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China's fragile economy takes toll on big companies

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Executives concerned as economic woes weigh on bottom

lines

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Outlook uncertain as U.S.-China trade war saps confidence

By Helen Reid, Mimosa Spencer and Alexander Marrow

LONDON/PARIS/AMSTERDAM, Oct 17 (Reuters) - For many

companies, business in China has changed for the long term as a

fragile economy and sluggish consumer demand are forcing

executives to rethink their brand strategy and compete with

rising home-grown rivals.

From carmaker BMW to Uniqlo owner Fast Retailing ( FRCOF )

and furniture giant IKEA, global companies have soured

on China's outlook, with some withdrawing earnings guidance and

others resigned to a new "normalisation."

Their gloomy guidance illustrates how China's market,

overshadowed by a trade war, fierce price competition, rising

nationalism and cost-conscious consumers, is becoming a major

drag for many businesses already pressured by higher U.S.

tariffs.

"We need to find smarter ways of producing so the prices

become even more competitive, and we need to learn to be even

more relevant for the Chinese market," said Jon Abrahamsson

Ring, CEO of IKEA franchisor Inter IKEA, adding that consumer

confidence in China remained a challenge.

With price wars and U.S. tariffs, foreign carmakers in China

are among the hardest hit.

Along with BMW, Mercedes-Benz and Porsche

reported sliding sales in the world's largest auto

market amid intense competition.

Underscoring the importance for firms to rethink their China

business, Nestle, the world's largest packaged food

company, said it needed to focus more on driving consumer

demand.

ASML, the world's biggest supplier of computer

chip-making equipment, warned of Chinese demand dropping

"significantly" next year and described a fall in sales in China

as a "normalization."

A shift in spending patterns is also hurting global

retailers, with frugal consumers flocking to online platforms

such as Alibaba's ( BABA ) Taobao for discounted prices.

At Uniqlo owner Fast Retailing ( FRCOF ), sales and profit fell in

China, its largest market with 900 stores, even as its North

America revenue rose 24%.

Nike ( NKE ) reported a sales drop for the fifth quarter in

the Greater China market, amid stiff competition from domestic

brands including Anta and Li Ning ( LNNGF ).

It recently sent U.S. basketball stars LeBron James and Ja

Morant to China to lure consumers.

In the alcohol sector, Australia's Treasury Wine Estates ( TSRYF )

pulled its earnings guidance for 2026 due to weak sales

of its flagship Penfolds wines in China, citing changing alcohol

habits and fewer large-scale banquets.

French spirits maker Pernod Ricard said sales in

China plunged 27%.

RARE BRIGHT SPOT

Some firms appear to be holding up, most notably in luxury

in China, which accounts for roughly a third of global sales.

LVMH reported better-than-expected third-quarter

sales underpinned by improved Chinese demand, saying shoppers

responded well to new store experiences, like the ship-shaped

Louis Vuitton boutique in Shanghai.

"What we see is whenever we are bringing an initiative or an

innovation or a new retail disruption initiative, it creates

immediately... interest and excitement and consumers respond

very quickly," LVMH CFO Cecile Cabanis said.

China's persistent deflationary pressures support the case

for more policy measures as weak demand and trade tensions drag

on the $19 trillion economy.

Chinese GDP growth and retail sales data on Monday as well

as a string of earnings from global companies will provide

investors with more insight into the health of the world's

second-largest economy.

HOME-GROWN STARS

Adding to the mounting challenges for global brands is the

fast rise of cheaper home-grown alternatives for almost

everything from cars to coffee and fashion.

Chinese brands accounted for 69% of total car sales in China

in the first eight months of this year, versus 38% in 2020.

Some household names include Luckin Coffee, which competes

with Starbucks ( SBUX ), ice-cream and drinks chain Mixue ( MXUGF )

, which is causing headaches for Haagen-Dazs with its

cheaper offerings, and beauty and cosmetics brands Proya and

Chando, which have captured market share from global players.

In general, people pay 9.9 yuan ($1.4) for a latte from

Luckin, less than a third of the cost at Starbucks ( SBUX ).

The market share of Chinese cosmetics brands is expected to

exceed that of foreign brands for the first time in 2025,

reaching 50.4%, according to Frost & Sullivan.

Urban Revivo, known as China's Zara rival, is among a

growing cohort of domestic firms looking to expand overseas.

Another star is jewellery retailer Laopu Gold ( LPUGF ),

often called the "Hermes of gold", whose shares have soared 214%

this year. It draws deeply from Chinese cultural heritage and

has proven a hit with consumers.

Frost & Sullivan says 77.3% of Laopu's customers also shop

at Louis Vuitton, Hermès, Cartier, Bulgari and Tiffany & Co.

Nestle, which said it had focused too much on distribution

in China and not enough on consumers, is changing its strategy.

"What you see in China is us correcting that and actually to

consolidate our distribution and make it more efficient, while

we build this consumer demand," said CFO Anna Manz.

($1 = 7.1240 Chinese yuan renminbi)