Chinese e-commerce companies are suffering from the economy

Chinese consumers are cutting back on discretionary purchases and becoming more frugal as the country’s economic slowdown drags on, hampering the once-relentless growth of the country’s e-commerce companies.

For the April-June quarter, Alibaba Group Holding Ltd.

DAD -2.04%

posted its first revenue decline while JD.com Inc.

JD -2.88%

saw its slowest growth after lockdowns and other rigid Covid-19 control measures in China caused disruptions in supply chains. Executives and analysts had expected better performance from Chinese e-commerce companies in the current quarter, but uncertainties remain as Beijing sticks to its strict zero-Covid policy.

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China is the world’s largest e-commerce market, with online consumption expected to reach $6.1 trillion in 2021, according to government data. The pandemic has boosted the industry’s growth, but the momentum has lost steam. Research firm Insider Intelligence predicts e-commerce sales in China will grow 9.1% in 2022, the smallest gain since 2008 and slower than the 9.4% growth rate estimated for the US

Alibaba posted a 0.1% drop in revenue in the April-June quarter for the first time since it went public in 2014, mainly due to a 1% drop in sales from its core commerce business in China.

In a call with analysts in August, Alibaba CEO Daniel Zhang cited China’s Covid restrictions for a mid-single-digit drop in the total sales value of items sold on its flagship e-commerce platforms, Taobao and Tmall.

“Although we are seeing signs of a steady recovery in consumption, I think it will take more time for this to fully play out and for consumer confidence and sentiment to fully recover,” Mr Zhang said.

Alibaba rival JD.com posted its lowest revenue growth — 5.4 percent — in the second quarter since it went public in 2014.

An exception was the innovative Pinduoduo Inc.,

which is popular with lower income consumers for offering discounted products. Pinduoduo’s revenue rose 36 percent as consumers increasingly seek bargains in a worsening economy, though to $4.7 billion, about 15 percent of Alibaba’s revenue. Pinduoduo said handing out coupons and heavy discounts worked to attract customers.

As China’s economy grinds to a halt, protests have erupted over frozen bank accounts and mortgage payments on unfinished homes. The WSJ explains the reasons behind the simmering resentment and how Beijing authorities are trying to keep it under wraps. Photo Composite: WSJ

Chinese consumers are grappling with slowing wage increases, rising unemployment and inflation as the economy grew in the April-June period at its slowest pace in two years. The recent real estate downturn is further reducing their confidence in the economy.

While China’s retail sales rebounded from a spring plunge, its growth rate is still below pre-pandemic levels, at 2.7 percent in July and 3.1 percent in June, compared with the same period last year. For nearly two decades, retail sales have grown by an average of about 12% each month.

Many economists expect consumer spending to remain subdued as China’s stimulus is largely focused on infrastructure spending and Beijing remains reluctant to move away from its zero-Covid policy.

E-commerce, however, fared better than offline retail. Figures from the Office for National Statistics show that despite a small drop in April, online sales of physical goods rose by 11% in the second quarter.

Ma Enbiao, a 36-year-old Shanghai resident, said his family is saving more and storing food for future uncertainties. The financial hub went into a two-month lockdown in the spring, leaving many residents scrambling to get food and supplies.

Mr. Ma, who deals in smart home appliances and cameras, said he has not consumed any consumer electronics this year and is eating out less. “I’m downgrading my lifestyle,” he said.

A package facility in Shanghai for JD.com, which recently posted the slowest revenue growth since going public.


Photo:

Qilai Shen/Bloomberg News

As consumers stock up to prepare for future lockdowns, growth in online shopping for food and household goods has steadily outpaced clothing this year, national data show, although growth is slower than last year’s pace. JD.com’s biggest growth category, supermarket, saw order volume grow by more than 25% in the second quarter, compared to the same period last year.

To boost consumption, the Shanghai government last week handed out 200 million yuan in digital coupons, equivalent to about $29 million. Mr. Ma received three coupons worth 100 yuan, or about $15. She said she spent the vouchers to buy daily necessities and food.

In addition to food and household goods, Chinese consumers are also spending more on self-catering, pet care, outdoor activities and home improvement as sporadic lockdowns continue.

On Alibaba’s platforms, sales of fashion and accessories took a hit between April and June, the company said. In contrast, demand for products in healthcare, pet care and outdoor activities increased.

WPIC, a consultancy that operates stores for global brands in Chinese e-commerce markets, said that for the first six months of 2022, sales of camping equipment via live streaming on Alibaba’s Tmall rose 70% year-on-year. On Douyin, the Chinese version of TikTok, revenue from camping items doubled, WPIC said.

JD.com also posted double-digit growth in fitness and wellness consumption in the second quarter. However, demand for electronics, including mobile phones and big-ticket home appliances, was steady. Government data shows that sales of home appliances including televisions, refrigerators and air conditioners fell 11 percent in the first half of this year compared to a year earlier. Analysts say demand for non-essential items will likely remain subdued for the rest of 2022.

Fitch Ratings estimates that China’s e-commerce sales will account for 29% of total retail sales in 2022, compared to 15% in the U.S. China’s growth rate could slow as the country relaxes its Covid control policies and consumers will visit brick-and-mortar stores again, said Karl Shen, who heads China corporate research at Fitch Ratings.

Despite the uncertainties in the immediate future, JD.com CEO Xu Lei said that in the long term, China’s consumer market is still strong. “When we come out of cyclical adjustments, we expect to see strong recovery momentum,” Mr. Xu said on an August call with analysts.

Write to Shen Lu at shen.lu@wsj.com

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