China Merchants Securities Co.,Ltd. has released a research report indicating that total retail sales of consumer goods in July reached 3.9022 trillion yuan, a year-on-year increase of 0.6%. E-commerce growth remained resilient, with online physical goods retail sales rising 3.3% year-on-year in July. Service consumption continued its solid growth trajectory, with service retail sales increasing 5.0% in the first seven months of the year. The report suggests focusing on leading retail and consumer internet companies with strong operational efficiency and attractive valuations, as well as service consumption enterprises poised to benefit from consumption structure upgrades and growth flexibility.

July retail sales grew 0.6% year-on-year, while service consumption retail maintained steady growth momentum. July's total retail sales of consumer goods stood at 3.9022 trillion yuan, up 0.6% year-on-year, which fell short of the Wind consensus expectation of 1.3%. By consumption type, physical goods retail sales reached 3.4455 trillion yuan in July, up 0.5% year-on-year, while catering revenue rose 1.4% to 456.7 billion yuan. Service consumption continued its positive trend, with service retail sales growing 5.0% in the January-July period. Notably, tourism consultation and leasing services, along with cultural and sports leisure services, saw retail sales increase 11% and 10.1% year-on-year respectively, maintaining double-digit growth.

By region, July urban retail sales totaled 3.378 trillion yuan, up 0.5% year-on-year, while rural retail sales reached 524.2 billion yuan, up 1.6%, with rural consumption growth continuing to outpace urban areas. Looking at retail formats, among enterprises above designated size in the January-July period, convenience store and supermarket retail sales grew 6.1% and 3.8% year-on-year respectively. In contrast, specialty stores, department stores, and brand专卖店 saw retail sales decline 1.8%, 2.4%, and 9.3% respectively, highlighting the ongoing divergence in traditional retail formats.

July online physical goods retail sales rose 3.3% year-on-year, demonstrating sustained resilience in online consumption. In the first seven months, online physical goods retail sales reached 7.3965 trillion yuan, up 4.6% year-on-year. July's growth rate of 3.3% outpaced the overall retail market, indicating that online consumption maintained its momentum following major promotional events. By category, cumulative year-on-year growth for food, clothing, and daily-use goods in online retail stood at 16.9%, 5.8%, and 1.1% respectively, with food e-commerce maintaining high prosperity and apparel showing steady growth.

In July, essential consumer goods remained stable while discretionary goods showed mixed performance, with electronics-related categories seeing improved growth. Essential consumer goods demonstrated strong resilience, with grain and oil food retail sales up 5.3% year-on-year, tobacco and alcohol up 6.0%, and daily necessities up 1.8%. Among discretionary goods, demand for apparel, footwear, cosmetics, and gold/silver jewelry softened somewhat after the promotional period, with growth rates moderating slightly. However, electronics-related categories improved as government subsidies entered a normal base period and the impact of raw material costs for 3C digital products diminished. Home appliance retail sales recorded a decline of 1.9%, while communication equipment surged 20.4%, both showing improvements compared to June.

Investment recommendation: The report advises focusing on retail and consumer internet leaders with superior operational efficiency and cost-effective valuations, alongside service retail companies with growth potential. Key risks include macroeconomic uncertainties, consumer demand recovery falling short of expectations, and intensifying industry competition.