The Coronavirus Will Be Tough for Offline Retail in China
The Coronavirus is obviously having a destructive effect on retail in China. Major retail chains in China like Starbucks and McDonalds have shut thousands of stores throughout the country Consumers are either quarantined or not leaving their houses. One bright spot in the doom and gloom is that innovative retailers who have embraced online delivery, AI and presciently invested in their digital transformation look set to weather the storm.
With Change Comes Opportunity
Crisis brings a chance for renewal. The situation is bad in China and consumers are feeling it. According to our recent report, most consumers in Tier-1 cities envisage that the situation will not be getting better before July. In this period there will be a fundamental change in the way Chinese shop and the way retailers interact with consumers. In China’s already hyper-innovative retail environment predicting the further rise of omnichannel and online strategies will not blow any minds, but we expect the Coronavirus crisis to expedite this process ten-fold. At the same time, we could also witness the extinction of traditional retailers who have failed to upgrade their processes and customer experience.
In this article we look at areas of the China retail landscape that seem to be relatively unscathed thanks to digital retail innovation strategies and give our outlook on how things will change post-virus.
Hypermarkets and Supermarkets
According to a recent report from Kantar, hypermarkets and supermarkets have experienced around 15% reduction in footfall during the time of the crisis. Forward-thinking players with solid omnichannel strategies have fared a lot better.
Take for example the hypermarket chain, Sun Art Retail Group, which saw online sales increase by 400% over the Chinese New Year period. While around 80% of the companies 484 stores have temporarily closed their doors, they still have thrived thanks to a previous decision to put extra focus on their online efforts.
Digital transformation initiatives went into hyper-drive at Sun Art after Alibaba invested $2.9 billion into the company in 2017, as part of wider foray into the world of offline. Through their mobile app, they offer one hour delivery to customers living within one hour of their stores.
The Coronavirus has been compared to a nuclear strike on China’s restaurant industry, with restaurateurs facing a potential 80% loss of revenue. Diners are not leaving their houses and eating out does not appear to be a priority in the near future. Food delivery services on the other hand have been booming, and especially the most innovative players in the market.
Some of the clearest winners have been those that have been able to use technology to reduce customers fears of sanitation and infection. For example the coffee shop chain Starbucks has been displaying photo evidence of its staff washing hands or taking regular temperature checks on its official Wechat account.
Larger restaurant chains that rely on sit down customers have also been thinking out the box in order to better meet customer needs and reduce the negative financial effects on their business. Faced with the problems of ingredients going to waste, Beijing based restaurant chain Meizhou Dongpo, has released a “Meizhou grocery store” mini-program in Wechat to sell raw produce and its own range of sauces directly to customers. Customers are then able to reproduce their favorite dishes in the safe comfort of their home.
Luxury Shopping Malls
China’s luxury sector is usually comparatively conservative, but a lack of shoppers in high-end malls owners seek innovative strategies in order to connect with shoppers.
Take the example given of the IFS Mall in Chengdu, that has used the crisis to increase customer loyalty. For example they brought in internet celebrity, Heize, for an online Valentine’s Day promotion and has run a number of online entertainment and live-streaming services throughout the crisis. These marketing efforts have helped them accumulate 300,000 members on their CRM that they plan to target when the situation subsides. In an interview for Jing Daily, the malls representatives explained that they are playing the long game, “the virus situation is an emergency, and a testament to brands’ operational capabilities,a ll this will be temporary once the virus situation softens and consumer confidence and purchasing desire is restored,”.
The Future of Chinese Retail Will Be Defined By This Crisis
Just as SARS changed the retail landscape in China in 2003 by spawning eCommerce giants JD.com and Alibaba, the Coronavirus crisis will viewed in the future as the catalyst for another great metamorphosis. Purely digital or omnichannel players that have embraced entertainment, chat, AI and a host of other innovations will be able to nimbly rise from this situation stronger with a loyal and more trusting consumer base.
The ones who will suffer, are the store chains that have failed to adapt to the online epoch.According to Bain Capital, these ” legacy laggard” chains have put disproportional emphasis on physical stores and are financially fragile to this crisis. There is real risk that some of these chains will not last out the year.
Retailers who have not invested heavily in digital channels before the crisis, will learn their lessons and do so before the situation is averted normal consumption is resumed. They will try to increase the number and quality of channels and digital touchpoints that they can interact with their customers. According to Gartner Senior Director Analyst in e-commerce Sandy Shen, doing so “allows them not only to cater to the changing consumer preference to order online, but also to be more resilient to market fluctuations or disruptive events like this(the Coronavirus)”.
At Re-Hub we predict that lessons will be learned and look forward to an explosion in innovation in the second half of 2020.