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CHINA CONSUMER
GOODS & RETAIL
SECTOR 2019 Q2
An EMIS Insights Industry Report
Any redistribution of this information is strictly prohibited.
Copyright © 2019 EMIS, all rights reserved.
CONTACT US www.emis.com FOLLOW US
ABBREVIATIONS 3C Computer, Communication and Consumer Electronics B2B Business-To-Business B2C Business-To-Consumer CCFA China Chain Franchise Association CCAGM China Commerce Association for General Merchandise CNCIC China National Commercial Information Center GMV Gross Merchandise Value O2O Online To Offline FMCG Fast Moving Consumer Goods MAU Monthly Active Users Any redistribution of this information is strictly prohibited. Copyright © 2019 EMIS, all rights reserved.
CONTENTS 01 EXECUTIVE SUMMARY
Sector in Numbers
Sector Overview
Sector Snapshot
Driving Forces
p.5
Restraining Forces
02 SECTOR IN FOCUS
p.12
Quarterly Update
Focus Point – China Retail Sector Q1 2019
Quarterly Summary
Sector Outlook
Sector Highlights
Main Sector Indicators
Top M&A Deals
M&A Activity
03 COMPETITIVE LANDSCAPE p.23
Highlights
Competition Elements
Cost Analysis
Sector Concentration
04 COMPANIES IN FOCUS p.30
Alibaba Group
JD.Com
Suning.com Co Ltd
China Grand Automotive Services Co Ltd
Shanghai Bailian Group Co Ltd
05 REGULATORY ENVIRONMENT p.46
Government Policy
Major Regulations List
CONTENTS 06 TRADITIONAL RETAIL
Focus Point - China Retail Market 2017
Highlights
Main Events
Food and Beverage Retail
p.53
China Wine Market
07 E-COMMERCE p.60
Highlights
Main Events
Online Retail
B2C Online Market
CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2
An EMIS Insights Industry Report CONTENTS
01
EXECUTIVE
SUMMARY
Any redistribution of this information is strictly prohibited.
Copyright © 2019 EMIS, all rights reserved. 5
01 EXECUTIVE SUMMARY CONTENTS
Sector in Numbers
No.1 No.1 4%
Retail Market E-Commerce Retail Sales
Globally Market Globally Growth, y/y
RMB RMB RMB
38,099bn 32,564bn 5,535bn
Total
Urban Rural
Retail Sales
Retail Sales Retail Sales
RMB RMB
1.9% 7,020bn 1,987bn
Retail Price Online Retail Online Retail
Growth, y/y Sales of Sales of Services
Goods
Note: Data for 2018.
Source: National Bureau of Statistics, CEIC
CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 6
An EMIS Insights Industry Report
01 EXECUTIVE SUMMARY CONTENTS Sector Overview China is the world’s largest retail market and a global leader in e-commerce. As the country makes its transition from a manufacturing-based economy to a service-oriented one, the government’s priority has become that of ensuring stable economic growth by boosting domestic consumption. For this reason, the retail sector in China is expected to perform well in the years to come, encouraged also by favourable policies and socio-economic conditions. In 2018, total retail sales rose by 4% y/y to RMB 38,099bn (USD 5,660bn) with annual growth in rural areas higher than that in urban areas. Consumption expenditure per capita reached RMB 19,853 – a 12.2% y/y increase – with the figure at RMB 26,112 in urban and RMB 12,124 in rural areas. Entry Modes Mergers and acquisitions remain a major way for companies to expand their retail business. An increased number of IPOs is expected to focus on e-commerce and m-commerce. In September 2018 for instance, the delivery-to-ticketing platform Meituan Dianping raised a total of USD 4.2bn in its Hong Kong IPO. As omni-channel retail becomes dominant, e-commerce and new technologies shape the new face of retailing. In order to remain competitive, brick-and-mortar businesses will intensify their collaborations with online platforms and technology companies to expand their retail options. In May 2018, Wanda Group, Tencent Holdings and Gaopeng set up an internet technology joint venture that will integrate the online and offline retail businesses of its owners. Segment Opportunities E-commerce continues to be the retail segment with the highest year-on-year growth. The expansion of e-commerce and m-commerce provides an opportunity for technology companies able to provide data management, artificial intelligence (AI) and augmented reality (AR) solutions, which enhance consumer experience. Another important segment with business opportunities is the logistics. A reliable and efficient logistics is a crucial factor in the success of companies offering home deliveries, especially those applying the new-retail and online-to-offline (O2O) operating model. This creates an opportunity for companies engaged in advanced, digitalised delivery services, able to act as the third party logistics and provide the last-mile delivery service, in particular. Government Policy The country has been and will continue to encourage domestic consumption and retail sector development. In May 2018, China’s Ministry of Finance issued the Notice on launching comprehensive demonstration work of e-commerce in rural areas in 2018. In July, the MOFCOM released the Opinions on Promoting the Mechanism for Consumption and Further Encouraging the Consumption Potential of Residents. Later, in August 2018, Chinese legislators adopted e-commerce law, aimed at improving the regulatory environment of this dynamically growing market. Source: National Bureau of Statistics, CEIC, China Daily, Reuters, Fung Business Intelligence CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 7 An EMIS Insights Industry Report
01 EXECUTIVE SUMMARY CONTENTS
Sector Snapshot
China Consumer Goods
& Retail Sector
RETAIL SALES OF
CONSUMER GOODS
RMB 38,099bn
Retail Sales
Urban Areas Commodity by Top Commodity
RMB 32,564bn RMB 33,827bn
Rural Areas Catering PHP 278.5bn
RMB 5,535bn RMB 4,272bn
GVA Recreational, Cultural
and Sports Activities
NUMBER
E-COMMERCE
OF ENTERPRISES*
Total: 99,182 Sales of Goods Sales of Services
Domestic Funded: 96,810 Sales Value: RMB 7,020bn Revenue: RMB 1,987bn
Foreign Funded: 924 y/y Change: 28.1% y/y Change: 17.2%
KEY PLAYERS REVENUES*
1. Alibaba Group: RMB 158,273mn
2. JD.com: RMB 462,020mn
3. Suning Commerce Group: RMB 148,585mn
4. China Grand Automotive Services: RMB 135,422mn
5. Shanghai Bailian Group: RMB 47,077mn
* Data for 2017.
Note: Data for 2018.
