The growth rate of retail sales continues to hit new lows, where is the problem?

The National Bureau of Statistics released the macro data package for August today. Dolphin Research provides a brief commentary on this along with the previous macro retail data for July. (Note that the growth rates directly disclosed by the Bureau this year are about 1-2 percentage points higher than those calculated from historical data. We will adhere to the official figures.)

Overall, the growth rate of social retail sales in July and August continued to slow, reaching new lows. On one hand, the decline in state subsidies and poor automobile sales led to weaker goods sales. On the other hand, the fierce competition in the food delivery market has had a crowding-out effect on offline dining consumption, and has also led to a decrease in the actual price paid per order, making the growth in dining revenue even more sluggish.

Additionally, although food delivery subsidies have indeed maintained a stronger growth rate of 7% to 8% in online consumption over the past two months amid overall retail weakness, this is largely due to a substitution effect and has not significantly driven overall consumption growth.

1. Continuous Decline in Social Retail Growth Rate

According to data disclosed by the Bureau of Statistics, the total domestic social retail sales in July and August increased by 3.7% and 3.4% year-on-year, respectively, marking a continuous decline in growth rate for three consecutive months since the peak in May. The slowdown in June compared to May can still be attributed to the 'routine' advance of major promotions by e-commerce, which shifted more shopping demand to May.

However, the continued weakness in social retail sales in July and August can no longer be excused by this. In terms of consumption types, both goods retail and dining consumption were weak. According to the Bureau's disclosure, the growth rates for goods retail in July and August were 4% and 3.6%, (note that the disclosed growth rates are about 1-2 percentage points higher than those calculated from historical data). Meanwhile, the growth rates for dining revenue were 1.1% and 2.1%, respectively.

It can be seen that the growth rate of goods retail is continuously slowing; although the growth rate of dining has improved slightly from the low point in June, the absolute value is very low, still being the main factor dragging down the overall social retail growth rate.

Considering that July and August were the peak periods for Meituan and Alibaba's subsidy battles in food delivery and instant retail, Dolphin Research believes that the significantly low growth rate in dining revenue is still due to high subsidies prompting a shift in dining consumption to online platforms, and leading to a decline in the actual price paid per order.

The overall weakening of goods retail (including online and offline) in recent months, Dolphin Research believes, is partly due to the relatively weak performance of automobile retail, the largest component of social retail, which dragged down the overall social retail growth rate by 0.6 and 0.3 percentage points in July and August, respectively. On the other hand, it is because the amount of state subsidies has been largely exhausted in the past two months, and starting in September, it will enter the high base period of last year's state subsidies, causing the pulling effect of categories such as home appliances and 3C products to begin to fade.

2. The Food Delivery Battle Indeed Boosted Online Consumption Growth, but Substitution Effect Prevails Over Creation Effect

The growth rate of online physical retail (after adjustment) was strong against the trend, increasing by 8.3% and 7.1% in July and August, reaching relatively high levels since 1995. While overall consumption is weak, online consumption is strong against the trend. It is clear that the current food delivery subsidy battle has shifted dining and goods consumption online, but it is more of a channel substitution and has not significantly driven overall consumption growth.

In terms of categories, from January to August, sales of food, clothing, and daily-use goods increased by 15%, 2%, and 5.7% year-on-year, respectively. In absolute terms, food (including fresh produce) remains strong, while clothing (apparel) is the weakest. In terms of growth trends, food has remained strong throughout the year, and clothing shows signs of improvement on a low base, while the growth rate of daily-use goods is generally stable with a slight slowdown.

3. The Benefits of State Subsidies Begin to Decline, Greater Pressure by Year-End

According to sales data above the designated size, entering July, especially in August, the growth rates of electrical appliances, communication products, and furniture, which had year-on-year growth rates of several tens of percent in the first half of the year, began to decline significantly. In August, the growth rates for household appliances and communication products were only 14% and 7%, respectively. Moreover, the base period for last year's state subsidies starts in September, which means that the high base pressure on social retail in the fourth quarter will become increasingly apparent.

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