A shift in Chinese retailers’ strategy toward lower-priced goods and services to win cost-conscious consumers risks embedding the country’s recent deflationary trends more permanently into the world’s second-largest economy.
Price reductions, the emergence of discount retailers, and businesses selling reduced-price, downsized versions of their goods may start a vicious cycle of declining profit margins that would limit the rise of wages and jobs and further stifle consumer demand. The retail landscape in China is changing as a result of the intense rivalry to attract the attention of frugal Chinese consumers.
For the past five months, Alibaba’s Freshippo and Walmart’s Sam’s Club have been engaged in a price war in which both companies have lowered the prices of popular goods.
The climate has also given rise to a new breed of discount stores, a relatively new phenomenon for China, whose emergence are also spurring larger rivals to announce big price cuts.
