May Social Zero Review: Mid-term assessment of 618, is consumer spending getting worse?

The National Bureau of Statistics released the "data package" for May as scheduled today. Due to being in the financial reporting season, Dolphin Research missed the data package for April, which is now being included to analyze the changes in domestic consumption trends over the past two months.

1. Overall, the social retail sales for April and May are still hovering below a growth rate of 4%. However, there has been some marginal improvement in May compared to the previous two months. Consumption has not been declining unilaterally, but rather fluctuating at low levels during the bottoming phase.

2. The biggest contributor to the marginal improvement is the relatively strong online physical retail sector. According to the adjusted data by the National Bureau of Statistics, online physical retail sales in April and May increased by 9.6% and 12.9% year-on-year respectively, significantly outperforming the overall market, with a noticeable acceleration in May. The widespread cancellation of pre-sales during the 618 promotion and the earlier start date on May 20th have led to a higher proportion of promotional consumption in May, which should be the main reason. However, in contrast, June may have to bear the consequences of pre-consumption.

3. Among other channels, offline retail of goods, which accounts for over 60% of the overall social retail sales (with a growth of -1% to 0% in April and May), remains the most "weak" and the biggest drag. The offline service consumption that was popular last year has also rapidly declined from a growth rate of over 20% last year to 7.9% in May, approaching the overall social retail growth rate, signaling the end of the dividend.

4. In terms of product categories, the largest contributor, automobile sales, did not play the role of a "pillar" after the real estate slump, with a growth rate in May lower than the overall market, becoming a drag. Among other categories, strong growth was seen in home appliances and communication products, which is good news for JD.com and Pinduoduo. However, key categories like clothing and beauty have mixed feelings, and a comprehensive judgment needs to be made based on the data from May and June, considering the impact of pre-sales cancellation.

1. Is there a silver lining for social retail? At least it's not worse

Looking at the overall figures, domestic social retail sales in May increased by 3.7% year-on-year, while in April it increased by 2.3% year-on-year. From this perspective, although the growth of social retail below 4% is still in a "weak range," there has been a certain improvement in May compared to March and April.

Excluding the impact of the low base followed by high base last year, the compound growth rate from 2021 to date dropped to 2.5% in April and then slightly rebounded to 2.9% in May. Therefore, from the results, social retail has not been unilaterally plummeting in the past two months, but rather showing a trend of bottoming out fluctuations.

2. Did the early promotion of the 618 shopping festival save the social retail in May? What about June?

The relatively strong online physical retail has been one of the biggest contributors to the marginal improvement of social retail in May. According to the adjusted historical data by the National Bureau of Statistics, the year-on-year growth rates of online physical retail sales in April and May were 9.6% and 12.9% respectively, accelerating since the low point in March. The compound growth rate from the beginning of 2021 has also increased from 4.5% in March to 5.9%. In particular, the growth rate in May increased by nearly 1 percentage point, showing significant improvement.

We believe that this is highly likely due to the widespread cancellation of pre-sales during the 618 shopping festival, and the early opening of activities on the three major e-commerce platforms by about 3 to 4 days, which shifted a higher proportion of the shopping demand to the end of May. However, the strong performance in May may come at the cost of a significant decline in online growth in June.

From the perspective of online retail penetration rate, the year-on-year increases in April and May were 2 percentage points and 2.5 percentage points respectively. Although there was a base effect of offline recovery last year, leading to a temporary decline in the online share, the online penetration rates in April and May were both at historical highs. In other words, in the "battle of channels," online remains indisputably the strongest "general" among them.

3. Offline goods are still the "worst," and offline services are entering the "dividend tailwind" phase

In offline retail channels, as they enter the base period of last year's offline recovery, the growth rates of catering and offline goods retail have both significantly declined. Among them, catering still has a growth of 4% to 5%, with a slight improvement in May compared to April. However, compared to the high growth of over 10% last year, catering has now slipped to a growth level slightly higher than the overall social retail, with the dividends fading away.

Similarly, the cumulative growth rate of domestic service retail (including catering, tourism, transportation, cultural tourism, etc.) separately disclosed by the National Bureau of Statistics has gradually declined from over 20% last year to 7.9% in May, reflecting that after the hot consumption last year, service consumption is returning to normal growth.

As for offline goods retail, the adjusted growth rate has been fluctuating within a range of ±1% for nearly 3 months. As the main body accounting for over 60% of the overall social retail, the offline channels, which are perceived as "depressed" by most people, are the biggest drag on the social retail market

4. Strong Performance of Electrical Products, Fashion and Beauty Still Need Observation

In terms of product categories, the single largest proportion is automobile retail (accounting for about 1/4 of the total retail sales above the quota). The year-on-year growth rate in May decreased by 2.3 percentage points compared to April, which is quite noticeable. To some extent, the oversupply and price wars in the automobile retail sector have also been one of the drags on the overall consumer market.

While the largest consumer destination - real estate has not shown obvious improvement, the fact that automobiles, which do not lead growth but rather drag it down, is also one of the important reasons for the overall consumption hovering at a low level.

The growth rates of other major product categories in May have all increased compared to April. Specifically, after a negative growth in April, the growth rate of cosmetics surged to nearly 19% in May. Considering that cosmetics were the main category for pre-sale promotions in the past, the spot sales this time have brought forward the sales confirmation time, which should be the main reason for the sharp increase in growth rate. Subsequent data for June still needs to be considered together.

One of the most important categories in e-commerce, the sales of fashion products were relatively weak, with a year-on-year growth of 4.4%, only slightly higher than the overall quota. The demand vitality for optional fast-moving consumer goods may not be high.

The most outstanding categories are home appliances and communication products, with growth rates of 13% and 17% respectively in May. This may be due to the favorable news of price reductions for key products such as Apple phones to clear inventory during the major promotion period. This is good news for platforms like JD.com and Pinduoduo.

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