高盛-中国消费-通缩环境下扩大市场份额策略的风险

25August2024|4:35PMHKT

ChinaConsumerDiscretionary

Assessingrisksinthepathtoconsolidatemarketshareamidthedeflation/recessioncycles

WithChina’sinflationremainingatarelativelylowlevelYTDandconsumersbeing

value-focusedinlightofmacrouncertainties(weakersalestrendfrom2Q24),we

haveseenintensifiedpricecompetitionandthreatsfromsmallerplayersinseveral

sub-sectors,whichhasraisedconcernsaroundde-consolidationofmarketsharethatcouldposeriskstoleadingbrands’growthtrajectories.Fromafinancials

perspective,de-consolidationcouldpressurestocksfrom:1)Slowertopline

growth;2)Marginpressureduetooperatingdeleverageand/orpricecompetition,aswediscussedinourrecentmarginstresstestreport;3)Valuationdiscount

givenlowerearningsvisibility.Intherestaurantcategory(averagesharepricedown37%YTDvs.down15%forourconsumercoverage)wherewesawa

de-consolidationtrend(Exhibit3),multiplelistedcompanies(Nayuki,Jiumaojiu,Xiabuxiabu,Helensetc.)haveseennotablemarginpressurein1HwithSSSGdecline;inthesportswearcategory,leadersincludingLiNingalsosawtopline

weaknessvs.multiplesmallerplayersoutperformed,ridingthecategorymomentum

(Exhibit4);inthecosmeticscategory,thetop3players(allMNCs)relatively

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underperformedinChinaYTD,whereELexperiencedasharpmargindropinAsiaPacificmarket.

Inthisnote,weintroduceourframeworktoanalyzethepotentialrisksfor

companiesintheirpathtoconsolidatemarketsharewithinselectivesub-sectors

underourconsumerdiscretionarycoverage(restaurants,apparel/sportswear,

cosmetics,jewelry)amidthedeflation/weakconsumptionenvironment;inaddition,channel-disruptioncontinuestofurtherputpressureonthecompetitivelandscape.WealsoconductedafewcasestudiesinJapan/Korea/UStounderstandthemarketsharedynamicsunderdeflation/recessioncycles.

Ourframeworksuggestsrestaurant,apparel(bothhaverelativelylowentry

barriers,lowerinitialcostforsmallerplayerstoenter)andcosmetics(Douyinlowersthebarriertocompete,lucrativemargin)couldbemorevulnerableinthe

MichelleCheng

+852-2978-6631|

michelle.cheng@

GoldmanSachs(Asia)L.L.C.

CathyChen,CFA

+852-2978-6621|kaiqi.chen@GoldmanSachs(Asia)L.L.C.

XinyuRuan

+852-2978-7347|xinyu.ruan@GoldmanSachs(Asia)L.L.C.

CarolChen

+852-2978-7999|carol.chen@GoldmanSachs(Asia)L.L.C.

HanseongKweon

+82(2)3788-1059|

hanseong.kweon@

GoldmanSachs(Asia)L.L.C.,SeoulBranch

GoldmanSachsdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,

investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthis

report.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.ForRegACcertificationandotherimportantdisclosures,seetheDisclosureAppendix,orgoto

/research/hedge.html.Analystsemployedbynon-USaffiliatesarenotregistered/qualifiedasresearchanalystswithFINRAintheU.S.

GoldmanSachsChinaConsumerDiscretionary

de-consolidationtrend;whilejewelry(highrequirementoncapitalwhilemarginislessattractive)islikelytobemoreimmunefromsuchriskduringdeflation/recessioncycles.Forsportswear,whilewebelievethecategoryshouldberesilientinthemid-longtermgiventheentrybarrieronR&D/branding,wenoteshorttermde-consolidationriskwithfastergrowthfromsmallerbrands(Exhibit4)ridingthecategorymomentum(e.g.

outdoors/yoga).Fromacompany/brandperspective,webelievebrand/pricingpower,costcontrol/supplychaincapability,andgoodproductcycle(supportedbyR&D,

innovation,strongconsumerinsights)arethekeysuccessfactorstogainmarketshareamidmacrouncertainties;successfulM&Atoexpandthebrandportfoliocouldfurther

drivesharegain.WelikeAnta(Buy,onCL),Giant,YUMC(bothBuys)whichdemonstratecapabilitytoprotect/furthergainsharedespitethemacro/deflationheadwinds;jewelry

namesshouldalsobemoreresilienttothede-consolidationriskandmass-positionedChowTaiFookandLukFookcouldbebeneficiariesduringdowntrade.

