Jul Retail Sales: Was the rebound fleeting? Can H2 still turn around?

On the 17th, the latest Jul retail sales print again looked soft. After a tentative pickup in Jun, growth turned down in Jul, denting Dolphin Research's confidence in a 2H consumption rebound.

Fortunately, online retail remains more resilient. Even amid strong headwinds, online penetration keeps inching higher. As a result, online physical goods still grew over 3%, well above the overall retail sales growth of 0.6%.

Dolphin Research still sees Q2 as the low point for e-commerce growth this year, but now expects a milder sequential improvement in Q3. A more visible rebound will likely be pushed out to Q4.

By category, our earlier call that weakness is spreading from structural to broad-based has unfortunately played out. In Jul, home appliances and communications products continued to improve on the back of state subsidies, while growth in other staples and discretionary categories fell across the board.

1) Retail sales growth turns down again

Per the National Bureau of Statistics, total retail sales rose 0.6% YoY in Jul. After some improvement in Jun, momentum weakened again this month, which to some extent undercut our conviction in a 2H recovery in consumption.

By type of spending, the decline in overall growth was mainly dragged by goods consumption, which was up 0.9%, essentially unchanged. In contrast, catering stabilized at a low level, rising 1.4% YoY with a slight sequential pickup. Entering the summer peak season, services such as dining and travel were likely supported by family-related spending.

2) Online sales also softened, but proved more resilient

As overall retail, especially goods consumption, weakened, online physical goods growth eased as well. It slowed to 3.3% in Jul from 3.9% in Jun.

Judging from the two-month pattern, Jun's rebound was still aided by the 618 promo season. Post-promo, demand naturally cooled, but the limited sequential drop suggests there was no cliff. With the historical base in mind, online retail will likely face some pressure in Q3, yet should still fare better than in Q2.

Also, online retail penetration edged up YoY again this month (approx. +20bps), with the increase slightly higher than in Jun. This indicates online momentum improved modestly vs. overall retail. In other words, online faces less pressure than offline and the total market.

(Note: Since 2026, the NBS has revised the headline scope for online retail, changing 'online retail sales' to 'online goods & services retail sales', which substantially expands coverage of online services. However, the definition for online physical goods sales is largely unchanged and remains comparable with history.)

3) Weakness likely spreading from structural to broad-based

As noted, one of the largest drags remains autos, with sales down nearly 17% YoY in the quarter. Ex auto, retail sales grew 2.5%.

Another important sign: electronics and appliances, which had been hit hard as state subsidies faded, have clearly rebounded. Meanwhile, growth across other goods, whether discretionary or staples, has started to fall noticeably. As flagged earlier, weakness is shifting from a subsidy-driven structural change to a broad-based slowdown.

Specifically, the YoY decline in above-scale home appliance sales narrowed sharply to under 2%, while sales of communications products accelerated further to above 20% in the month. However, per IDC and other sources, domestic smartphone shipments are down YoY. The surge is largely value-driven, as sharp memory price hikes pushed handset ASPs higher.

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