Which sectors are weathering China’s Covid-19 retail landscape?June 8, 2020 / By
A strict national lockdown led to a sharp drop in China’s retail sales in the first quarter of 2020, putting retailers and landlords in the doldrums. Sales fell most rapidly over the January-February period (-20.5%), while the decline in March was slightly less steep at -15.8%. As the epidemic recedes and work and production resumption gains momentum, we are witnessing some positive signs of recovery in mainland China.
Within the retail sector, some categories have remained more resilient during the outbreak or have recovered more quickly than others.
The outbreak has led to a sharp rise in the popularity of online groceries, fresh food and other daily necessities. Tech-savvy supermarket chains that have been actively improving their online channels have reaped the rewards as more homebound customers have switched to online grocery orders. For instance, Yonghui Superstores, a Chinese supermarket chain operator, reported a 31.6% y-o-y growth in revenue in 1Q2020 despite the outbreak. E-commerce grocery platforms, MissFresh, Dada-JD Daojia, and Dingdong, saw their sales surge by more than 200% during the lockdown period.
The outbreak will likely form a new habit of online grocery shopping among a proportion of shoppers. It could be a long-term growth catalyst for e-commerce grocery platforms and supermarket chains with integrated online and offline channels.
China’s luxury market was hit hard with sales grounding to a halt during the lockdown. However, store traffic is creeping up, and sales have rebounded faster-than-expected since stores reopened. It is reported that the best performing brands are already seeing an increase in their year-to-date numbers in China, while others are observing a slower but definite recovery. The quick recovery in the luxury market can be attributed to the following reasons:
- Chinese shoppers accounted for more than one-third of the global luxury goods consumption and about two-thirds of its growth in recent years. Before the outbreak, nearly 70% of Chinese consumers’ luxury purchases were made abroad due to the rising popularity of cross-border tourism and price gaps.
- Luxury clients, flush with cash, after weeks of cancelled plans, had pent-up willingness to shop. But due to the global travel restrictions, they are making their purchases within the country.
That said, the continued recovery of China’s luxury market remains to be seen, as brands shutting down production in some European countries may cause supply issues in the future. But in the medium-term, the luxury market growth will continue to be supported by the Chinese middle class, the younger generation with an increased appetite for luxury goods and by the continued growth of digital channels.
F&Bs in mid and mass segment
Fine-dining restaurants face heavy pressure. Their recovery is still lagging due to high operation costs and reduced consumer demand from high-end business travellers and dinner parties. However, F&Bs in mid and mass segment showed more resilience, thanks to their extensive cooperation with third-party takeaway order platforms like Ele.me or Meituan. Their online sales compensated for losses in brick-and-motor stores. According to JLL’s March 2020 surveys, mass brands are more likely to have online sales channels and retain their expansion plans, as compared to high-end brands (see chart).
China has largely gotten COVID-19 under control, and the government is now looking ahead to put the economy back on track. Though the pandemic has shifted the consumer’s buying habits, it has also accelerated some developments in the retail market. Nevertheless, the remaining 2020 will not only bring challenges to China’s retail market but also opportunities for retailers who can quickly adapt to new changes.
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