29 Dec 2011
The promise of Christmas 2011 in major markets
Retail sales performance during the Christmas season is a major indicator of consumer sentiment as well as consumer buying strength and preferences, giving a valuable pointer to the state of the retail business in the year ahead. The 2011 Christmas sales situation in Hong Kong’s major markets deserves added significance, as much attention appears to be focused on the season’s sales to determine the extent to which the renewed downturn of the global economy will affect consumer confidence and spending. In this regard, HKTDC’s network of offices located worldwide has provided first-hand information to help depict the year-end sales situation in Hong Kong’s major markets.
US – Satisfactory growth amid extensive sales promotions
While sales results for the entire holiday season will not be available until retailers announce their official December sales figures in January, preliminary indications reveal that Christmas sales in the US were below the solid gains at the beginning of the festive season. Sales got off to an unexpectedly firm start after Thanksgiving, but then slowed down as holiday shoppers adopted a wait-and-see approach to buying. Still, US retailers, helped by continued aggressive promotions and conducive weather conditions, managed to record a satisfactory sales increase of some 3.5% over last year, when a stellar 5.2% growth was achieved. There were five Saturdays between Thanksgiving and Christmas this year after just four last year, thus allowing more room for last-minute purchases.
If anything, consumer sentiment, backed by a raft of healthier economic indicators and rebound of the stock market, has improved somewhat towards Christmas, but shoppers were not in high mood for lavish purchases as concern over job security, heavy debt loads and dwindling home values lingered. Given their cautiousness, most Christmas shoppers, albeit tired of hoarding every penny, still favoured lower-priced and practical items, taking time to plan and organise their shopping in advance to save money. Even the well-off consumers, who fared relatively well this season, were focused and tactical in their purchases, opting for timeless and classic items that would not go out of style rapidly. In most cases, holiday shoppers used cash or their debit card for purchases to ensure spending within budget, along with a penchant for gift cards in view of their practicality. Increasingly, shoppers have further used mobile devices to search for gift ideas and well priced items.
In tandem with a reduction of inventories, US retailers, while focusing on value, have rendered a string of selective discounts and door-buster specials to woo deal-hungry shoppers. In fact, it was not the extent of the bargains that was notable, but how early the promotional activities began. Retailers, for instance, offered Black Friday deals just after Halloween, in addition to further extending their business hours. They have also made use of social networks to push promotions and cultivate shopper communities. Capitalising on the popularity of online purchases, e-tailers, including most bricks-and-mortar retailers featuring websites and mobile apps, performed particularly well during the festive season. Nonetheless, as prudence has remained the buzzword, mass merchandisers and discounters again captured a big chunk of year-end business at the expense of mid-market retailers, although high-end stores also showed good gains amid the robust sales of luxury items.
Short of must-have items, consumer electronics were among the biggest draws. Topping the shopping list of electronic gifts were smartphones and tablets. Other hot sellers included flat-panel TVs and digital cameras. Electronic entertainment gear, led by the new generation of console accessories, was popular too. While there was also a “reverse tech” trend consisting of non-digital games that are based on characters from the Internet or smartphones like Angry Birds, classic toys such as Barbie, Elmo and Lego were sellable. For clothing and footwear, consumers’ focus on practicality stimulated an appetite for basic items that offer comfort and function, although mild weather served to depress the demand for winter gear, whereas sales of high-end fashion were not as bad as might have been predicted. Likewise for jewellery and upscale timepieces, sales were satisfactory this season. Sales of home-related merchandise, however, were constrained by the lacklustre housing market.
EU – A generally tough holiday season
Across the Atlantic, it has generally been a tough holiday season, although Christmas sales results varied quite considerably from country to country, with Germany again carrying the day. Deepening of the sovereign debt crisis, coupled with rising joblessness, has definitely cast a pall across the region, triggering an unparalleled austerity drive and thus consumption abstinence overshadowing the good tidings of the festive season. Facilitated by no major snowstorms, consumers still celebrated and exchanged Christmas presents, but most of them were conservative, sticking to their budgets and hunting for basic and practical products. In many instances, they were inclined to use their mobile devices to find the best prices, with social networks playing an increasingly more important role in gathering sales information. In the meantime, European shoppers, like their US counterparts, favoured cash payment for their purchases, and gift vouchers were also popular across most parts of the EU.