Weidentifykeyriskfactorsthatcoulddrivede-consolidationinaslowermacro/deflationbackdropincluding:1)Channeldisruptionwithonlineplatformsofferingvalue/pricing

transparencyandroomfornewplayers;2)Lowerinputcostthatsmallerplayersmay

havegivesevenmorefavorablecoststructuretocompete;3)Lowinitialinvestment

whichallowsnewplayerstoentermoreeasily;4)Lucrativemarginswhichattractmoreorexistingplayerstocompete.Meanwhile,fashioncycleisalsoanimportantfactorthatcoulddrivede-consolidationincategorieslikeapparel/sportswearintheshort-term.

OurcasestudyonpastexperiencesinJapan/US/Koreasuggestsde-consolidation

pressureunderdeflation/recession,andplayersmaynotenjoymarginbenefits

fromthelowerinputcostastheyneedtoreturnthebenefittothevalue-focused

consumers,orevenfacemarginpressureamidintensifiedpricecompetition.Thatbeingsaid,theconsolidationtrendforthemajorityofthecategoriessawarecoveryaftermacropressuresease/stabilize;eveninJapanwhichexperiencedmulti-yeardeflationandmacropressure,wenotethatleadersinseveralcategories(e.g.restaurantsinthe2000s)wereabletomaintainorfurthergainshares.Wenoticethatthewinnersshare

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somecommontraitsthatincludestrongbrand/pricingpowerandcostcontrolcapability;meanwhile,successfulM&Acouldalsoacceleratemarketshareconsolidation.

25August20242

GoldmanSachsChinaConsumerDiscretionary

Exhibit1:Ourframeworksuggestsrestaurant/apparel/cosmeticsfacebiggerde-consolidationrisk,whilejewelryislikelytobemoreimmune

Restaurant

Competitivelandscapeandkeyoperatingmetrics(2023)

Consolidationlevel

17%

17%

3%

China

BrandCR5vs.US/Japan

US

Japan

Top5Top20Top50

10%

8%

6%

Chinaconsolidationtrend

4%

2%

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

0%

Channelmix

Costbreakdown

(outoftotalCOGSand

OPEX)

CapitalrequirementStorepayback

R&D/sales

A&P/sales

Workingcapital/sales

MarginlevelGPM

OPM

26%

27%

23%

20%

13%

14%

2018

2019

2020

2021

2023

2022

Deliverymix

COGS,33%

G&A,others,12%Otherstore

level,15%

Direct

marketing,

4%Rental,

10%

Labor,28%

1-3yearsn.a.

3%-9%

66%11%

25%15% 5%-5%

18%

15%

10%

Chinavs.overseas

-1%

_

MCDJapan

KFCChina

ChinaJapanSaizeriya

Risktode-consolidation

Channeldisruption

Inputcostdeflation

Lowinitialinvestment

Medium:deliverymixnormalizedpost

Covid;whiledeliveryplatformshavebeen

introducingsub-platforms(e.g.value-

focusedPinhaofanunderMeituan)which

bringsopportunitytosmallerplayers

High:COGS,laborandrentaltakeuphigh

portionwithincost,andlowerduring

deflation.Protein/rentalpricehasbeenat

relativelylowlevel

High:relativelylowcapital(canopenstorewithbelowRmb1mnoreven200k

capex)/skilletc.requirementtoopen

stores,deflationbringslowerrawmaterial/laborcost

Cosmetics

16%

20%

13%

ChinaJapanUS

60%

Top5Top10Top20

40%

20%

0%

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

39%40%44%45%

38%

28%33%

27%

20222023

201820192020202120222023Douyin%withinOnlinemixonlineGMV

G&A,others,13%D&A,1%

Labor,11%

COGS,35%

A&P,40%

n.a.4%35%8%

74%22%

18%

17%

14%

46%

5%

30%20%10%0%

EL

High:Douyingainingshareonlinewheresmallerbrandshavemoreopportunityto

gaintrafficcomparedtotraditionalonlineplatforms

Low:fragmentedCOGSstructure;

marketingisamongthemajorinvestmentsandisnotnecessarilylowerunderdeflation

Medium:relativelylowcapexbyleveragingODMs/onlinechannel,yetrequires

relativelyhighmarketingspending

Apparel

27%

6%9%

ChinaJapanUS

20%Top5Top20

Top50

15%

10%

5%

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

0%

39%

38%

36%37%

25%

14%

0%

2022

2023

20092015201920202021Onlinemix

G&A,others,18%

COGS,45%

Rental,22%

Labor,8%

A&P,8%

2%6%6%

n.a.n.a.

