How Weak Consumer Sentiment in China Affects Global Brands

Changes in Consumer Behavior

Global brands like Starbucks and Nike are experiencing significant shifts in consumer behavior, with cautious spending and declining traffic, particularly in Greater China. This trend is driven by a deteriorating economic outlook, increased macro uncertainty, and uneven consumer trends, impacting both brick-and-mortar and digital channels.

"in a number of key markets, we continue to feel the impact of a more cautious consumer, particularly with our more occasional customer and a deteriorating economic outlook has weighed on customer traffic and impact felt broadly across the industry." --- (SBUX, earning call, 2024/Q2)

"Third, we experience meaningful shifts in consumer traffic in key markets, particularly in Greater China, where brick-and-mortar traffic declined as much as double digits versus the prior year." --- (NKE, earning call, 2024/Q4)

"Starbucks results for the third quarter of fiscal 2024 reflect progress against our action plans to drive traffic to our stores and realized in-store and out-of-store efficiencies, which helped partially offset the impact of continued broader headwinds in a challenging global operating environment, including softening consumer sentiment, a pervasive inflationary environment, and disruptions due to multiple international conflicts." --- (SBUX, sec filing, 2024/Q3)

"Most importantly, this includes timelines and pacing to manage marketplace supply of our classic footwear franchises, lower NIKE Digital growth, especially in the first half of the year due to lower traffic on fewer launches, plan declines of classic footwear franchises given Q4 trends, as well as reduced promotional activity, increased macro uncertainty, particularly in greater China, with uneven consumer trends continuing in EMEA and other markets around the world, and sell into wholesale partners as we scale product innovation and newness across the marketplace and finalize second half order books." --- (NKE, earning call, 2024/Q4)

"We continue to face a more cautious consumer spending and intensified competition. In the past year," --- (SBUX, earning call, 2024/Q3)

Impact on Revenue and Sales

Weak consumer sentiment in China has negatively impacted global brands' revenue and sales, with Apple experiencing unfavorable currency effects, Nike seeing declines in digital sales, and Starbucks noting revenue growth only when excluding China.

"The weakness in foreign currencies relative to the U.S. dollar had a net unfavorable year-over-year impact on Rest of Asia Pacific net sales during the third quarter and first nine months of 2024." --- (AAPL, sec filing, 2024/Q3)

"Wholesale revenues increased 15%. NIKE Direct revenues increased 1% due to comparable store sales growth of 5% and growth in non-comparable store sales, partially offset by digital sales declines of 11%, reflecting reduced digital traffic." --- (NKE, sec filing, 2024/Q3)

"Yes. I think it's important to remember that even in Q2 where we had such a challenging quarter, our international segment, when you exclude China, had revenue growth and comp growth." --- (SBUX, conference, 2024/06/05)

Sector-Specific Impacts

Weak consumer sentiment in China has led to slower new store growth for Starbucks, despite maintaining a 12% growth rate. Additionally, intense competition in the Tea and overlapping coffee segments is causing significant challenges, impacting the sustainability of businesses in the retail sector.

"So there's a timing impact in terms of new store growth. So that's why we're at 12%, which we think is still a very strong growth, and indicative of the opportunity that we see [technical difficulty]." --- (SBUX, earning call, 2024/Q2)

"So, we bring that to life very well in our business in China. At the same time what you are seeing, is the intense competition, particularly in the Tea segment and it overlaps into coffee, in the mass area is one where you are seeing, some of the shakeout happen in terms of the impact on people, and how they can really sustain that kind of intensity." --- (SBUX, earning call, 2024/Q2)

Strategic Responses by Companies

Starbucks is enhancing operational efficiency and investing in international growth, while Nike is updating its growth outlook and implementing strategic shifts. Google focuses on long-term growth through strategic investments. These actions reflect their adaptive strategies to counter weak consumer sentiment in China.