In view of renewed consumer conservatism, most retailers relied on discounts and promotions to attract struggling shoppers. To counter rising economic challenges, such discounts and promotions were more rampant than last season. But the degree of dependence on such sales tactics diverged among markets. For example, in Germany, where consumer sentiment has remained relatively upbeat, price cuts and promotional activities were less intense. In terms of retailers, as consumers were more concerned with prices, value retailers tended to outsmart department stores and upscale stores. Taking advantage of the popularity of online commerce, e-tailers were another winner in this festive season. In response to the success of online sales, more and more bricks-and-mortar retailers were engaged in e-tailing to facilitate year-end sales.
Despite the euro jitters, the retail climate in Germany was reasonably positive, thanks to an improving labour market and growing incomes. Furthermore, it was likely that the EU debt crisis has eroded consumers’ confidence in the financial markets, and so Christmas shoppers were more willing to spend instead of saving more during difficult times as in the past. Consequently, overall sales are estimated to have risen by 1.5% from 2010, when a 3% increase was recorded. Product-wise, electronic gadgets, notably smartphones, tablet computers and flat-panel TVs, were favoured presents. Regarding toys, while traditional items, such as dolls, wooden toys, construction sets and board games, continued to fare well, selected new technology playthings were sellable. For garments and footwear, sales were hindered by the balmy weather in most parts of the shopping season. As for jewellery and timepieces, both higher-end and lower-priced items were well received. Household electrical appliances, for their part, were less sought after.
France and Italy
Compared with Germany, economic conditions in France have been less strong, and hence consumers were more vulnerable to the adverse developments of the debt crisis. As consumer confidence became fragile, Christmas sales stagnated despite extensive discounts and promotions. Even worse in Italy, which has been badly affected by the debt episode, a series of belt-tightening measures announced by the government have clearly tainted the year-end atmosphere, evidenced by a double-digit decline in Christmas sales from the 2010 level. Generally speaking, shoppers in France and Italy opted for consumer electronics, as well as toys, especially basic toys, as Christmas gifts. On the other hand, garments, footwear, jewellery, timepieces and household electrical appliances tended to occupy a lower position in the year-end shopping list in both markets.
Christmas sales in the UK are expected to have levelled off or, at best, edged up by 1% during this festive season, against the backdrop of extensive discounts and promotions. Apparently, the year-end shopping sentiment was dented by the continued lacklustre housing market and rising unemployment, aggravated by the contagious effects of the sovereign debt crisis in the eurozone. But while the sales performance of most products was sluggish, consumer electronics were the standout, especially for high-tech products such as smartphones, computer tablets, digital cameras and flat-panel TVs. Toys also did well as some sophisticated interactive cuddly toys and basic items like Lego were in demand. Not surprisingly, sales of big-ticket items like jewellery and high-end watches were weak. Despite a brief cold spell, clothing and footwear were hit by the mild weather dominating the season, and the lethargic property market has led to declines in the sales of household electrical appliances.
Japan – Staggering year-end sales
Notwithstanding a rebound of the Japanese economy from the trough instigated by the devastating earthquake and tsunami, year-end sales are estimated to have fallen mildly. While the custom of gift-giving has been maintained, consumers continued to cut back on their Christmas spending as the economic outlook remained uncertain. For most consumers, sustained anxiety about job security has continued to affect the mood of year-end purchases. With their cautiousness, holiday shoppers generally opted for basics for year-end gifts, once again tending to favour discount stores over department stores to economise on expenses. In this setting, most products, including consumer electronics, electrical appliances, timepieces and jewellery, did not fare well. The slow arrival of cold weather in much of Japan also weakened the demand for clothing and footwear. But toys, helped by a revival of high-tech gear and sustained demand for basic items like board games, sold relatively well.
