h now has only a few dozen stores left open in China and has recently completely exited the market in some of the country’s largest cities, including Beijing. Worse, Carrefour’s exit is as messy as it gets because of a running legal battle with Suning, which has allegedly reneged on payments that were part of a deal to take over Carrefour’s China business in 2019. So with Carrefour’s distress as a background, it was refreshing to hear retail executives, one after another, when presenting to the investment community during the second half of this year, say that business in China was mending and for some booming. Many challenges remain ahead but the mood is definitely more upbeat now heading into 2024. To back it up, retail sales in China rose sharply in November, by 10.1 per cent year on year according to China’s National Bureau of Statistics. That followed a nice 7.6 per cent bounce in October and marked the fourth consecutive month of acceleration in the growth rate. Of course, there is a little catch, there always is. This time it’s that the bar was set low: sales in October and November last year, indeed, for December as well, were pretty darn frightful as Covid restrictions disrupted business. In the middle of that bad patch, in November, nationwide sales dipped by 5.9 per cent from the preceding year, so the ‘two-year stack” in November 2023 is a relatively modest 4.2 per cent. Still, it’s progress, and there was no help from prices: the gains are primarily volume-driven. In November, the consumer price index (CPI) declined by 0.5 per cent, both year-on-year and month-to-month, reflecting very limited pricing power across the whole consumer economy. Walmart: Sam’s and e-commerce dominate growth Walmart, the world’s largest retailer by a great distance, is one of the latest international operators to chime in positively about China’s retail recovery. The company, which has about 400 stores in China and did $14.7 billion worth of business there in 2022, reported sales growth in China of 25.3 per cent on a constant currency basis in its third quarter, which covers the period to the end of October and is therefore of more recent vintage than most other public company reports. Walmart’s comparable store sales growth in China during the same period was a hefty 18.6 per cent, on top of 5.6 per cent in the corresponding quarter last year for a two-year stack of 24.2 per cent. Its executives were particularly gushy about Sam’s Club and e-commerce. There are now nearly 50 Sam’s Club units in the country, suggesting that some of the heavy lifting in those sales growth numbers was done by small business customers. At the same time, e-commerce penetration for Walmart in China has risen to 45 per cent, so the company is understandably happy about its performance in that area too. However, the shift in Walmart’s channel mix toward Sam’s and e-commerce has pressured its gross margin. How important is China to Walmart? Globally, of the $160.8 billion revenues that Walmart raked in during its October quarter, $28.0 billion, more than 17 per cent, came from its international segment. Of this, its operations in Mexico and Central America (Walmex) accounted for $10.6 billion, Canada $5.8 billion and China $4.5 billion. China, therefore comes in at number four but in the latest quarter it grew at five times the rate of Canada and two and a half times the rate of Walmex, so it is absolutely of key importance to Walmart’s future growth. Of course, that growth differential with the other regions will settle down next year as Walmart China anniversaries this year’s strong numbers. Walmart’s results and the positive comments around them by the company leadership follow those of other international retailers with big stakes in the China market, including sports apparel giants Adidas, Nike and Puma, Japan’s Fast Retailing, and luxury retailers LVMH and Richemont. Retail services still well ahead of goods A continuing theme though in China’s retail industry is the marked outperformance of services over goods, signalling a fundamental change in consumer behavior from before the pandemic. In the first eleven months, retail sales of services were up by a whisker under 20 per cent year on year. According to CBRE, food and beverage catering firms accounted for about 40 per cent of retail leasing enquiries in the third quarter, and along with cosmetics and clothing the category topped new store openings. Prominent among the expanding food and beverage retailers are Chinese tea brands, including Sexy Tea, a brand originating in Changsha, Hunan Province, that is famous not just for its product but also for itsexperiential store interiors, designed to capture elements of China’s cultural heritage. CBRE says Sexy Tea opened 300 stores in the third quarter alone. That’s really something, considering that at the end of last year its total store count was only about 550. The momentum for expansion by food and beverage retailers has continued into November, with the catering industry enjoying 25.8 per cent sales growth compared with 8.0 per cent growth for retail sales of goods. The economy is still running, but with a limp The Chinese economy was still growing at a modest pace in the third quarter with gross domestic product (GDP) up 4.9 per cent in on a year-on-year basis, but more recent indicators don’t inspire confidence that some serious underlying problems have been resolved. The government admits that domestic demand is still not strong enough despite stimulus measures it initiated earlier in the year, which included measures to prop up an ailing housing market that has suffered end-on-end price declines since mid-year. A number of fiscal and monetary easing initiatives were implemented in October, but it remains to be seen whether it will be enough, or more intervention is necessary.