ose by 2.1 per cent in August (3.3 per cent excluding automobiles). In the year through August sales of goods were up 3.3 per cent (3.9 per cent excluding automobiles). Catering sales rose at a faster rate than sales of goods: they increased by 3.3 per cent in August and 6.6 per cent in the year to date. It isn’t surprising therefore, that according to CBRE, food and beverage catering firms are accounting for more than 40 per cent of leasing activity in Tier 1 and Tier 2 cities, partly because that is where the leasing enquiries are coming from and partly because, from a landlord’s perspective, they do a better job of attracting foot traffic than most merchandise retailers. However, the trend over the past few months for both sales of consumer goods and catering has been a slightly deteriorating one, although because of the reporting lag, we don’t know for sure how the situation has evolved since. By category, three areas have been clear standouts: telecommunication goods, sports and recreational goods, both of which have experienced sales growth above 10 per cent in the year to date, and food and the sin goods (tobacco and liquor), which have been in the high single digits. However, in contrast, there have been significant sales contractions in other categories, particularly the bellwether categories of big-ticket home goods which always struggle when consumers are pulling their horns in. This is something not confined to China but rather a fairly general trend across developing Asia: spending on goods that require strong consumer confidence about the immediate economic prospects is contracting just about everywhere in the region. Landlords are adapting From the standpoint of landlords, this isn’t entirely disastrous because they are well aware of demographic shifts — particularly the ageing population that is now in the process of declining in absolute numbers thanks to the one-child policy — and they can lease to services and food and beverage tenants. Services may well be accounting for 40 per cent or more of household spending nowadays. However, measurement is difficult because the informal sector is so large and this makes counting how much is spent on what highly problematic. Regional variations Not surprisingly in a country as vast and heterogenous as China, the footfall and sales patterns have significant regional variability. Cushman & Wakefield’s research points to softness in Beijing where vacancy is rising and asking rents getting softer, and relative strength in Shanghai, Shenzhen and Guangzhou. Hong Kong is more problematic because the spending habits of mainland visitors have altered since Covid and the rapid sales growth of 2023 has been reversed: according to the Hong Kong government Census and Statistics Department, year-on-year sales have suffered steep declines over the six months through August. In four of those six months, sales have plummeted by more than 10 per cent. This, however, is somewhat of a rubber band effect because the corresponding months of last year were extraordinarily strong. Thus, leasing demand has been reasonable, vacancy largely stable and rents either stable or edging up. What are the individual companies’ results telling us? Again, it’s a mixed bag. Walmart has been above the average Walmart, which operates about 334 stores in the country, far more than in any other country outside North America, is a good indicator of spending by the mid-market consumer. In the most recently reported quarter (the second fiscal quarter of the year ending January 31), year-on-year sales grew by 17.7 per cent to $4.6 billion, and same-store sales grew by 13.8 per cent. The company is reporting e-commerce penetration of a staggering 50 per cent, twice as high as the broader government retail sales figure. Sam’s Club and e-commerce have been the big growth drivers. Nike Nike, in contrast, said on its Q1 conference call that Greater China was a notable weak point. Quarterly revenue was down 3 per cent year-on-year. CFO Matt Friend noted in reference to his company’s performance in China: “This summer, retail sales moderated across the industry, and Nike was not immune, as traffic decelerated in all our channels with lower sell-through rates. This has resulted in elevated inventory in the marketplace in an already promotional environment.” Still, Nike remains China’s number 1 sports brand according to Friend. Starbucks’ unwanted trifecta Starbucks has more than 7,300 units in China and it has experienced significant weakness there in recent months, achieving an unenviable trifecta of declines in transaction counts, average transaction value, and same-store sales. Average store sales per store have also been down, by more than 20 per cent. Starbucks is putting a brave face on things, saying with some justification that loss-leading promotional activity and expansion by competing chains is the primary cause of its woes. The white space in the market, its executives have told investors, is still presenting it with exciting opportunities in the longer term. Optimism on the property side There was also optimism about China on the property side from Cushman and Wakefield, which in September produced research claiming that the vacancy rate in prime retail space in the 16 major cities it monitors was declining, and was now estimated to be just above 10 per cent. Shaun Brodie, Cushman’s Head of Greater China Research Content, was bullish about the future: “As service consumption and new consumer demands continue to grow, the Chinese market still holds large consumption potential that remains to be tapped.” He pointed out that consumers are becoming more sophisticated in their needs and the demand for more personalization was driving the introduction of new retail business models, formats and services. He believes these should keep retail market growth positive. The economy has a pulse and the CPI is rising The Chinese economy expanded by 5.0 per cent in the first half of the year. The Consumer Price Index is edging up a little, which is good news considering that deflationary fears have been abundant. However, inflation (0.6 per cent year-over-year in August) is still a little below what most economists would consider a good target range of 1-3 per cent. For retailers this means pricing power is weak: for now, the consumer holds the whip-handle.