MNI REALITY CHECK: China Retail Sales Back On Track In July

China's retail sales look set to return to positive annual growth in July, boosted by the strong general goods sales and increased auto demand, industry insiders told MNI, although the catering sector is still a dampener on overall readings.

CAR SALES

"Relatively strong car sales would (help) push headline retail sales growth back to positive," said Wang Jingwen, a senior researcher at the Pangoal Institution. Car sales, accounting for about 10% of the overall retail sales, saw 5.0% y/y growth as of Jul. 26, 19 percentage points higher than the same period last year. More car demand released with the arrival of summer holidays and more travelers turning to domestic road trips helped to boost the demand, said Wang, also noting the low base last July.

Retail sales may turn positive first time this year with a 1.0% y/y gain in July, said Wang. He added that the strong home sales have encouraged related spending on interior design including furniture and home appliances.

According to China Passenger Cars Association, retail sales of cars hit 1.6 million in July, a rise of 7.7% y/y, the strongest growth since May 2018. This compares with June's 6.2% decline.

The number of vehicles sold in the first seven months were 2.12 million short of the same period last year, with sales short by 2.08 million vehicles in Q1 and 170,000 in Q2, while there was an increase of 120,000 vehicles at the beginning of Q3 in July, confirming a V-shape rebound since the early days of the outbreak, according to the CPCA.

GOODS SALES

"Basically, all retailers have reopened now," said Yang Qingsong, secretary general of China Commerce Association for General Merchandise, adding that those unopened have either tried some other business or gone bankrupt.

By the end of July, around 50-60% of reopened retailers saw store traffic recover to over 80% of the same period last year, said Yang. This compares to the 46% of retailers at end-June.

As for sales revenues, almost 60% of the retailers have recovered to over 80% of the same period last year, comparing to the 52% of retailers at end-June.

Allowing movie theaters to reopen from the last week of July helped to bring in customers to shopping malls, driving spending on food and clothing, said Yang, adding that such relaxation of indoor activities would further boost consumers' confidence in going out.

According to data by Maoyan Entertainment, the box office in July ended up CNY213.86 million, far less than the CNY5.76 billion last July, still restrained by social distancing rules.

RESTAURANTS

About 95% of restaurants have resumed operations nationwide by the end of July, compared to 90% in June, said Zhan Yan, deputy director of catering and food at Hejun Consulting.

Most restaurant chains have seen their revenue recover to 70-80% of the pre-epidemic level, said Zhan. She pointed out that this is a result of restaurants' shifting away from dinning in towards takeout, food delivery and even developing "cuisine packs". She estimates that less than half of current revenues is from in-store, as traffic is still struggling to return.

Although major restaurant chains were reported to have closed many stores during the previous months, some industry leaders also took this opportunity to take over stores in good locations after closing less profitable stores, according to Zhan. She noted that some chains even see their total number of stores growing after the epidemic eases.

The catering industry may accelerate to recover with the relax of social distancing rule, but the concern of food safety and reduced income may still restrain consumers' spending on eating out, said Zhan.

Catering revenues still fell 15.2% y/y in June, largely dragging the headline retail sales. Such decline may narrow to a single digit fall in July, said Wang.

Retail sales are seen reversing June's 1.8% decline, with an expectation for the rate to come in at 0.2% y/y.