Source: National Bureau of Statistics, CEIC, Company Data
CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 8
An EMIS Insights Industry Report
01 EXECUTIVE SUMMARY CONTENTS Sector Snapshot China Retail Sector The year 2018 was one of positive dynamics in China’s consumer goods and retail sector, although the y/y retail sales growth slowed down substantially. The major trends within the sector were a relative recovery in the traditional retail segment, expansion of online businesses in the offline retail space, and dynamic implementation of the “New Retail” model, accompanied by technological innovation and digitalisation. Cash-free, digitalised shops have defined a new norm. The sector benefitted from strong consumer demand and higher spending stimulated by rising incomes and a growing middle class. In 2018, retail sales of consumer goods reached RMB 38,099bn – a rise of 4% y/y. Retail sales in urban areas increased by 3.6% y/y to RMB 32,564bn and accounted for 85.5% of total retail sales, while those in rural areas rose by 6.5% y/y to RMB 5,535bn. Commodity sales rose by 3.6% y/y to RMB 33,827bn, compared to a 10.2% y/y increase in 2017, while the growth of the catering segment decelerated from 10.7% y/y in 2017 to 7.7% y/y in 2018, reaching RMB 4,272bn in sales. In 2018, consumption accounted for 76.2% of country’s GDP, up by 18.6% y/y. E-commerce continued to expand in 2018, with total online retail sales of goods and services jumping 25.5% y/y to RMB 9,007bn, up from RMB 7,175bn in 2017. E-commerce accounted for 23.6% of the country’s total retail sales, up from 19.6% in 2017. Online retail sales of goods registered a 28.1% y/y growth to RMB 7,020bn in 2018, while sales of services 17.2% y/y to RMB 1,987bn. Sales of motor vehicles, the largest category of retail sales in value terms, declined for the first time since 1990, largely impacted by recent developments in China-US trade relations and weak consumer incentives. The country’s auto sales dropped by 4.3% y/y in 2018 to nearly 23.7mn units. However, stimulated by toughening environmental protection measures and the government’s preferential policies on clean energy use, sales of new energy cars hiked by 61.7% y/y in 2018 to 1.26mn units. Sales of foods, beverages and tobacco (the second-largest revenue generator) registered a 10.6% y/y decline, reaching RMB 1,969bn. The sales value of petroleum products slid by 1% y/y to RMB 1,954bn in 2018. Retail sales in the other two major commodity groups – clothing and household electrical appliances – shrunk by 5.8% and 6.2% y/y, respectively, to RMB 1,371bn and RMB 886bn. Brick-and-mortar retail recovered in 2018, after a period of stagnation due to the e-commerce boom. Suning for instance expanded its operations to over 11,000 smart stores nationwide, including more than 2,000 located in rural areas. Walmart operated over 400 stores in over 180 Chinese cities in 2018, integrating its online and offline businesses in partnership with online giants JD.com and Tencent. In November 2018, the company announced that it will launch 30 to 40 new stores, including the Sam's Club, in China every year. The company will launch smart stores operations. Internet-based retailers were increasing their offline presence through expansion of high-tech pop-up stores, convenience stores and supermarkets, as well as establishment of comprehensive logistics network. Source: National Bureau of Statistics, CEIC, China Daily, China Passenger Car Association CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 9 An EMIS Insights Industry Report
01 EXECUTIVE SUMMARY CONTENTS Driving Forces The sustainable growth of China’s retail sector is driven by a number of factors, including favourable socio-economic conditions as well as strong government support for domestic consumption growth. In the past few years, the Chinese government has been encouraging retail sector development, e- commerce in particular, and has introduced a number of measures to standardise the industry, ensure healthy market operation and protect consumer rights. The sector is expected to further receive government’s support, as strong domestic consumption is the engine of country’s economic growth. Other major factors driving the sector’s development are the ongoing urbanisation process and China’s growing middle class. External Among the major external drivers of the retail sector’s performance is China’s expanding urban population. In 2018, China’s urban population accounted for over 59.6% of the total population, and is expected to reach 70% by 2027, according to Bain& Co. The other pillars of China’s consumer market are the rising incomes and bigger spending power. The new dynamics is expected to prompt further growth of the middle class and the number of affluent consumers. By 2022, about 75% of China’s urban households are expected to have annual disposable incomes of between RMB 60,000 and RMB 229,000 per household, according to McKinsey. China’s retail market is also heavily driven by the expanding consumer group of so-called “millennials”. Those born in the 1990s and 2000s are expected to constitute 15% and 21% of country’s population, respectively, in 2027, according to Bain&Co. With spending and shopping habits different from those of older generations, millennials are focusing on quality, variety and convenience. Being less price- sensitive, they opt for premium and personalised products. This more demanding consumer group is expected to stimulate a further upgrade of China’s retail sector, including increased application of technology and industry digitalisation. Internal The development of e-commerce, m-commerce in particular, and O2O integration are the major drivers of China’s retail sector growth. E-commerce gives retailers better access to end consumers and deeper understanding of their preferences thanks to data collection, and it also allows the development of customised products. E-commerce also boosts cross-border retail and allows Chinese sellers to reach consumers in rural and remote areas. According to Bain&Co, by 2027 nearly all daily transactions in China will be cashless and done on mobile devices. At the same time, “new-retail”, O2O, and multi- channel retail strategies are creating new business opportunities for both physical and online retailers, as they stimulate retail enterprises to expand into new business formats. Technological upgrade and digitalisation have also been playing a great role in retail sector development. Those include application of artificial intelligence (AI) and augmented reality (AR) that upgrade shopping experience. Innovations to transportation and logistics are also boosting the sector’s performance, creating fast and efficient product delivery options. Source: National Bureau of Statistics, CEIC, Bain&Co, McKinsey CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 10 An EMIS Insights Industry Report
01 EXECUTIVE SUMMARY CONTENTS Restraining Forces Slowing economic growth is one of the main external restraining forces for China’s retail sector. In 2018, the sector’s performance was also affected by strained trade relations with China’s main trade partner, the US. Nevertheless, the current domestic market conditions are rather encouraging, considering the stable consumer demand, rising incomes, favourable regulatory framework and government policies focused on boosting domestic consumption. External A significant factor restraining the retail business is the rising operating cost. Surging rental and labour costs have been limiting profit growth and forcing companies to operate with very small margins. While in the past business expansion had been the focus of competition, companies nowadays tend to seek cost-effective operations and prefer to close inefficient stores. Another factor hindering brick-and-mortar retailers expansion – foreign ones in particular – is the risk associated with property investment. China’s institutional legal framework is not yet fully developed, as the country is still adjusting to a new social and economic reality. Market transparency is low by Western standards. Those considering market entry should pay attention to macroeconomic and institutional risks, including lack of liquidity and upward pressure on pricing. The depreciation of the RMB is also affecting the retail industry, especially foreign businesses with a heavy presence on the Chinese market. Internal E-commerce is both a driver and an inhibitor for the sector. As it leads to lower prices and lower profitability, it aggravates dumping trends. Intellectual rights protection on online platforms is still an issue, although the country has been introducing a number of polices and regulations to toughen IPR protection. The country has also implemented measures against counterfeit products distribution that affects consumers and hurts the credibility of legitimate retailers. Tax evasion is also a common practice in e-commerce, harming fair competition. Another issue in the e-commerce segment is the still unsatisfying quality of after-sales services and the insufficient protection of consumer rights. Technological development and increased digitalisation of retail industry pose the question of consumer privacy due to data collection, which is widely implemented in the e-commerce and m- commerce segment. At the same time, the increasing use of new technologies and digitalisation forces industry players, physical retailers in particular, to raise their investments in technological upgrades in order to remain competitive. This creates additional pressure on retail businesses and affects their profitability. Rising rental and labour costs are also eating into retailers’ profits. Also, businesses with immature supply chains may find it challenging to satisfy increasing consumer demand for personalized products and services, as well as efficient delivery options. Source: China Daily, Fung Business Intelligence CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 11 An EMIS Insights Industry Report
CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2
An EMIS Insights Industry Report CONTENTS
02
SECTOR
IN FOCUS
Any redistribution of this information is strictly prohibited.
