As the number of COVID cases continues to fall, stores are reopening and retailers in China are adapting to trade in the ‘new normal’ as the economy attempts to bounce back.
We round up the data framing the key developments of the pandemic in this region, highlighting what global businesses can take away to help them adjust to the next phase of retail during the COVID-19 era.
1. There’s no uniform pattern in recovery
With China emerging out the other side, regions still gripped by the outbreak are looking to this market for a timeline of when life may resume, as well as insights into best practices in post-pandemic retail.
Data from China should be taken as a guideline rather than an exact blueprint for recovery as there is no one-size-fits-all approach for bouncing back. The volume of people shopping in physical stores is still four to five months off returning to what it was, while different cities, provinces and regions in China all have had various experiences in rebounding. For example, the reopening of the Hermès flagship in Guangzhou resulted in $2.7 million USD in sales in one day. Whereas it’s been reported that customers in the north, including Beijing, are still reliant on shopping online.
In the US market, each state is operating differently during the pandemic with some easing lockdown measures despite overall cases still rising. So keep a tailored approach in mind when implementing your upcoming strategy.
Want to see the data behind how the US market reacted to COVID-19 and what reopening looks like in the future? Log in to read our analyst report.
Businesses are also looking back at the recovery following the SARS outbreak for clues as to when retail will pick up again. According to China’s National Bureau of Statistics, SARS caused the region’s economic growth to drop in Q1 of 2003 from 11.1% to 9.1% in the following three months. Retail sales growth halved for two months, but then returned with luxury seeing a particular spike. With the impact of coronavirus much greater, McKinsey & Co. estimates global revenue for luxury goods will decrease 35-39% YoY in 2020 and see positive growth of 1-4% in 2021.
2. Be savvy about inventory management
As the birthplace of COVID-19, new product arrivals in China fell drastically by 54% YoY within two weeks of the number of confirmed cases reaching the thousands.
The downward trend continued with the weeks commencing February 16th to March 1st, seeing the most significant discrepancy in arrivals YoY with a 95% decline.
Arrivals saw an uptick when factories reopened in March. However, this has now subsided, suggesting retailers are slowly phasing out new deliveries to avoid flooding the market with excess stock when consumer confidence has not been fully restored.
With the environmental and ethical backlash associated with destroying stock and canceling supplier orders, retailers need to get creative by reworking their assortments to maximize the products’ selling potential out of season.
Tmall quietly launched Luxury Soho to manage online inventories, an outlet counterpart to its Luxury Pavilion platform. Luxury Soho allows premium products to be sold at a competitive price point while providing millennial and Gen Z shoppers with a channel to buy into the luxury market through short-form videos and live-streaming.
This allows brands selling on the Luxury Pavilion to continue promoting their newest season styles at full price without diluting their image with discounts.
3. Appeal to the local demographic
China is banking on the luxury market to help reboot the economy due to the sheer purchasing power of their consumers and delayed Lunar New Year spendings. With tourism on hold, Western regions can’t rely on the Chinese consumer to aid luxury sales in bricks-and-mortar stores. We are already seeing majority SKU sell outs online start to stabilize in China while the US is seeing a 21% YoY decline since the start of April. Combined with middle class spending shrinking due to growing unemployment rates and furloughs, retailers need to ensure they have a strong offering at accessible price points across all categories.
Local support has also been a key focus in China’s road to recovery. Mintel stated 57% of Chinese consumers said that they feel closer to community stores because of the outbreak. Tailoring your offer and maintaining a strong relationship with your local consumer is paramount to building a loyal community and boosting consumer confidence, which will benefit your brand in the long run.
4. Avoid panic discounting
During a crisis, retail experiences a dip and rebound pattern with demand fluctuating as customers prioritize purchasing necessities before discretionary items. With coronavirus still causing an aura of uncertainty, spending on apparel and beauty has not yet returned to what it was pre-pandemic, but demand is building. Retailers need to hold off discounting too much too early, especially if products will still be relevant trends in future assortments. Looking to China during February and March, when the region was hit the hardest, discounting was more cautious when retailers reduced fewer products and offered shallower discounts.
Discounting rose only after the virus lessened to encourage consumer spending and keep online sales momentum as stores reopened. Though even now, China is holding back on discounting items too deeply that sold well during lockdown. With summer approaching, more hoodies and sweatshirts are being reduced, but at the same or slightly shallower percentages than last year. China is also holding back on reducing items like dresses and swimwear that were harder to shift during lockdown, preserving margin for these categories now people can go out.
5. Digital pays off
A market that was already spearheading social shopping, China’s investment in digital aided retail sales pre and post lockdown, allowing brands to incorporate these channels in their future strategies. At the peak of lockdown, the number of retailers selling on the Taobao live streaming platform increased by 719% – a channel that is only going to become more essential. According to iiMedia, live streaming e-commerce sales in China are expected to more than double to 129 billion in 2020.
By moving Shanghai Fashion Week to a digital format, with collections and shows online through live and pre-recorded media, attracted 2.5 million users in the first three hours of streaming. Hosted by Taobao and Tmall, this setup shed light on the environmental impact of fashion weeks, as well as paved the way for the growth of see-now, buy-now collections.
Additionally, China is tapping further into the gaming frenzy sweeping the globe and harnessing its power in fashion. Net-a-Porter worked with Animal Crossing to showcase SS20 collections from Chinese designers such as Shushu/Tong and Calvin Luo, creating avatar skins that are available to purchase virtually and in real life on Tmall. Only a few other brands have participated in this way, presenting an untapped opportunity for brands to engage and gain exposure from a new audience.
Although fashion brands were initially slow to join TikTok, the popularity of the app has skyrocketed during lockdown, making the time ripe for campaign experimentation while the app is still evolving.
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