Chinese mainland – Largely solid retail performance
Despite a tight monetary policy and continued adjustments of the asset market, economic fundamentals on the mainland have remained sound. In particular, consumer spending has been revved up by soaring wages and government initiatives to stimulate consumption. Amid the positive consumption atmosphere, retail sales during the first 11 months of 2011 were 17% higher than a year ago. Just in November, retail sales soared by 17.3%. The brisk performance underscored not only the strong trend in consumption, but also the rising Christmas spirit across the mainland. While Christmas is not traditionally celebrated there, it has begun to catch on in the urban centres and increasingly the rural areas, as retailers put up Yuletide decorations and undertaken related promotional activities. Feedback from HKTDC’s network on the mainland shows that hearty retail sales were registered for most consumer products, covering both basic and luxury items. In addition to buying at home, a large number of consumers also thronged Hong Kong for holiday shopping sprees here.
Other emerging markets – Mixed results in Central and Eastern Europe as well as Latin America
For Central and Eastern Europe, consumer sentiment was overcast by the eurozone’s debt crisis, although Christmas sales results were mixed. With the prevailing headwinds, consumers were cautious in festive shopping. They patronised value retailers, and discounts and promotions were required to lure purchases. Market-wise, Hungary, given its fragile financial conditions, exhibited no growth in year-end sales. In the Czech Republic, the rise in Christmas sales was tepid due to its heavy reliance on exports to the EU. In Poland, featured by a sound fiscal position and less dependence on external trade, year-end sales were stronger. Outside the EU, Russia, which has benefited from sustained oil and commodity prices, also shaped up positive results for year-end sales. Product-wise, consumer electronics, toys and garments topped the list of favoured gifts. Not surprisingly, demand for luxury items was stronger in Russia and Poland, but seemed to be less sought after in Hungary and the Czech Republic.
As for Latin America, steady economic resurgence in the region, on the back of firm commodity prices, tended to provide a lift to consumer sentiment and festive spending. In Brazil, Christmas sales, though softening a tad from last year’s strong gain, still posted a decent increase. In Chile, Christmas shoppers were willing to spend, thus spurring a robust sales performance during the festive season. This mood of optimism also pervaded most other neighbouring countries. Even in Argentina, where the financial fundamentals have been comparatively weak, Christmas sales were encouraging. In Mexico too, where the economy has been dragged down by the US, year-end sales were resilient, thanks to extensive price cuts as well as the advancement of year-end bonuses for civil servants. In terms of products, mobile phones, tablets and toys were the hot sellers. Garments, footwear, jewellery and watches were among other gifts favoured by Christmas shoppers.
Implications of Christmas sales performance – A cautious outlook for 2012
Increasingly, year-end sales performance has become a bellwether for retail business in the forthcoming year, not only in countries that celebrate Christmas but also selected markets where Christmas is not a festive season, particularly the mainland. To no one’s surprise, Christmas sales results for 2011, in view of the deteriorating global economic environment, were less impressive than those attained last year, with emerging markets mostly outperforming traditional markets. To be sure, year-end sales, though faring quite well in China and many emerging markets such as Poland, Russia, Brazil and Chile, were relatively temperate in the traditional markets. Even with favourable weather conditions, better sales results were only recorded for the US and Germany, while unwelcoming outturns were witnessed in Japan, the UK, France and, more seriously, Italy.
By and large, a cautious mood has prevailed among the traditional markets, especially the EU countries most affected by the sovereign debt crisis, and heavy discounts and promotions were usually required to draw in customers. Seemingly, many EU consumers were inclined to consider this holiday season as the last occasion to indulge themselves with festive shopping before facing the economic realities in 2012. For sure, the austerity measures and higher tax burdens that are expected to take effect in the new year will weigh on household budgets, therefore imparting an adverse impact on retail sales and in turn the appetite for Hong Kong products in 2012. Even for the US and Japan, retail sales are unlikely to be much better because of their own economic difficulties, and the prospects for Hong Kong exports are only mediocre.
To compensate for the sluggish business in the traditional markets, Hong Kong exporters should further hunt for new business opportunities in the emerging world for sales expansion. While Central and Eastern Europe will remain a weaker region due to its close integration with the EU, economies marked by sound fiscal conditions like Poland should fare better. Yet endowed with distinct potential are the commodity-exporting nations, not least Russia, as well as Latin American countries such as Brazil and Chile. Of more importance is the mainland, where government endeavours to promote consumption and rural development will open up new dimensions for Hong Kong companies accustomed to exporting to overseas markets.