Copyright © 2019 EMIS, all rights reserved. 1202 SECTOR IN FOCUS CONTENTS
China Retail Sector Q1 2019
RMB 2,238bn RMB 5,538
Online Retail Sales of Consumption
Consumer Goods and Expenditure per
RMB 9,779bn Services Capita
Retail Sales RMB 11,633 RMB 4,600
of Consumer Goods Disposable Income Disposable Income
per Capita, Urban per Capita, Rural
8.3% RMB 7,160 RMB 3,525
y/y growth Consumption Consumption
Expenditure per Expenditure per
Capita, Urban Capita, Rural
Commodity Retail Sales, Commodity Retail Sales,
RMB bn y/y change, %
109
144 9.24
342
517
5.70
916 2.41
-2.53
-0.81
Communication Appliance
Communication Appliance
Chinese and Western Medicine Chinese and Western Medicine
Clothing, Shoes, Hats and Textile Clothing, Shoes, Hats and Textile
Food, Beverage, Tobacco and Liquor Food, Beverage, Tobacco and Liquor
Automobile Automobile
Source: National Bureau of Statistics, CEIC
CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 13
An EMIS Insights Industry Report02 SECTOR IN FOCUS CONTENTS
Quarterly Summary
Comments
In the first quarter of 2019, total retail sales of consumer goods in China rose by 8.3% y/y to RMB
9,779bn, following a 3.5% y/y increase in the last quarter of 2018. The improved performance was
attributed to higher retail sales, a result of higher consumption expenditure. Consumer spending per
capita rose by 7.3% y/y in Q1 2019 to RMB 5,538. Online sales of consumer goods and services rose by
15.8% y/y to RMB 2,238bn, with sales of consumer goods alone amounting to RMB 1,777bn, up by 22%
y/y. Rural areas registered a 9.2% y/y growth in sales, which reached RMB 1,439bn. Urban regions
recorded a lower y/y increase of 8.2%, due to relative market saturation and changing consumer
trends. At the same time, the growth of China’s retail sector in Q1 2019 remained constrained by
declining auto sales, which slid by 2.5% y/y to RMB 916bn.
Sales of consumer goods alone increased by 22% y/y to RMB 1,777bn. The quarter was characterised by
increased dynamics on retail the market, with physical retailers expanding the number of their stores,
upgrading and digitalizing their operations. E-commerce businesses continued to expand in the
offline format, often through partnership with traditional retailers.
Disposable Income per Capita, RMB Consumption Expenditure per Capita,
RMB
7,098 7,160
11,633 6,599 6,749
10,781 6,269
5,996
9,829 9,652
8,966 8,989
3,586 3,525
3,331 3,241
4,600 2,565 2,732
4,226 3,972
3,655 3,503
2,916
Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019
Urban Rur al Urban Rur al
Source: National Bureau of Statistics, CEIC, China Daily
CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 14
An EMIS Insights Industry Report02 SECTOR IN FOCUS CONTENTS
Sector Outlook
Comments
According to EMIS Insights, China’s retail sales of consumer goods will rise by around 6.3% y/y in 2019,
to RMB 40.5tn. The country’s online retail is projected to grow by 19.2% y/y to nearly RMB 8.4tn.
China’s retail sector will remain dependent on the vehicle sales, which are a major revenue generator.
To boost car sales in the country, in January 2019 China’s NDRC announced six regulatory policies
covering the 2019-2020 period. According to the Singaporean DBS Bank, China’s automobile sales will
grow by 3% y/y in 2019, while UBS believes auto sales will likely bottom in the first quarter of 2019
and return to gains in Q3 2019. In terms of traditional retail, a report by the China Chain Store and
Franchise Association (CCFA) shows that chain store operators are positive about their sales growth in
2019. Out of the 45 major chain store enterprises in the retail, catering and life service segments
polled in March 2019, 85% project an increase in same-store sales in 2019, according to CCFA. All
surveyed chain store operators mention plans for business expansion and new store openings in 2019,
along with the set-up of information systems and general store upgrades. Positive projections for
China’s retail market in 2019 are also attributed to favourable factors such as PIT and VAT cuts
starting form April 2019, credit easing and improving consumer confidence, expected to keep
consumption at a healthy level, according to UBS.
