Fashion
Global consumer processed goods (CPG) behemoth Unilever is set to combat the slowdown in China head-on by strengthening its presence in the online market. The company announced last week that it will open a store on JD Worldwide, the cross-border platform of China’s largest online direct sales company. The partnership with JD.com will allow Unilever to directly import its products into China instead of having to navigate the red tape involved in marketing and selling its products locally.
Unilever already has a significant presence in China. It sells skincare brands like Dove, Ponds and Vaseline through JD.com’s direct sales website as well as Alibaba’s Tmall. According to The Wall Street Journal, Unilever’s sales on JD.com tripled over the last year and its total online sales in China reached $161 million. Now, the launch of its JD Worldwide store will add Unilever’s Lux haircare products for the first time to its Chinese product portfolio.
Poor Economic Growth in China Dragged Down Sales in 2014
Weak economic growth in China in 2014 was a cause of concern for global CPG giants like Unilever and Procter & Gamble (NYSE:PG). Nearly all emerging markets weakened in 2014, but China stood out as economic growth slowed down to a 24-year low of 7.4%. Consumer consumption is closely linked to economic growth, which in turn impacts the growth of CPG sales.
Slower-than-expected economic growth in China dragged down sales of personal care products in 2014, forcing Unilever to undertake a large-scale destocking across the country. The impact of destocking was particularly severe in the third quarter of 2014 and caused a 70 to 80 basis points headwind on Unilever’s total revenue growth. The company does not report its revenues from China separately. However, the extent of the impact of China’s economic slowdown on the overall performance of the company indicates that China accounts for a significant portion of Unilever’s worldwide sales.
Online Expansion Could Prop Up Volumes in China
The economic slowdown in China may have heavily impacted brick and mortar sales in the country, but online sales are picking up steadily. Online sales are estimated to have expanded by over 40% year on year in every quarter since last year. In the first quarter of 2015, online shopping is estimated to have accounted for over 10% of total retail sales in China. []
These statistics underscore the significant scope in online shopping in China. Considering that online sales expanded by over 40% in 2014, which suggests that online shopping was less susceptible to the economic slowing, as compared to traditional shopping. Therefore, Unilever’s decision to expand its presence in China’s online market could help it partially circumvent the slowdown in the country.
