HONG KONG—Big American companies from fast food to high-end fashion are increasing their bets on China’s consumers in anticipation of a post-pandemic recovery for the world’s second-largest economy.
Retailers Ralph Lauren Corp. and Tapestry Inc., TPR -1.18% owners of Coach and Kate Spade brands, open new stores.
And Tyson Foods Inc. TSN -1.81% and Hormel Foods Corp. HRL -0.35% are opening new facilities as they see a long-term appetite for American food.
The investments come as Chinese leaders tell the world the door is open to foreign companies and publicly court Boeing Co.
Despite the invitation, many companies remain cautious on China as uncertainty about its economic health persists and a deepening geopolitical rivalry with the US ensnares tech companies and manufacturers.
Many companies that are increasing their exposure to China are consumer-centric. They still view China’s huge market as a promising long-term bet, even as sales fell during the zero-Covid era.
“I am more confident than ever that we are still in the early chapters of our growth story in China,” Howard Schultz, interim CEO and longtime head of Starbucks, said earlier this month. The company plans to open 3,000 new stores by 2025, although same-store sales in the country fell 42% in December and 15% in January year-on-year. Mr Schultz said he was planning his first visit to the country in years in the spring.
Economists are forecasting a pick-up in growth in China while fears of an economic slowdown in western countries remain. Last month Goldman Sachs raised its growth forecast for the country this year to 5.5% from an earlier target of 5.2%. The main indicators of consumer activity showed a significant improvement in January.
A Cartier store in Beijing. The company’s sales to Chinese buyers have started to recover.
Photo: Bloomberg News
The investment readiness comes despite a number of obstacles that have only grown since the pandemic began. US-China relations are at rock bottom, and recent hopes for a détente have been dashed by China’s balloon flights over the US and its stance on Russia’s war in Ukraine.
American companies are also facing more scrutiny at home for doing business in China, and Washington has moved in recent years to limit operations there by some sectors of business, from chip companies to apparel manufacturers.
Decoupling remains a buzzword in political circles as some companies that have relied heavily on China for their supply chains, including big tech companies like Apple Inc. and apparel maker Steve Madden, are working to diversify the origins and manufacturing of their products.
On February 16, China added two US companies to its list of “unreliable companies,” Lockheed Martin Corp. and an arms factory owned by Raytheon Technologies Corp., citing the companies’ arms sales to Taiwan. The sanctions were largely symbolic, as American defense contractors are largely prohibited from selling arms to China. A day later, China’s Commerce Ministry, which imposed the sanctions, said the move should not affect other foreign companies in China.
On February 22, the Chinese Foreign Ministry posted a photo on social media WeChat of a meeting between a senior official at the ministry and Sherry Carbary, head of Boeing’s China operations. In the past, China has announced sanctions against the company’s defense arm.
The department “stands ready to provide necessary assistance and support to American companies, including Boeing,” the post said. A Boeing spokesman declined to comment on the meeting.
Before the pandemic, China was one of Boeing’s top customers. The American carrier has said it is keen to resume sales to China. Chinese officials approved the resumption of commercial flights for Boeing’s 737 MAX in January after the plane was grounded for almost four years after two deadly crashes – one in the Java Sea and the other in Ethiopia.
In another promising sign for companies, last month Walt Disney Co. said Chinese censors had cleared two of its Marvel films for showing in the country, the first releases for the superhero franchise in China since 2019.
Chinese censors have cleared two Walt Disney Marvel films for screening.
Photo: Cfoto/Zuma Press
In late January, McDonald’s announced that it opened 700 new stores in China last year and plans to open another 900 this year — more than any other country and more than double the number in the US
McDonald’s chief financial officer Ian Borden told investors the plan for new stores is moving ahead, despite sales in China falling year-on-year due to Covid-related restrictions across the country.
Ralph Lauren chief executive Patrice Louvet told investors that most of the company’s new store openings in its October-ended quarter were in China, and the company recently opened a new store in the southern city of Shenzhen and a flagship store in Chengdu in the southwest.
For retailer Tapestry, about half of the $325 million the company has committed to investing and cloud computing goes toward new store openings and renovations in China.
“We believe in the long-term opportunities for China as a growth vehicle,” CEO Joanne Crevoiserat said earlier this month.
Luxury spending in China has broadly shown some early signs of a post-pandemic recovery. Both the British fashion house Burberry Group PLC and Cartier owner Cie. Financière Richemont SA said sales to Chinese buyers would pick up again in the new year after reporting a fall in its latest quarterly sales in the country.
Before the pandemic, China was the largest market for the luxury industry.
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In November, packaged meat company Tyson Foods told investors that half of the six new factories the company expects to open this year will be in China.
Hormel — whose CEO Jim Snee told investors last year that sales of Spam and Skippy peanut butter in China skyrocketed as the country gripped lockdowns — said the company plans significant expansion in China, around 2024 to go online.
An article in the state-run China Daily newspaper last month said Hormel had signed an agreement to build a new $14.6 million factory outside of Shanghai. Tyson did not respond to requests for comment. Hormel declined to comment.
Write to Dan Strumpf at [email protected]
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