Retail Sales of Consumer Goods, RMB bn Online Retail Sales of Goods, RMB bn
2,671
11,437
2,269
10,224 9,988
9,852 2,052
9,423 1,999
1,923
Q2 2019f Q3 2019f Q4 2019f Q1 2020f Q2 2020f Q2 2019f Q3 2019f Q4 2019 Q1 2020 Q2 2020f
Source: EMIS Insights, China Daily, China Chain Store and Franchise Association, DBS, UBS
CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 15
An EMIS Insights Industry Report02 SECTOR IN FOCUS CONTENTS Sector Highlights Luckin Coffee Announces Plans for IPO In January 2019 Chinese coffee startup Luckin Coffee stated that it plans to raise USD 480mn in its IPO on the US equity market. Luckin Coffee will list under LK on Nasdaq. The company will offer 30mn American Depository Shares (ADSs) at a price of USD 15 to USD 17 per share. Later in April 2019, the company completed its Series B+ round of financing worth USD 150mn, rising its valuation to around USD 2.9bn. Luckin Coffee plans to open 2,500 new stores in 2019, with the total number of stores expected to exceed 4,500 by the end of the year. Wuhan Zhongshang Acquires Easyhome in a USD 5.5bn Deal Also in January, Wuhan Zhongshang Commercial Group Co Ltd declared that it will buy Beijing Easyhome Furnishing Chain Store Group Co Ltd by issuing 6bn shares priced at RMB 6.18 per share, which sets the company value at between RMB 36.3bn and RMB 38.3bn. The deal vale is estimated at USD 5.5bn. Following the listing, Easyhome will become a controlling shareholder, along with Alibaba and 22 other investors that will share the remaining stake. The Wuhan Zhongshang Commercial Group is a state-backed enterprise that operates shopping malls and supermarkets in ten Chinese cities, while Easyhome is country’s second-largest home improvement supplies and furniture chain operator. Later in February 2019, Alibaba bought a 15% stake share in Easyhome for USD 866mn. Auto Regulations In order to boost car sales in the country, in January 2019 China’s NDRC announced six regulatory policies covering the 2019-2020 period. Those include subsidies for automobile replacement, adjustment of NEV subsidy policy, stimulation of auto sales in rural areas, eased restrictions on pick- up trucks use in cities, lift of the cross-city second-hand automobile registration barriers, and optimisation of auto sales management in major cities. Source: Source: China Daily, Reuters, South China Morning Post, National Development and Reform Commission CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 19 An EMIS Insights Industry Report
02 SECTOR IN FOCUS CONTENTS
Main Sector Indicators
Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2109
Real GDP, y/y change, % 6.8 6.8 6.7 6.5 6.4 6.4
Real GDP, Wholesale and Retail Trade, y/y change, % 6.9 6.8 6.6 6.2 5.5 5.8
Disposable Income per Capita, Urban, RMB 8,966 10,781 8,989 9,829 9,652 11,633
Disposable Income per Capita, Rural, RMB 3,655 4,226 2,916 3,503 3,972 4,600
Consumption Expenditure per Capita, RMB 5,160 5,162 4,447 4,672 5,572 5,538
Consumption Expenditure per Capita, Urban, RMB 6,599 6,749 5,996 6,269 7,098 7,160
Consumption Expenditure per Capita, Rural, RMB 3,331 3,241 2,565 2,732 3,586 3,525
Retail Price Index (RPI), quarterly average, y/y change, % 1.3 1.6 1.6 2.4 2.1 1.3
Food 0.0 2.2 1.0 2.2 2.9 2.4
Beverage, Tobacco and Liquors 1.3 1.4 1.5 1.6 1.6 1.2
Clothes 1.2 1.2 1.2 1.3 1.4 1..8
Traffic and Communication Appliances -1.4 -1.6 -1.3 -1.5 -1.1 -1.0
Medicine, Medical and Health Care Articles 4.7 4.4 4.2 4.5 4.8 4.8
Consumer Price Index (CPI), quarterly average, y/y change % 1.8 2.2 1.8 2.3 2.2 1.8
Consumer Goods 1.0 1.7 1.4 2.2 2.2 1.6
Food -0.6 2.0 0.4 1.9 2.8 2.2
Business Climate Index in Wholesale and Retail Sector, Net
125.7 124.5 121.4 122.9 118.2 N/A
Balance*
Consumer Confidence Index, point 122.6 122.9 121.3 118.9 121.4 124.6
Retail Sales of Consumer Goods, RMB bn 10,308 9,028 8,974 9,428 10,669 9,779
Urban Areas 8,870 7,710 7,699 8,063 9,092 8,340
Rural Areas 1,439 1,318 1,275 1,366 1,577 1,439
Retail Sales of Consumer Goods, Commodity Retail, RMB bn 9,187 8,056 8,000 8,398 9,374 8,715
Retail Sales of Consumer Goods, Catering, RMB bn 1,122 971 975 1,031 1,295 1,064
Online Retail Sales of Consumer Goods and Services, RMB bn 2,296 1,932 2,149 2,197 2,728 2,238
Online Retail Sales of Consumer Goods, RMB bn 1,798 1,457 1,671 1,666 2,226 1,777
Utilised Foreign Direct Investment (FDI) in Wholesale and Retail
Sector, USD bn 2.6 2.2 3.0 2.0 2.6 N/A
Source: National Bureau of Statistics, CEIC, *100 points- neutral level
CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 16
An EMIS Insights Industry Report02 SECTOR IN FOCUS CONTENTS
Main Sector Indicators
(cont’d)
Retail Sales of Consumer Goods Retail Sales of Consumer Goods, RMB bn
Retail sales of consumer goods rose by 8.3% y/y
in Q1 2019 to nearly RMB 9.8tn. While retail sales 10,669
of goods amounted to RMB 8.7tn, up by 8.2% y/y, 10,308
catering services generated nearly RMB 1.1tn in
sales, up by 9.6% y/y. China’s retail market
9,779
remains highly fragmented. At the end of 2018,
the top 20 retailers accounted for 18% of China’s 9,428
retail market (not including pure retail platform
9,028 8,974
operators). For comparison, in the top 20 firms in
the US had a 49% market share. China’s largest
retailers of consumer goods by revenue* are:
JD.com, Suning, SunArt, Vip.com, Yonghui
Superstores, Gome, Bailian Group, Chongqing
Department Stores and the Dashang Group. Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019
Online Retail Sales Online Retail Sales of Consumer Goods,
RMB bn
Online retail sales of consumer goods and
services reached RMB 2,238bn in Q1 2019, up by
15.8% y/y. Sales of consumer goods alone 2,226
increased by 22% y/y to RMB 1,777bn. The share of
e-commerce in the total retail market has been 1,798 1,777
1,671 1,666
rising steadily, reaching 22.9% in Q1 2019,
1,457
compared to 21.4% in Q1 2018. Growth of online
sales in Q1 2019 was mainly driven by the food,
clothing and other commodities segments, which
expanded by 24.6%, 19.1% and 21.3% y/y,
respectively. E-commerce has been expanding at
a highest pace in lower-tier cities and rural
regions. Alibaba reports for instance that at the
end of 2018, over 70% of the increase in
Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019
company’s AAC came from third- and lower-tier
cities.
Source: National Bureau of Statistics, CEIC, Euromonitor, JD.com, The Drum, * according to revenue for FY2018, Alibaba not
included in ranking, as company financial year ends March 31, 2019
CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 17
An EMIS Insights Industry Report02 SECTOR IN FOCUS CONTENTS
Main Sector Indicators
(cont’d)
Retail Sales in Urban Areas Retail Sales of Consumer Goods in Urban
Areas, RMB bn
Urban retail sales registered an 8.2% y/y growth
to RMB 8,340bn in Q1 2019. In terms of
consumption by region, the highest growth of 11% 9,092
y/y was registered in the Anhui, Yunnan and 8,870
Jiangxi provinces. It was largely a result of
favourable policies, tax reforms and active
8,340
measures to boost innovation in the sector.
8,063
Tianjin, on the other hand was the only region
that registered a y/y decline in retail sales by 7,710 7,699
2.6% y/y. The drop was caused by uncertainties
around the city's business environment, and a
growing need for policies facilitating sustainable
economic development, according to the Tianjin
bureau of statistics. Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019
Retail Sales in Rural Areas Retail Sales of Consumer Goods in Rural
Areas, RMB bn
The annual growth in rural areas was stronger,
with sales rising by 9.2% y/y in Q1 2019 to RMB
1,577
1,439bn. As part of a 2018-2022 strategy for
1,439 1,439
revitalization of rural areas, e-commerce 1,318
1,366
1,275
maintains its dynamic growth in these areas and
plays a major role in poverty alleviation and
revitalization of remote regions. In March 2019,
China’s Ministry of Commerce committed once
again to implementation of measures stimulating
consumption in rural regions, including sales of
agricultural production in urban areas, and
providing affordable industrial products in the
countryside. In February 2019, China also
announced that it plans to make mobile Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019
payments a universal payment method in rural
areas by 2020.