30%20%10%0%

13%

19%18%17%17%

12%

8%

Uniqlo

High:consumer-to-Manufacturer(C2M)

platformslike1688,Pinduoduoaregaining

sharefrombrandedproducts

High:couldenjoylowercostinraw

material/labor/rentalunderdeflation.Less

differentiationfromtechnology/R&D

comparedtosportswear

High:easyaccesstosuppliersandlow

upfrontinvestment,deflationbringslower

rawmaterial

Sportswear

54%

45%

31%

US

China

Japan

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Top5Top10Top20

100%95%90%85%80%75%70%65%60%55%50%45%40%

31%32%34%35%

22%

16%

0%

2009201520192020202120222023

OnlinemixG&A,others,7%

COGS,43%

Rental,23%

A&P,10%

Labor,17%

3-4years(incl.inventory)

3%9%13%

59%20%

28%

27%

31%

30%20%10%0%

25%

APLA

EMEA

GreaterChina

North

America

Nike

Medium:onlinepenetrationisstillrising,

ontopoftheproliferationofprice

comparisontools.Butmajorbrandsare

alsowellpositionedonline

Medium:couldenjoylowercostinrawmaterial/labor/rentalunderdeflation.Buttechnologyisrequiredforgoodproducts

Low:entrybarrierslikebrand

equity,□R&D/technologyandmarketing

dollarspreventsmallerplayersfromscalingup

Jewelry

36%

29%

18%

US

China

Japan

11%

10%

10%

11%

7%

2019

2021

2020

2023

2022

Onlinemix

Rental,3%G&A,others,5%Labor,3%

A&P,0%

COGS,88%

7-8years(inclinventory)0.1%

0.4%40%

22%9%

0.25 0.20.15 0.10.050

19%

9%

11%

7%

CTF

LF

LaopuCaibai

MLChinaHK&Macau

High:Shuibeimodeenables

consumerstopurchasegoldjewleryat

lowerpirceandisgainingsharesfrom

mid-to-lowertiergoldjewelers

Low:COGSaccountsforc.90%oftotalcostandmostlyconsistsofgold/gem-set,whosepriceisnot

necessarilylowerunderdeflationifnotevenhigher

Low:4mn-5mninitialinventory

requirementandc.500kdecorationfee

forasinglestoreopening

Lucrativemargins

Medium:paybackrelativelyshort

comparedtoothercategories;butsaw

margindeteriorationwithSSSGpressure/pricecompetition

High:higherGPM/OPMcomparedtoother

categories,thoughbigdivergenceacross

players

Medium:marginisatmediumlevelcomparedtoothercategories/regions

Medium:relativelyhighmargin,yetentry

barrierisrelativelyhighanddifficultfor

smallerplayerstojoin

Low:relativelylowmarginonlimitedbrandingpowerbutmorecommodity-

likefeature

1)Forjewelry’sconsolidationtrend,thesharpconsolidationincreasein2017isduetothenewinclusionofChinaGold;2)forCostbreakdown,weuseYUMCforrestaurant,FILAforsportswear;andforcosmetics/jewelryweuseindustryaverage.Forapparel,thenumberisbasedon;3)formarginlevel,GPM/OPMisbasedonaverageofourcoverage;4)forSaizeriya,marginisbasedon

FY8/23

Source:Euromonitor,Companydata,,DatacompiledbyGoldmanSachsGlobalInvestmentResearch

25August20243

GoldmanSachsChinaConsumerDiscretionary

Ourframeworktoevaluatetherisksintheconsolidationpath

Weintroducetheframeworktogaugethepotentialde-consolidationriskinChina.Webelievethefactorsthatdrivethedifferenceinmarketshareresilienceamid

deflation/weakmacrocyclesinclude:1)Channeldynamics:Channeldiversification

couldenhancetheaccessibilityforsmallerbrandsandthenleadtode-consolidation.WebelieveChinahasalreadyexperiencedanotablepenetrationinE-commerce,delivery

etcforselectivesectorslikeapparel,cosmetics,restaurants.Hence,some

brands/categorieshaveaccumulatedexperiencesinleveragingthebenefitsofdifferentchannels.However,theemergenceofthenewonlinechannel(e.g.Douyingaining

share)andtheriseofvaluechannelscouldstillbringnegativeimpacttocertain

categories.2)Coststructure:Inthedeflation/lowinflationenvironment,smallerplayerscouldbenefitmorefromlowerrawmaterialandlaborcosts;thuscategorieswithhighermixinthesecostitemscouldseehigherrisksincompetitionfromsmallerplayers.3)

