US Brands Struggle in China as Consumer Spending Slows
The Chinese market, once a goldmine for US consumer brands, is now experiencing a decline in sales. Major companies like Apple, Starbucks, and Nike are feeling the pinch as consumer spending slows down and local competition heats up.
Apple’s China Sales Stagnate
Apple’s Greater China sales fell slightly to $15.03 billion in the three months ended September 28, down from $15.08 billion in the year-ago period. While CEO Tim Cook attributed the flat performance to improved foreign exchange, the company’s sales have come under pressure from Huawei’s recovery in the Chinese smartphone market.
Starbucks Faces Intense Competition
Starbucks is facing even greater pressure from a surge in Chinese and foreign brands competing for the local market. The company’s same-store sales in China dropped by 14% in the three months ended September 29, with consumers spending on average 8% less per order. CEO Brian Niccol acknowledged the intense competition and soft macro environment, saying he needs to spend more time in China to understand the local business.
Nike’s China Revenue Falls
Nike’s Greater China revenue for the quarter ended August 31 fell by 4% year-on-year to $1.67 billion. CFO Matthew Friend said retail sales missed the company’s expectations, and Nike has lowered China business forecasts for the rest of the year. However, Nike’s reliance on China for revenue increased, with the region’s share of total revenue rising to 14.4% in the quarter.
Luxury Brands Also Affected
LVMH, a luxury giant, felt the drag from the China market, with Asia revenue, ex-Japan, plunging by 16% year-on-year in the third quarter. CFO Jean-Jacques Guiony said consumer confidence in mainland China is back in line with the all-time low reached during COVID.
The Bigger Picture
US brands have seen the China market decline as a share of total revenue when compared to 2019, before the pandemic. According to Isaac Stone Fish, founder and CEO of Strategy Risks, partnerships and politics play a crucial role in a company’s ties to China. He warned that increased tensions between the US and China could upend global supply chains and distort the market.
Some Brands Buck the Trend
Not all US brands are struggling in China. Tesla still relies on China for more than one-fifth of its revenue, with sales in China climbing by nearly 13% year-on-year to $5.67 billion. Adidas’ Greater China sales increased by 8.7% to 946 million euros, making up 14.7% of the company’s total revenue for the quarter. Lululemon also reported a 34% surge in mainland China revenue for the quarter ended July 28.
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