Source: National Bureau of Statistics, CEIC, China Daily, Tianjin Bureau of Statistics, China Ministry of Commerce, The
Telegraph, Techcrunch
CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 18
An EMIS Insights Industry Report02 SECTOR IN FOCUS CONTENTS Sector Highlights (cont’d) Metro To Sell Its China Operations In March 2019, German Metro AG started the sale of its China operations, with the deal expected to bring in between USD 1.5bn and USD 2bn. The company has 95 stores in China as well as other real estate assets and plans to liquidate most of its China business. Update to E-Commerce Regulations Released A draft of the e-commerce law has been released by China’s Ministry of Commerce in March 2019 for a public discussion between June 29 and July 28, 2019. The objective of new e-commerce regulation is to further support and promote the development of the e-commerce sector, improve the regulatory framework of the online market and provide protection of legal rights and interests of all parties involved in e-commerce, as stated on the China’s Supreme People’s Court website. Walmart’s Sam’s Club To Expand Through China In April 2019, Walmart announced its plan to expand the total number of its Sam’s Club stores in China to 40 by 2020. At present, the 24 Sam’s Club stores serve over 2mn members throughout the country. In 2018, the chain store operator registered an 8% y/y growth in revenue generated on Chinese market. The company also formed a partnership with JD.com’s delivery arm, Dada-JD Daojia, in order to ensure better delivery service. Yunji Inc Debuts on Nasdaq In May 2019, China’s e-commerce platform Yunji Inc started trading on Nasdaq. The Hangzhou-based Yunji serves domestic buyers based on membership and non-membership models. The main product categories include beauty and personal care items, toys, digital goods and other. As of December 31, 2018, it had 7.4mn members, according to the company. Source: Source: China Daily, Reuters, China Ministry of Commerce, Supreme People’s Court of the PRC CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 20 An EMIS Insights Industry Report
02 SECTOR IN FOCUS CONTENTS
Top M&A Deals
Major Deals in China’s Consumer Goods and Retail Sector, January 2018-May 2019
Deal
Country of
Date Target Company Deal Type Buyer Value Stake %
Buyer
USD mn
Beijing Easyhome Furnishing Chain Wuhan Zhongshang Commercial Group Co
24-Jan-2019 Acquisition China 5,490.35 100.00
Store Group Co Ltd Ltd
MegaFon; Mail.ru Group; Russian Direct
11-Sep-2018 AliExpress Russia Joint Venture Investment Fund (RDIF); Alibaba Group Russia, China 2,000.00 100.00
Holding Ltd
Minority Stake
19-Mar-2018 Lazada Group SA Alibaba Group Holding Ltd China 2,000.00 38.80
Purchase
Shanghai Xunmeng Information
26-July-2018 IPO Institutional Investor(s) N/A 1,626.40 14.52
Technology Co Ltd
Shanghai Xunmeng Information
05-Feb-2019 SPO Institutional Investor(s) N/A 1,551.96 8.49
Technology Co Ltd
Matrix Partners China; BlueRun Ventures
Chehaoduo Used Automobile Minority Stake
28-Feb-2019 China; Tencent Holdings Ltd; SoftBank Vision 1,500.00 16.67
Agency Beijing Co Ltd Purchase
Fund; Sequioa Capital; GIC Pte Ltd
Minority Stake
31-May-2018 Alibaba Group Holding Ltd Undisclosed Investor(s) N/A 1,500.00 0.30
Purchase
Medical and Healthcare businesses
29-May-2018 Acquisition Alibaba Health Information Technology Ltd Hong Kong,China 1,351.12 100.00
of Tmall.com
Beijing Dangdang Kewen E-
commerce Co Ltd; Beijing
12-Apr-2018 Acquisition Tianjin Tianhai Investment Co Ltd China 1,194.50 100.00
Dangdang Information Technology
Co Ltd
19-Jan-2018 Shanghai Yuemu Cosmetics Co Ltd Acquisition Zhonglu Co Ltd China 871.26 100.00
Beijing Easyhome Furnishing Chain Minority Stake
11-Feb-2018 Alibaba Group Holding Ltd China 867.00 15.00
Store Group Co Ltd Purchase
Tencent Holdings Ltd; ICBC International
Holdings Ltd; Yunfeng Capital; FountainVest Hong Kong, China
Chehaoduo Used Automobile Minority Stake
01-Mar-2018 Partners; GIC Pte Ltd; IDG Capital Partners; China, 818.00 N/A
Agency Beijing Co Ltd Purchase
Sequoia Capital China; DST Global; Capital Singapore, Russia
Today Group; Beijing Shougang Fund Co Ltd
China National Scientific
11-July-2018 Acquisition Sinopharm Group Co Ltd China 770.86 60.00
Instruments and Materials Co Ltd
Huizhou TCL Home Appliances
Group Co Ltd; TCL Home
08-Dec-2018 Appliances (Hefei) Co Ltd; Huizhou Acquisition TCL Industrial Holdings (Guangdong) Co Ltd China 691.83 100.00
Cool Friends Network Technology
Co Ltd; other
China Jianyin Investment Ltd; Tamar Alliance
11-Apr-2018 Nature's Care Acquisition China 604.30 N/A
Fund
DSM Grup Iletisim Pazarlama
28-June-2018 Acquisition Alibaba Group Holding Ltd China 580.79 75.00
(Trendyol.com)
Guangzhou Merchandise Enterprise Group
Guangzhou Friendship Group Co
28-Feb-2019 Acquisition Ltd Corp; Guangzhou Guangshang Capital China 572.81 100.00
Ltd
Management Co Ltd
31-Mar-2018 Kaiyuan Commerce Co Ltd Acquisition Yintai Department Store Co Ltd China 557.47 100.00
Minority Stake
18-June-2018 JD.com Inc Google LLC US 550.00 0.94
Purchase
Minority Stake
08-Aug-2018 Dada-JD Daojia Walmart Inc; JD.com Inc US, China 500.00 N/A
Purchase
Source: EMIS DealWatch
CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 21
An EMIS Insights Industry Report02 SECTOR IN FOCUS CONTENTS
M&A Activity
Number and Value of Deals Deals by Deal Type, Q1 2019
Minority
11,534 Stake
Purchase
52.2%
9,175
8,147 7,957
7,139
44
39 39 26
44
23 IPO 8.7%
2,691
Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Acquisition SPO 4.3%
34.8%
Number of Deals Value of Deals, USD mn
Deals by Region of Investor, Q1 2019 Deals by Deal Value, USD mn,
Q1 2019
US 11.8% 100.1-
500mn;
30.4%
500.1-1000;
Hong Kong,China 4.3%
11.8% Other 35.3%
> 1000mn;
13.0%
50.1-100mn;
21.7%
Undisclosed;
0-50mn; 4.3%
China 41.2%
26.1%
Source:
Source: EMIS DealWatch
CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 22
An EMIS Insights Industry ReportCHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2
An EMIS Insights Industry Report CONTENTS
03
COMPETITIVE
LANDSCAPE
Any redistribution of this information is strictly prohibited.
