22 January 2009

HONG KONG -- Shoppers in China are hitting the stores in the country's closest equivalent to the West's Christmas shopping season. Advertisers, too, are out in full force, but their messages are facing an increasingly skeptical audience.

This year's Lunar New Year, which officially begins Monday, comes amid a slowing global economy. That's one reason, market watchers say, that French retailer Carrefour SA is touting discounts on everything from food to wine to appliances. It says the discounts are its biggest since entering the Chinese market in 1995.

Meanwhile, Procter & Gamble's Gillette brand is amping up a family-centric campaign for its razors that is meant to tug at the heartstrings -- and keep customers from switching to cheaper brands.

These and other marketers hope to keep consumers spending despite growing concerns about China's economy, which is still growing at a brisk pace compared with that of other countries but has slowed significantly as global economic troubles have deepened.

"People are definitely being cautious about what they spend their money on," says Chris Reitermann, president of both Ogilvy Shanghai Group and OgilvyOne China, parts of WPP, the London-based ad holding firm.

The slowdown's toll on spending has been difficult to gauge. In November, retail sales in China jumped 20.8% from a year earlier following a 22% rise in October, according to the National Bureau of Statistics.

Many economists, however, are skeptical of China's official sales numbers, and some surveys suggest consumer confidence is waning. Last week, research firm Data Driven Marketing Asia said a telephone survey of 4,500 consumers showed 60% of consumers plan to cut spending this year.

The weeklong Lunar New Year celebration, marked by family reunions and exchanges of cash gifts stuffed in red envelopes, is one of China's biggest spending periods. There is a tradition of wearing new clothes during the holiday. Last year, Chinese consumers spent 255 billion yuan ($37.3 billion) during that week, up 16% from the year before, the Commerce Ministry says.

Some marketers have taken steps they hope will make their advertising more cost-effective, such as using in-store displays and Internet marketing instead of TV ads, said Shaun Rein, founder of Shanghai-based consulting firm China Market Research.

Others have focussed on discounts. Carrefour's sale started in late December and runs to early February. For the fourth quarter, the global retailer reported a 3.3% decline in sales at stores open at least a year, which it blamed on weaker trends in consumer spending and a slowdown in food-price inflation. Officials at its offices in China didn't return calls, and its Paris office declined to comment.

Discounting, though, can be dangerous for foreign brands, which often count on a reputation for premium quality to fend off competition from cheaper local brands. "Customers are in this situation in which money is tight, so it's important that your brand have as much emotional value as possible," says Carol Potter, chief executive officer of BBDO/Proximity China, an arm of Omnicom Group.

BBDO client Gillette has ads timed to the holiday that are based on last year's successful campaign for its Vector line of razors, in which a father shaved on a train on his way home to his family. In the new ads, made for TV and elsewhere, a train conductor's wife and son join him onboard for a farewell meal before he heads off on a trip. "It's all the values you associate with Chinese New Year," Ms. Potter said.

It isn't clear what effect the changing economic landscape will have on Chinese ad spending. Hong Kong-based analysis firm Media Partners Asia says it is standing by a forecast of roughly 10% overall ad-spending growth this year, though it will revisit the forecast over the next couple of months. An auction in November to sell time on state broadcaster China Central Television generated 9.26 billion yuan, a 15% increase from the year before, indicating expectations of continued health.

At the same time, says Mr. Reitermann of Ogilvy & Mather, multinational companies are shrinking their marketing budgets, and some clients are looking to save. One client cut outdoor spending and redirected it elsewhere, he says.