Through a special arrangement, what follows is a summary of an article from Retail Paradox, RSR Research's weekly analysis on emerging issues facing retailers, presented here for discussion.
What's going on in China and is it good or bad for consumers (and thus retail)?
First, the panic about the slowing Chinese economy, while a concern in the near term, seems overblown for the long term. The government's mid-August move to devalue the Yuan amounted to a 3 percent adjustment, although some predict that it will decline 6.5 percent against the dollar by year-end. But the Yuan has appreciated about 50 percent over the last ten years. To many observers, it seems like a "tweak", an attempt by the Chinese to inch the currency a little closer to a market-determined value.
Is the devaluation good or bad for retail in the short term? According to the popular press, it's good for consumers because Chinese-made products will be a little cheaper. I suppose that may be "a little" true.
Source: Google Finance
If something had a cost-of-goods at $1 and the retailer wanted to maintain a 50 percent margin, that item would have cost the consumer $2.00. If the same item now costs $0.97, the consumer pays $1.94 under the formula. If the retailer keeps the price at $2.00, that's a bit of a windfall although I expect many will likely adjust prices to maintain a target COG-to-revenue ratio. So, with the proviso that the Chinese currency devaluation remains at 3 percent, it's probably a push for retail and a "little" better for consumers.
How about in the long term? China is already the world's top exporter so concerns from India that China is doing an export grab seem a little hyperbolic. A far bigger impact from the devaluation might be the U.S. Federal Reserve holding off on its highly anticipated interest rate adjustment.
But the biggest impact of all in recent days has been the stock market's hyper-reaction to perceived instability in the Chinese economy. If your retirement accounts are anything like mine, you lost some money, at least on paper.
So much emotion. So few facts. All of this reminds me of a skit by comedian Trevor Noah, Jon Stewart's replacement, riffing on sports in America:
"It's the craziest thing I've seen in my life. It's all about statistics! Have you seen sports in America? Non-stop! Guys just come out there ... Blah blah! Numbers! Numbers! Stats, stats, stats! You guys know everything, every stat! And then you switch over to your business channels and your economy, and it's like, 'well, what's going on in the economy, Bob?' 'Well, nobody knows ... but hey! That's the economy, you never know, right?'"
The bottom line is, "Keep calm, and carry on." Oh, and turn off the financial news network.