Copyright © 2019 EMIS, all rights reserved. 2303 COMPETITIVE LANDSCAPE CONTENTS Highlights Overview As of end-2017, the number of retail enterprises in China stood at 98,305. These included 95,909 domestic enterprises and 987 foreign-funded businesses. Retail sales of the country's 2,700 biggest physical retailers rose by 4.6% y/y in 2017, according to MOFCOM. Brick-and-mortar stores – and department stores in particular – have been affected by changing consumer behaviour and growing competition from e-commerce, which forced them to revise their operating model and implement a new retail market approach. Market Structure Although the number of enterprises increases, the sector has seen a growing number of mergers and acquisitions as well as joint ventures in recent years. The dynamics was largely caused by structural changes of the retail market, implementation of new operating models and new retail approaches. Physical retailers are partnering with e-commerce and technology companies for their value-added services and retail infrastructure. At the same time struggling traditional retailers with retail space in key locations attract the interest of e-commerce online businesses, eager to acquire venues for their offline stores. Main Players In terms of business scale, China’s top ten traditional retailers with largest market share (as of June 2018) are Sun Art Group (8.2%), RT-Mart (6.9%), Vanguard Group (6.5%), Walmart Group (5.7%), Younghui Group (3.7%), Carrefour (3.1%), Bailian Group (2.6%), WSL Group (2%), WuMart Group (1.8%) and SPAR Group (1.6%). Source: China Daily, Kantar Worldpanel and Bain& Co, RET, Fung Business Intelligence CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 24 An EMIS Insights Industry Report
03 COMPETITIVE LANDSCAPE CONTENTS Competition Elements Omni-Channel Retailing Omni-channel retailing has gradually become a prerequisite for new retail strategies, applied by both online and offline retailers. Alibaba, for instance, has been building its presence in offline retail segment with its Hema stores that combine data and smart logistics technology. Alibaba has also been backing up the RT-Mart’s Taoxianda New Retail stores with its technology, which resulted in monthly sales growth of 10%. In January 2018, JD.com introduced its smart 7Fresh supermarkets that combine conventional supermarkets and showrooms for products that can be ordered online and home-delivered. The company plans to launch 1,000 such O2O supermarkets in the following three to five years. In March 2018 JD.com and convenience store chain FamilyMart introduced a food delivery service available via JD’s ecommerce platform. Another tech giant, Tencent, has teamed up with Wanda Commercial Management Group in an internet technology joint venture to accelerate its “smart retail” strategy. It also teamed with Carrefour to jointly set up the Le Marche stores that provide consumers with O2O services. Logistics Management Establishing smart supply chains, advanced warehouse networks and efficient stock management systems became essential for both online and offline retailers, due to the expansion of omni-channel and O2O operations. In order to cope with rising competition, win new markets, and increase market penetration, retailers have been focusing on developing effective delivery networks, including reliable third-party logistics partnerships. Home delivery services are becoming essential in the new retail era. In April 2018, Alibaba acquired Ele.me, a food delivery start-up valued at USD 9.5bn. In October 2018, Alibaba announced that it will merge its food delivery operations and raise funds for the combined business. The move is regarded as another way for the company to battle growing competition from Meituan Dianping, a group buying website backed by Tencent. In May 2018, Alibaba also announced its USD 1.4bn investment in Chinese express delivery company ZTO Express, in which it will hold a 10% stake share. In February 2018, JD.com raised USD 2.5bn for its logistics subsidiary JD Logistics to solidify its supply chain and enhance its position on the e-commerce market. At the same time, the last-mile logistics development is becoming particularly important in the country’s rural and remote areas, where e-commerce is gaining popularity. Internet giants have been looking for efficient delivery solutions, including third-party logistics, high-tech automation, robotics or drone application that will allow them access to hard-to-reach markets. Source: Company Data, China Daily, Reuters CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 25 An EMIS Insights Industry Report
03 COMPETITIVE LANDSCAPE CONTENTS Competition Elements (cont’d) Technological Upgrade and Digitalisation High technology and digitalisation have become an inherent part of industry. Introduced on a massive scale by e-commerce giants such and Alibaba, JD.com and technology firms such as Tencent, high- tech solutions are enhancing the operating efficiency of retailers, facilitating O2O shopping and upgrading consumers' experience. Application of m-commerce, AI, AR, big data, IoT, facial recognition, virtual payment options, digitalised inventories or unmanned stores are becoming a new reality in the world of retailing. The complex approach that utilises both online and offline resources, allows for better understanding of consumer market and delivery of personalized products and services. Alibaba, for example, uses big data analysis to remember customers’ purchase preferences and later come up with personalised recommendations on its Hema application service, or provides a data- based selection of fresh food to customers depending on their locations. Alibaba stores also offer home delivery services, which take less than an hour. Carrefour launched its first Le Marche smart store in Shanghai In May 2018. The 4,000-m2 facility operates through the application of technologies such as facial recognition payment and personalised mobile advertisements backed by internet giant Tencent Holdings Ltd. In September 2018, JD.Com launched its first unmanned store in Chongqing's Liangjiang New Area. The store JD.CQ X-Mart is equipped with facial recognition, intelligent shelves and frequency identification for store management. In order to enter this 140-m2 store, customers need to scan a QR code and register a JD account. The online retailer also plans to build a JD Smart Community in the centre of the Liangjiang New Area. With a total area of 10 km2, the smart community will include convenience and unmanned stores, home appliance malls, and will also allow for the development of a boundless retailing circle. Following Market Dynamics As reported by China Daily in January 2019, based on the joint research of Kantar Worldpanel and Bain&Co, China’s domestic retailers have been more successful in meeting consumer demands, as compared to their foreign counterparts in the fast-moving consumer goods sector. Domestic enterprises are more eager to experiment and more likely to provide innovations that are tailored to the Chinese consumer. Local businesses also have a more flexible and agile operating models, which enable them to better react and adjust to market dynamics. Many emerging businesses rely on high- traffic online platforms, such as Tmall and JD.com, and turn to social commerce and social media platforms such as Pinduoduo and Douyin for business generation. Source: Company Data, South China Morning Post, Mingtiandi, Mordor Intelligence, CNBC, Kantar Worldpanel and Bain&Co CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 26 An EMIS Insights Industry Report
03 COMPETITIVE LANDSCAPE CONTENTS
Cost Analysis
Cost Elements of Retail Enterprises, RMB bn
2012 2013 2014 2015 2016 2017
Total Sales Revenue 7,272 8,622 9,689 9,945 11,043 10,702
Cost of Sales 6,459 7,583 8,565 8,776 9,742 9,389
Total Sales Tax and Surcharge 38 53 55 57 56 49
Depreciation 48 63 72 72 71 n/a
Administrative Expenses 231 266 295 308 335 n/a
Financial Expenses 50 60 72 73 75 n/a
Profit Tax 37 45 50 45 51 n/a
Total Sales Profits 171 271 247 248 296 n/a
Comments
Cost of sales, including purchasing cost, was the major cost item for retailers, accounting for 87.7% of
their total revenue in 2017. In addition, a substantial part of retailers’ costs consists of wages and
rents, with each accounting for approximately 4%-5% of total cost. Minimising costs and optimising
cost structure has therefore become critical for retailers in China. High costs act as an additional
trigger for e-commerce development, which offers higher profits and lower costs.
