April 24, 2024 (MLN): Chinese non-food retailers’ revenue growth will moderate in 2024 on slower demand due to weak consumer sentiment while intensified competition could make it harder for them to retain solid profitability, Fitch Ratings says.
However, Fitch believes higher-rated companies typically have stronger financial profiles that can buffer against near-term demand weakness.
The operating environment remains challenging for Chinese retailers in 2024. Consumer sentiment has recovered from the trough in 2022 following China’s reopening, but high unemployment among the younger population and low confidence over income growth weigh on consumers’ spending power.
Heightened competition in China’s retail sector will prompt retailers to increase investments or promotions to defend their market position.
Fitch expects rated issuers to focus on profitability rather than revenue growth as additional market share gains become harder to achieve without sacrificing profitability.
The credit rating agency further estimates rated issuers’ leverage to remain similar to 2023 as domestic competition and price war persist. However, in the longer term, strong cash flow generation and conservative financial policies will support higher-rated companies’ stable-to-improving leverage.
