Breaking up with China, consumer goods edition

Bigtime US consumer brands appear to be pulling the rip chord on soft Chinese consumer demand, and another tie that binds slowly frays

• Apple’s rise and fall and rise and fall and rise . . . and fall in China

• if US consumer companies expect to grow in China, they’re definitely not showing it . . . there’s a strong leading signal of a hasty retreat

• perhaps we’re breaking up, after all

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Breaking up with China, consumer goods edition

China has been the new land to conquer for big time American consumer brands.

If these companies are going to trade at expensive multiples to their profits, some part of that turns on expectations that profits will continue to grow. If Starbucks, for example, is already everywhere in the United States, then it has to grow somewhere else to make good on that promise.

That somewhere else has been China, for over a decade now.¹

By gaining a foothold in an upwardly mobile nation of a billion+, Starbucks sells more lattes, Apple sells more iphones and McDonalds sells more Big Macs, etc.

Recently, however, growth by China has snaggled a bit.

China’s debt-fueled growth is running into a cold-hearted demographic reality of its own, i.e. the “upwardly mobile” part is facing some headwinds. Plus, China has some of the same feelings about “made in America” as Americans have about “made in China,” i.e. it’s complicated. Finally, China gets good at making things, like electric cars and smart phones, and apparently coffee too.

Take iphones, for example:

Bloomberg

Apple was beaten, then victorious, then beaten, and then victorious . . . and is now beaten again, falling into 6th place for smartphones shipped in China.

How good is the data? It’s unclear, but the point is that China as a surefire frontier for sales growth is simply no longer true (the ‘surefire’ part, especially).

Anyways, there’s always chatter and speculation about how companies might shimmy and shake their way to China momentum (or, alternatively, make India their new belle).

But if you want a leading indicator that some of the biggest brands may be finally pulling a rip chord on soft Chinese demand, there’s at least some data that’s screaming “abandon ship” (and so many other metaphors).