In order to increase profitability, offline store operators have been introducing smaller stores to
maximise their productivity. One such format is the pop-up store, often chosen as a way to test new
technologies and try out new markets. Its major advantage is that it brings down set-up costs. E-
commerce and technology giants have been optimising their stores by equipping them with AI
solutions, digitalised consumer services and payment options, which allow to reduce labour costs.
Alibaba and JD.com, for instance, have been popularising their unmanned stores, as well as stores and
restaurants assisted by robots.
The major factor in cost reduction remains an efficient logistics and supply chain management.
Source: National Bureau of Statistics, CEIC, Fung Business Intelligence Centre, China Daily
CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 27
An EMIS Insights Industry Report03 COMPETITIVE LANDSCAPE CONTENTS
Cost Analysis
(cont’d)
Cost of Sales by Business Segment, RMB bn
4,646 4,617
4,201 4,138
3,700
3,182
1,745 1,842 1,899 1,931 1,718
1,548
833 944 991 1,015 1,013 886
2012 2013 2014 2015 2016 2017
Motor Vehicle, Fuel & Parts Integrated Department Stores
Cost of Sales by Business Segment, RMB bn
321
280 307
250 365
204 328
183 294 357
265 549
218 428 464
364 421
296
2012 2013 2014 2015 2016 2017
Medicine & Medical Appliances Textile, Garment & Daily Articles Food, Beverage & Tobacco
Cost of Sales by Business Segment, RMB bn
250 286 246
250
222 219 251 241
228
150 200 203 206
184 193
139 161
130
75 78 83 83
58 67
2012 2013 2014 2015 2016 2017
Cultur al & Sport Equipment Har dware, Furniture & Decoration Materials Computer, Software & Appliances Books
Source: National Bureau of Statistics, CEIC
CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 28
An EMIS Insights Industry Report03 COMPETITIVE LANDSCAPE CONTENTS
Sector Concentration
Top Listed Retailers by Revenue, RMB Top Listed Retailers by Net Profit, RMB
mn mn
No. Company Name 2016 2017 No. Company Name 2016 2017
1 JD.com Inc 260,186 362,332 1 Alibaba Group 41,226 61,412
2 Alibaba Group 158,273 250,266 2 China Grand Automotive Services Co Ltd 3,043 4,505
3 Suning.com Co Ltd 148,585 187,928 3 Red Star Macalline Group Corporation Ltd 4,368 4,278
4 China Grand Automotive Services Co Ltd 135,422 160,712
4 Shanghai Pharmaceuticals Holding Co Ltd 3,830 4,058
5 Shanghai Pharmaceuticals Holding Co Ltd 120,765 130,847
5 Heilan Home Co Ltd 3,123 3,329
6 Pang Da Automobile Trade Co Ltd 66,009 70,485
6 Yonghui Superstores Co Ltd 1,214 1,685
7 Yonghui Superstores Co Ltd 49,232 58,591
7 Liaoning Cheng Da Co Ltd 1,070 1,489
8 Shanghai Bailian Group Co Ltd 47,077 47,181 Jiangsu Guotai International Group
8 1,047 1,140
Guomao Co Ltd
9 Chongqing Department Store Co Ltd 33,847 32,915
9 Anhui Xinhua Media 1,075 1,134
10 Ccoop Group Co Ltd 13,353 27,686 10 Zhejiang Semir Garment Co Ltd 1,402 1,130
Market Share of Top Ten Listed Retailers Comments
by Revenue, %, 2017
China’s retail segment is highly fragmented, while
Other the degree of concentration differs between the
96.5% various retail formats. The largest player in the
supermarket segment is Shanghai Bailian Group,
while the largest retailers on the home appliances
market are Suning and GOME. The e-commerce
segment is led by Alibaba and JD.com which are
the highest revenue generators and have the
highest market shares. Pinduoduo has made a
successful e-market, ranking third in 2018,
followed by Suning.com.
Top Ten Listed
Enterprises The market share of the country’s top ten listed
3.5%
retail enterprises rose to 3.5% in 2017, up from
2.9% in 2016.
Source: Company Data, People’s Daily
CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 29
An EMIS Insights Industry ReportCHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2
An EMIS Insights Industry Report CONTENTS
04
COMPANIES
IN FOCUS
Any redistribution of this information is strictly prohibited.
Copyright © 2019 EMIS, all rights reserved. 3004 COMPANIES IN FOCUS CONTENTS
Alibaba Group
Quarterly Update Revenue, RMB mn
Alibaba Group (Alibaba) closed Q3 FY2019 (ending
December 31, 2018) with a revenue of RMB
117,278
117.3bn, up by 41% y/y. Revenue from core
commerce rose by 40% y/y to over RMB 102.8bn,
stimulated by a strong revenue growth of the 83,028 80,920
85,148
domestic retail business, the consolidation of the
Ele.me platform, as well as the strong revenue 61,932
55,122
growth of Alibaba Cloud. Adjusted EBITDA
generated by the company’s marketplace-based
core commerce business in Q3 FY2019 reached
RMB 54.3bn, up by 31% y/y. This comes on top of
the USD 7.5bn in free cash flow generated in the
period. Net income reached RMB 30,964mn in Q3 Q2 FY Q3 FY Q4 FY Q1 FY Q2 FY Q3 FY
FY2019, up by 33% y/y, while net income 2018 2018 2018 2019 2019 2019
attributable to company shareholders rose by
37% y/y to RMB 33,052mn.
Mobile Monthly Active Users, quarter end,
The number of Alibaba’s monthly active users mn
expanded to 699mn, while that of AAC rose to
699
636mn, up by 25mn compared to the 12-month 666
617 634
period ending September 30, 2018. 580
549
The 2018 edition of Alibaba’s annual 11/11
shopping festival held in November generated
RMB 213.5bn in GMV, up by 27% y/y. In Q3 FY2019
companies such as Valentino, Ermenegildo Zegna,
Stuart Weitzman and Sergio Rossi launched their
flagship stores of Alibaba’s Tmall Luxury Pavilion.
At the end of 2018, Alibaba owned 109 of its self-
operated Freshippo stores (previously known as
Q2 FY Q3 FY Q4 FY Q1 FY Q2 FY Q3 FY
Hema), located mainly in first- and second-tier 2018 2018 2018 2019 2019 2019
cities.