Initialcapital/investmentrequirement,categoriesthatrequirehighercapital

investment(incl.capex,R&D)toenter,orcarrylargeamountsofworkingcapital(e.g.jewelrywhichneedstobearhighinventoryvalue)wouldseelowerriskfromnew

entrantsevenunderadeflationarybackdrop.4)Marginlevel.Categorieswithhighermarginlevelcouldbemoreattractivefornewplayerstoenterorforexistingplayerstocompeteforlonger.

Currently,sportswearandjewelryhaverelativelyhigherconsolidationlevelinChinavs

otherregionswhilerestaurantsandapparelaremorefragmented.Inthepast10years,wehaveingeneralobservedamoreconsolidatedpath.However,wedoseesome

disruptionintheconsolidationpathinthemorerecentyears-Forsportswear,brands’

fashioncycle(i.e.adidashasoutperformedthisyearwithpopularityofitsTerraceseries),theemergenceofChinesebrands,andrisingdemandfornichecategories(i.e.Yoga,

outdoor)havedraggedthemarketsharesforselectiveleadingbrands.Forrestaurants,overallrestaurantindustrywentupby7.1%in7M24,outperformingthegrowthof4.6%fortheabove-designatedsizeenterprises(i.e.annualrevenue>Rmb2mn).

_

Whichbrands/companiescanbethewinners?

Atthebrand/companylevel,amidthedeflation/de-consolidationperiod,pressurecouldcomefromnotonlytoplinebutalsomarginwhenpricecompetitionstepsup,which

couldmorethanoffsetthebenefitsfromlowerinputcost.Thatbeingsaid,wealsoseeplayersthatareresilientorabletofurthergainsharesduringthede-consolidation

period,whichareenabledby:1)Strongerpricingpower,whichrelyonfactors

includingstrongbrand,goodchannelinventorymanagement,differentiatedproducts

withR&Dstrengths;2)Effectivecostcontrol/supplychain,whichenablesthemto

bringmorevaluetoconsumersinasustainableway(e.g.Saizeriya,Uniqlo);3)MultiplebrandstrategiesincludingsuccessfulM&A,leveragingthecompany’scapitaland

operationcapability(e.g.Zensho,Globalapparel/cosmeticsbrands).Industryleadersareusuallymoreresilientthankstostrengthsinscaleandcapital,supplychain,branding,

R&Detc.

WithinourChinadiscretionarycoverage,webelievenamesthatareableto

25August20244

GoldmanSachsChinaConsumerDiscretionary

protect/furthergainsharesevenunderdeflation/macroheadwindsinclude:Anta(solidM&Atrackrecord,productcycle/diversificationstrengths),Giant(productupcycleon

lowbase,efficiencygainleveragingbrandmomentum),andYUMC(strongcostcontroltobringvalueproductstoconsumers).

Ourthoughtsonthede-consolidationrisksforindividualsub-sectors

Restaurant:Weviewrestaurantsasarelativelyvulnerablecategoryamidthe

deflation/slowmacroenvironment,dueto1)thehighportionofrawmaterialsandlaboroutoftotalcosts,whichimpliesahigherchanceforsmallernewplayerstoenterinthedeflationenvironmentdespitelesseconomiesofscale;besides,SMEsandmom&popstoresenjoypreferentialtaxrateinChinawhichfurthersupportstheircostadvantage;2)lowerentrybarrier,includingcapexandresources/skillsetsrequired;3)asa

highly-frequentspendingcategory,consumersareusuallymoresensitivetopriceandtendtoturntovalueoptions,implyingrisksinpricingpowerevenforleadingbrands.

Afterareboundin1H23postreopening,theSSSrecoverybecamestagnantamid

macrouncertainties,andwehaveseenstepped-uppricecompetitionwithconsumers

beingvalue-focusedandrawmaterialpricesatrelativelylowlevels.However,thestorecountincreasecontinued(especiallyincategorieslikefreshlymadebeveragewhere

capexrequirementislower),whichhasfurtherintensifiedpricecompetition.Duetotheoperatingdeleverageundertoplinepressureandmorepromotions,multiplerestaurantnamesexperiencedsignificantmarginpressurein1H24(Nayuki,Jiumaojiu,Xiabuxiabu,Helensetc.),similartowhatwesawinJapanintheearly2000s(i.e.intensifiedprice

