[ET Net News Agency, 13 November 2017] China's online retailers could reach total sales
of nearly US$1 trillion for 2017, further cementing the segment's position as the largest
globally, said S&P Global Ratings.
The credit rating agency said support for its estimate comes from the record online
spending during the country's "Singles Day," which puts the industry on course for 20%-25%
annual growth over the next 12-24 months.
Singles Day, which is held on 11 November annually, remains the largest one-day shopping
event in the world.
"Singles Day showed that China's online retailers still have plenty of room to grow,"
said S&P Global Ratings credit analyst Shalynn Teo. "We expect online product categories
to widen, and additional sales momentum to come from rising mobile penetration. In
particular, online shopping will become increasingly popular in lower-tier cities and
rural areas."
Total online retail sales in China increased 34.2% year on year for the first nine
months of 2017, against overall retail sales growth of 10.4% over the same period.
S&P's three rated online retailers in China should continue to benefit from the good
growth trajectory, supporting their strong operating cash flow and low leverage.
Online marketplace Alibaba Group Holding Ltd.'s (A+/Stable/--) core commerce revenue
grew 60.6% year on year for the six months ended September 2017.
Online direct sales retailer JD.com Inc. (BBB-/Stable/--) reported revenue growth of
41.9% for the first half of 2017.
And online off-price retailer Vipshop Holdings Ltd.'s (BBB/Stable/--) revenue rose 30.7%
over the same period. But it's not all rosy.
"Intense competition may weigh on profitability for online retailers over the next 12-24
months," said Teo. "We believe margins will slip because of pricing power in addition to
rising marketing and fulfilment expenses. But higher growth and improving operating
leverage should temper the risks."
Despite the modest recovery for offline retailers so far in 2017, S&P expects their
sales growth to remain tepid over the next 12-24 months. Same-store-sales (SSS) growth was
marginally positive for the offline retailers that we rate: GOME Retail Holdings Ltd.
(BB/Stable/--)(00493), Golden Eagle Retail Group Ltd. (BB-/Stable/--)(03308), Parkson
Retail Group Ltd. (B-/Stable/--)(03368), and Maoye International Holdings Ltd.
(B-/Negative/--)(00848). (KL)