Source: Company Data
CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 31
An EMIS Insights Industry Report04 COMPANIES IN FOCUS CONTENTS
Alibaba Group
(cont’d)
Highlights
In the fiscal year ended March 31 2017 (FY2017), the revenue of Alibaba Group continued to improve,
reaching RMB 158.3bn, up from RMB 101.1bn in FY2016. Revenue from core commerce increased to
RMB 133.9bn, up by 45% y/y, while revenues from cloud computing and digital media improved by
121% y/y and 271% y/y, respectively.
In FY2017, the group recorded a net profit of RMB 41.2bn and its EBITDA increased to RMB 74.5bn. The
diluted earnings per share were RMB 16.97 and the net cash provided by operating activities was RMB
80.3bn.
The total assets of Alibaba continued to expand in FY2017, funded mainly with equity, while the
leverage of the company remained low. Despite the net debt increase from RMB 7.7bn in FY2016 to
RMB 39bn in FY2017, the leverage ratio of Alibaba, measured as the ratio of total assets to
shareholders’ equity, remained low at 1.58, compared with 1.46 in FY2016.
Income Statement, RMB mn Balance Sheet, RMB mn
53.5%
0.52
51.7%
158,273
74,456
71,289
506,812
0.15
52,340
47.0%
40,753
41,226
101,143
321,129
24,320
255,434
249,539
76,204
364,450
157,413
38,955
7,743
-0.27
FY 2015 FY 2016 FY 2017
-10,830
FY 2015 FY 2016 FY 2017
Revenue EBITDA Total Assets Shareholders' Equity
Net Pr ofit EBITDA Margin Net Debt Net Debt/EBITDA
* Alibaba’s fiscal year (FY) runs between April 1, Year - March 31, Year+1, ex: FY2017: April 1, 2016- March 31, 2017
Source: Company Data
CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 32
An EMIS Insights Industry Report04 COMPANIES IN FOCUS CONTENTS
Alibaba Group
(cont’d)
Company Background Major Stakeholders, FY2017
Alibaba Group is the world’s largest online and
mobile commerce company in terms of GMV. As Stake
Stakeholders
of March 2019, Alibaba’s main businesses Share, %
included:
§ Taobao Marketplace (China’s largest online SoftBank Group Corp (Japan) 30.1
shopping platform) and Rural Taobao;
Yahoo! Inc (US) 15.3
§ Tmall.com (the country’s largest third-party
platform for retailers and brands);
Jack Yun Ma 7.8
§ Alibaba.com (China’s largest global online
wholesale platform for small businesses); Joseph C. Tsai 3.2
§ Alitrip (the main online travel booking site), All Directors and Executive Officers as a Group 12.5
AliExpress (a global online marketplace for
direct purchasing from China) and AliCloud
(provider of cloud computing services to
businesses and entrepreneurs);
Key Executives, FY2017
Name Position
§ 1688.com (China’s main online wholesale
marketplace), Juhuasuan (its leading online Jack Yun Ma Executive Chairman
group purchasing destination), and Lazada. Joseph C. Tsai Vice Chairman
§ New Retail operations- by the end of 2018 J. Michael Evans President
Alibaba digitized around 470 Sun Art stores Eric Xiandong Jing Director
with its new-retail technology and strategic
Masayoshi Son Director
concepts.
Daniel Yong Zhang Chief Executive Officer
In February 2019, China’s Zhejiang Semir E-
Brje E. Ekholm Independent Director
commerce company announced its partnership
with Alibaba’s Aliexpress. Alibaba has also been Jerry Yang Independent Director
discussing a potential stake purchase in Chee Hwa Tung Independent Director
Germany’s Metro operations in China. The same Walter Teh Ming Kwauk Independent Director
month the e-commerce giant invested a total of
Wan Ling Martello Independent Director
HKD 1.81bn in a domestic investment bank - China
International Capital Corporation.
Source: Company Data, Reuters
CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 33
An EMIS Insights Industry Report04 COMPANIES IN FOCUS CONTENTS
JD.Com
Quarterly Update Revenue, RMB mn
In the first quarter of 2019 JD.com registered a
20.9% y/y growth in revenue, which climbed to a
134,833
total of RMB 121.1bn. In terms of revenue
122,291 121,081
generation, the goods sales segment accounted 110,165
104,768
for RMB 108.7bn, up by 18.8% y/y. Electronics and 100,128
home appliances accounted for 65% of the
revenue, while the remaining share was
generated by sales of general merchandise. The
company’s services segment generated RMB
12.4bn, up by 44.2% y/y. Out of those RMB 8.1bn
came from marketplace and advertising services
and RMB 4.3bn from logistics and other services.
By the end of March 2019, the number of annual Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019
active customer accounts rose to 310.5mn, up
from 305.3mn at the end of 2018. In terms of
nationwide warehouse network and last mile Annual Active Customer Accounts,
reach, at the end of Q1 2019 the company quarter end, mn
operated:
§ fulfilment centres in seven cities, 314
311
§ front distribution centres in 28 cities
305 305
§ over 550 warehouses 302
§ gross floor area of over 12mn m2
293
§ 20 projects of self-built mega warehouses in
13 cities
§ 13 7FRESH stores in eight cities
Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019
Source: Company Data
CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 34
An EMIS Insights Industry Report04 COMPANIES IN FOCUS CONTENTS
JD.Com
(cont’d)
Highlights
In 2018, JD.com generated total revenue of RMB 462bn, up by 27.4% y/y. The company’s GMV rose to
RMB 1,676.9bn, compared to RMB1,294.5bn in FY2017. Total operating expenses rose to RMB 67.9bn, up
by 33.7% y/y. The company reported a net loss of RMB 2.8bn, compared to RMB 12mn loss in 2017.
Throughout 2018 the company’s performance remained dependent on the general factors driving
China’s retail industry, such as growth of disposable income and consumer spending. The factors
related to e-commerce included increase in online buyers, improved delivery services and payment
options. At the same time, company operations were affected by growing operating expenses and a
number of major factors: the company’s ability to increase its active customer accounts and number
of orders; management of product and service proposition; business scale expansion and leveraging;
ability to effectively invest in fulfillment infrastructure and technology platform; and the ability to
conduct and manage strategic investments and acquisitions. In Q2 2018, JD Logistics introduced its
Flash Delivery initiative in order to upgrade its delivery options and reduce the product-to-customer
distance. At the end of 2018, company’s online marketplace facilitated over 210,000 third-party sellers.
Income Statement, RMB mn Balance Sheet, RMB mn
462,020
209,165
184,055
59,771
362,332
52,041
160,374
33,893
258,290
8,860
-19,842
-1,880
-12
-3,414
-2,801
2016 2017 2018
2016 2017 2018
Net Revenues Net Pr ofit Total Assets Shareholders' Equity Net Debt
Source: Company Data
CHINA CONSUMER GOODS & RETAIL SECTOR 2019 Q2 35
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