Chinese retailers pivot towards lower-priced goods to attract cost-conscious consumers

Chinese retailers are undergoing a strategic shift toward lower-priced goods and services in an effort to attract cost-conscious consumers. While this move is aimed at boosting consumer spending, concerns are rising about the potential entrenchment of deflationary trends in China’s economy.

This shift involves widespread price cuts, the proliferation of bargain stores, and the introduction of scaled-down product versions. The aim is to appeal to thrifty Chinese consumers, but it carries the risk of entering a damaging cycle of lower profit margins, restrained wage and job growth, and a diminished consumer appetite.

The aggressive competition for cost-conscious consumers is reshaping the retail landscape, drawing parallels with Japan’s “lost decades” of economic stagnation. Falling income growth contributes to lower consumption, with industries experiencing declining revenue as companies lower prices to maintain market share. Economist Wang Dan warns of a challenging economic landscape, noting, “It is definitely a price decrease or low inflation environment now.”

Chinese retailers are adapting to consumer cost-cutting by offering lower-priced alternatives. For example, Haidilao, known for premium hotpot service, introduced a lower-priced brand, Hailao Huoguo, offering more affordable dishes. Spirits maker Moutai unveiled affordable latte and chocolate products infused with its trademark liquor. Walmart’s Sam’s Club and Alibaba’s Freshippo are engaged in a price war, cutting prices on popular items significantly.

This pursuit of “value for money” is reversing the trend of trading up in various product categories, leading to a decline in the average selling price for supplements, dairy, skincare, and cosmetics. Discounting and the rollout of cheaper products have become prominent in the retail landscape.

The shift toward lower prices has given rise to a new breed of discount stores in China. Brands like Lingshi Henmang and Hotmaxx are expanding their reach by offering affordable products and soon-to-expire items at lower prices.

While policymakers anticipate inflation, recent data shows that consumer prices in China are falling at their fastest pace in three years, deepening factory gate deflation. The disconnect between economic growth expectations and the consumer experience, coupled with high youth unemployment, raises concerns about the long-term impact of the shift toward lower prices in the Chinese retail sector.