competitionfor2-3yearswithplayersseeingmargindecline).Whileweexpectthepricecompetitiontocontinueinthenearterm,thedeterioratingprofitabilitycoulddiscourageplayerstoenterandpushthosethathavelowerriskresistancetoexitthemarket.Atthebrand/companylevel,webelieveindustryleaderswithscaleadvantage,capabilityto

providevalue-for-moneyproductswithsupplychainstrength,flexibilitytoadaptto

_

changingconsumers’preferencesandstrongbrandswouldbemoreresilientandhavebetteropportunitytogainshare.WithinourChinarestaurantcoverage,welikeYUMCforitsstrengthinscaleandcostcontrol/operatingcapability,whichenableittobring

valuetoconsumerswhilemaintaininghealthymarginandstorepayback.Meanwhile,YUMChasdemonstrateditsoperationflexibilityandintroduceddifferentmodels

includingsmallerstoreformatwhichhelpsittofurtherenhancepenetrationespeciallyinlowertiercities,andPizzaHutWoW/KCoffeewhichprovideshighlyvalue-for-money

productswhichcaterstothevaluefocusedconsumptiontrend.

25August20245

GoldmanSachsChinaConsumerDiscretionary

Exhibit2:Restaurantsticketsizemarginallydecreasedrecently,whiletheopeningtoclosureratioisrelativelyhigherthanbefore

Exhibit3:YTD,totalcateringhasoutperformedthoseabove

designatedsize,suggestingfastergrowthfromsmallerplayers

Retailsalesgrowthyoy

Stage3:Ticketsizedecreasing

2.502.252.001.751.501.251.000.75

28.00

27.00

26.00

RestaurantOpening/ClosureratioOverallticketsize(RHS)

Stage2:Ticketsizestablizing

Stage1:Ticketsizehiking

25.00

24.00

23.00

Jun-14

Nov-14

Apr-15

Sep-15

Feb-16

Jul-16

Dec-16

May-17

Oct-17

Mar-18

Aug-18

Jan-19

Jun-19

Nov-19

Apr-20

Sep-20

Feb-21

Jul-21

Dec-21

May-22

Oct-22

Mar-23

Aug-23

Jan-24

Jun-24

0.50

22.00

Restaurantsales(abovedesignatedsize)Totalcateringsales

Jan/Feb-24

Mar-24

Apr-24

May-24

Jun-24

Jul-24

14%12%10%8%6%4%2%0%-2%

Source:Euromonitor,SAMR,DatacompiledbyGoldmanSachsGlobalInvestmentResearchSource:NBS

Sportswear:Forthemid-longtermperspective,webelievesportswearshouldstillhaveahigherentrybarrieronthebackofrequirementforperformanceproducts,quality,andbranding.Whiledeflationcouldleadtolowerrawmaterialandoperatingcostsfor

smallerplayers,andconsumersbecomemorepricesensitiveintheeconomic

downturn,wenoticethatconsumersstilldemandhigh-performanceproducts,evenatpreimumpricepointsthatwasprovedbyselectivepremiumbrands’outperformanceinthepastfewquarters.However,inthenearterm,wehaveobservedade-consolidationtrendthanksto:1)fastgrowthfromsomenichecategories/brands,suchasoutdoors

andYoga.Despitetheoverallconsumptionweakness,selectivebrandsatsmallerscale(e.g.Amer‘sbrands,Descente,Kolon,Exhibit4)deliveredrobustgrowthridingonthe

categorymomentum/fashiontrendandsuccessfulproductcycles.InourUSsportswearcasestudy,wenoticedde-consolidationin2015-18astechnologyreducedthebarriers

forscalinganewbrand;2)consumptionpowerremainedsoftandconsumersare

value-focusedinChina,whichcouldputpressureonbrandswithhigherASPbutwithoutnewinnovation,includingselectiveleadingMNCbrands(e.g.Nike)andlocalbrandsat

_

higherpricepoint(LiNing).Infact,despitethegenerallyhealthyinventorylevel,we

haveseensignsofpromotionpick-upinrecentmonthsandintensifiedcompetition;LiNingalsonotedincreasingcompetitionfrommorenichecategories/brands.