"Changes include a new peak time play caller role, strategic investments in partner hours, training, new routines, simple enhancements to technology and an evolved beverage build process. Early deployment across 1,200 stores demonstrated a material incremental improvement across key performance, throughput, efficiency and reliability metrics." --- (SBUX, earning call, 2024/Q3)

"At Investor Day in November, we will provide an updated outlook on growth and profitability, taking into consideration the marketplace dynamics that we're dealing with across the portfolio, where we are in the product transition, and also some of the strategic shifts that we've put into place over the last year." --- (NKE, earning call, 2024/Q4)

"And we are investing in the business for long term growth. We then evaluate both acquisitions and strategic investments." --- (GOOG, event transcript, 2024/06/07)

"Our third strategic pillar is becoming truly global. Our international business remains an important part of our long-term growth strategy." --- (SBUX, earning call, 2024/Q2)

"Reported EBIT decreased 6% reflecting lower revenues and the following: • Gross margin was flat, as lower product costs, reflecting lower ocean freight rates and logistics costs, and higher full-price ASP, net of discounts, primarily due to strategic pricing actions, were offset by unfavorable changes in standard foreign currency exchange rates, lower margin in NIKE Direct and lower off-price margins." --- (NKE, sec filing, 2024/Q3)

Marketing and Advertising Adjustments

Global brands are adjusting their marketing strategies in response to weak consumer sentiment in China by focusing on relevance and customer action (Amazon), improving ad performance through AI (Google), increasing digital marketing expenses (Nike), dynamically adapting advertising approaches (Tesla), and enhancing perceived value through comprehensive marketing (Starbucks).

"And advertising really only works if the ads are helpful to customers and relevant to what they're shopping for, which ultimately leads to customers taking action and buying and success for advertisers, too." --- (AMZN, event transcript, 2024/05/22)

"rate at nearly a quarter of the cost. In addition to strengthening our ads products for customers, we continue to evolve our existing systems and products with improved models delivering further performance gains. In just six months, AI-driven improvements to quality, relevance, and language understanding have improved Broad Match performance by 10% for advertisers using Smart Bidding." --- (GOOG, earning call, 2024/Q2)

"The increase in demand creation expense was primarily due to higher advertising and marketing expense as well as digital marketing." --- (NKE, sec filing, 2024/Q4)

"We're not saying no to advertising, but this is a dynamic play and we know that we have not exhausted all our options and therefore plan to keep adjusting, but in the latter half of this year as well." --- (TSLA, earning call, 2024/Q2)

"And so our most loyal customers, like I had just said, you know indicate that they get value for what they get and that's coming from a combination of not only actual price but the product and the overall marketing and the approach to how we create awareness and excitement." --- (SBUX, conference, 2024/06/05)

Geopolitical and Economic Factors

Geopolitical and economic factors, including inflation, interest rates, and global developments, significantly impact Amazon's operations, making results unpredictable and amplifying risks.

"Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions and customer demand and spending (including the impact of recessionary fears), inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies, and the various factors detailed below." --- (AMZN, press release, 2024/04/30)

"Our results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions and customer demand and spending, including the impact of recessionary fears, inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies, and the various factors detailed in our filings with the SEC." --- (AMZN, earning call, 2024/Q2)

"Overview Macroeconomic factors, including inflation, increased interest rates, significant capital market and supply chain volatility, and global economic and geopolitical developments, have direct and indirect impacts on our results of operations that are difficult to isolate and quantify." --- (AMZN, sec filing, 2024/Q2)

"Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions and customer demand and spending (including the impact of recessionary fears), inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies, as well as those outlined in Item 1A of Part II, “Risk Factors.” Third Quarter 2024 Guidance" --- (AMZN, sec filing, 2024/Q2)

"and productivity. In addition, global economic and geopolitical conditions and additional or unforeseen circumstances, developments, or events may give rise to or amplify many of these risks." --- (AMZN, sec filing, 2024/Q1)