hong Kong, dispone di un team giovane e dinamico con collaboratori in tutto il mondo. WWW.SKYINCOMPANY.COM skyinhk74@yahoo.com.hk HONG KONG OFFICE: Flat b 15/F, Block 7 Yee Mei Court, South Horizon, Ap Lei Chau, Hong Kong Island Hong Kong Tel: ++852 92235260 ITALY OFFICE: Via Metastasio 27 Firenze 50124 Italy Tel: ++39-347 1429011

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