Across The Border | China’s brick-and-mortar retailers likely to bottom out in 2017 as consumer sentiment improves

China’s traditional retailers had a difficult 2016, with major retailers reporting a third straight year of sales declines, but the slide should bottom out this year as consumer sentiment shows signs of improving. Traditional retailers have also deepened the integration of shoppers’ online and offline experience, and rising reflation expectations should boost sales of supermarket operators in particular, say analysts.

Overall sales for the top 50 Chinese retailers decreased 0.5 per cent in 2016, down for a third year in a row, according to recent statistics from the China National Commercial Information Centre. In 2014 and 2015, retail sales dropped 0.7 per cent and 0.2 per cent respectively.

Nonetheless, positive signs emerged in December as sales for the top 50 retailers jumped 5.1 per cent year on year, reversing a 5.6 per cent year-on-year decline in the same month in 2015. December also marked the biggest monthly increase in 2016.

“It seems obvious that brick-and-mortar stores have seen sales stabilise near the bottom,” said Fan Junhao and Guo Haiyan, analysts for China International Capital Corp (CICC), in a recent research note. “Continued recovery should be expected in 2017.”

Nomura analysts Emily Lee and Scott Hong agreed on the positive outlook.

“We believe [fiscal 2017] is likely to be a year of stabilisation for China and Hong Kong retailers, due to easier [comparable same-store sales] and lower pressure from operating expenses,” they wrote in a report.