Weexpectplayerswithstrongbrandpower/productcycle,abilitytoprovide

value-for-moneyproductstobemoreresilientamiddeflation/macroheadwinds;andadiversifiedcategoryandproductportfoliocouldhelplowerriskfromthechanging

consumerpreference.WehighlightAntainoursportswearcoverage,for1)solid

executioninmulti-brandstrategywhichhelpsittocoversegmenteddemand,includingvalue-for-moneydemandwhichcanbesatisfiedbyAntacoreandoutdoorstrendwhichiscapturedbytheArc’teryx/Descente/Kolonbrands;2)SuccessfulM&Atrackrecord,bringingopportunitytofurtherconsolidate;3)Costcontrolcapabilitymakesitmore

resilientonthemarginside.

25August20246

GoldmanSachsChinaConsumerDiscretionary

Apparelretailsales

Nike*

adidas*

Topsports

PouSheng

LiNing

Anta

Fila

Xtep

Lululemon

Asicsgroup*

Descente

TheNorthFace

AmerSports*

Columbia*

Exhibit4:Smallersportswearplayershavebeenoutpacinglargerbrands

Largervssmallerbrand:salesgrowthinChina

Localbrands:ann.retailsales>Rmb20bn

45%

35%

25%

15%

5%

-1%

-5%

1Q24

*denotedbrandsreportingGreaterChinasales,whileothersaretheChinasales;LiNing,Anta,Fila,Xtepusedretailsalesgrowth,otherbrandsusedreportedsalesgrowth.

Smallerbrands:ann.retailsalesRmb5-10bn

MNCbrands:ann.

retailsales>Rmb20bn

2Q24

55%

2%

Source:Companydata,NBS

Jewelry:Webelievejewelryislessvulnerabletode-consolidationamiddeflation,dueto1)COGSaccountsforc.90%oftotalcostandmainlyconsistsofgold/gem-set,which

doesnotnecessarilyseepricedeclinesduringdowncycles;2)highentrybarrier,

includinghighinitialinventoryrequirementandstoredecorationexpense,prohibits

smallernewplayerstoenter;3)relativelylowmargincomparedtootherindustriesin

theretailsectorduetolimitedbrandingpowerbutmorecommodity-likefeature,makingthejewelryindustrylessattractiveforsmallerplayers.Withinourcoverage,webelievebothChowTaiFookandLukFookarewellpositionedandpotentialbeneficiaries

amiddeflationthankstotheirleadingpositionsinthejewelryindustry.During

deflation/recession,theyaremorelikelytoabsorbthemarketsharelostbyluxury

brandsduetotradedown.Butweremaincautiousonthepotentialthreatfromthe

Shuibeimode,abusinessmodelthatemerged2-3yearsagoandallowsconsumerstopurchasegoldjewelrydirectlyfromprocessorsatacompetitiveprice.TheemergenceofShuibeimayputpressureonmid-tierjewelrybrandswhosecustomerbaseismore

_

price-sensitiveespeciallyduringdowncycles.OurrecentchannelchecksindicatethatChowTaiFookisseeingnetstoreclosuresstartingfrom1Q24whileChowTaiSengisexpandingitsstorenetwork.However,itisnoteworthythatthecurrentnet

closure/openingtrendmayreflectmoreonthedivergenceinmanagementstrategiesduringdeflation,andnotfullyindicativeofwhatwillhappeninthefuture.WenotethattheShuibeimodeisindeedgainingshareinthejewelrymarket,implyingpotential

de-consolidationinthenearterm.

Cosmetics:Overallweseecosmeticsasrelativelyvulnerabletode-consolidationgiventheeasyaccesstothesupplychain,lucrativemarginalongwithongoingchannelshift,

whileweexpecttoseedivergenceamongleadingplayersandthosewithstronger

channeloperationcapability/productsshouldcontinuetogainshares.Weviewchanneldisruptionasameaningfulde-consolidationdriverforcosmetics,asitprovidescost

effectivemeasuresforsmallerbrandswithoutcostcompetitiveness(e.g.channelcosts,branding&marketingcosts)againstleaderstopenetrateintothemarket.IntheChina

market,onlinecontinuedtooutperformoffline;andwithinonlinetheDouyinchannelhas

25August20247

GoldmanSachsChinaConsumerDiscretionary

quicklyemergedinthepastfewyearsandhasaccountedforcloseto40%ofonline

channelshareasof2023.ThechannelshifttowardsDouyin(despitesomedecelerationYTD)hasloweredthebarrierforsmallerbrandstobuildpresence;meanwhile,

consumers’preferenceforvalue-for-moneyproductsandfocusonefficacyprovides

opportunitiestoselectivelocalleaderstogainsharefromMNCs.Infact,wehaveseennotableoutperformancefromGiant/Proyavs.MNCleader