Source: Zhitong Finance and Economics

On March 9, Fitch Ratings said that increasing competition in China's online retail industry (general e-commerce business and real-time catering distribution are affected) poses a challenge to the market share and revenue growth momentum of the industry's existing leading companies. Investments made by companies to maintain their market position may put pressure on profit margins-although Fitch's strong balance sheets and free cash flow generation should help them cope with potential challenges in the short term.

The Fitch benchmark predicts that online and offline retail sales are expected to record similar growth in 2023, compared with a 9.6 percentage point gap in 2022, when epidemic-related travel restrictions lead to more consumers opting for online shopping. As a result, the penetration rate of online retail sales will remain roughly around 30% in 2023. The factors supporting the growth of online sales will include the improvement in the employment situation of young people who are more willing to buy online, and the increase in warehousing and logistics throughput capacity driven by strong growth in fixed asset investment in related industries in 2021 and 2022, as well as online retailers to increase marketing efforts through subsidies.

However, revenue growth for individual companies is likely to slow as online retailing attracts more entrants and the industry is increasingly fragmented. Increased competition in the business environment may widen the gap between the winners and losers in the battle for market share. The ability of existing enterprises in the industry to maintain or expand market share is one of the key factors for Fitch to evaluate its business and even credit status.

Edit / jayden