Why Coronavirus Won’t Harm the Robustness of China’s Retail & Consumer Industry, Part 3

Author: Butao Wang Editor: Edward Turkson Mar 26, 2020 08:36 PM (GMT+8)

The coronavirus outbreak, unlike a structural crisis, has impacted the demand end. Therefore, consumption-related indicators will retreat. Are there any opportunities amid the downsides? What does the post-epidemic period look like?

Image credit: Carl Raw on Unsplash

This series of articles focuses on the impact of the coronavirus on China’s retail and consumer industry specifically, in a hope that more countries will get rid of the virus soon and local consumptions will recover quickly. Click the link to read part 1 and part 2.

3. Winning in the post-COVID-19 era

Before the coronavirus outbreak, the Chinese government had been carrying out structural reforms in response to the economic slowdown. By transforming the country from an investment and manufacturing-driven economy to a consumption and service-fueled one, the country has injected more vitality into people’s consumption upgrade. Therefore, amid the slowdown of the pandemic in China these days, the robustness of the consumer & retail sector is expected to support the country more than other industries.

During the period of the spread of Covid-9, we also observed Chinese consumers’ change of behavior in several aspects provided opportunities for many new sectors. Based on a consumer survey conducted by KANTAR from February 6 to February 9, we noticed that 84% of the interviewees tried at least one new service. Among them, online healthcare service, online-education, remote working and paid online entertainment were the most popular services during this period.

Short video platforms, which experienced a surge of traffic during this period, welcomed more users with longer durations. Over 40% of interviewees said they spent significantly longer time on the platforms than before. Other media platforms such as news, social media and online music also saw increased user time with at least 26% of interviewees staying longer in their apps.

Despite the impact of the pandemic on people and their consumption behavior, the more profound transformation is hinged on the retail industry chain. 

Chinese retailers now are widely aware of the importance of industrial chain management

The poor inventory, sorting and logistics management ability of many retailers exposed their weakness under the impact of the epidemic. Even though customers’ demand rose rapidly in some areas, these retailers missed a great opportunity due to their inability to capitalize on the situation. 

This has made retailers in China more aware of the power of industry chain management for their businesses. In the future, new retail companies need to form real-time docking with local merchants to achieve sufficient product supply. Besides, when standard logistics management is inadequate or inefficient in special periods, new retail companies need to use contactless delivery such as robotics and smart stores to ensure the security and punctuality of distribution.

New models emerge in the retail industry chain

Online mini programs, WeChat moments, short video and live-streaming were applied extensively by many retailers during the epidemic. Companies actively promoted their products and launched sales operations through these new approaches. Consumers can easily view products without leaving home and make their purchasing decisions.

The retail industry chain is gradually embracing new models with creative ideas (see retailers’ practices in part 2).

Online-offline convergence

Online retailers are facing the dilemma of high customer acquisition costs while traditional physical stores are having difficulties in applying new technology to transform and upgrade offline. These deficiencies amplified during the coronavirus outbreak. The integration of online and offline in the retail sector became a pressing matter for many retailers.

The benefit of this trend is that, for consumers, in addition to good quality and low price, they will also have the same products they just viewed online, place the order and get them promptly in the mom-and-pop store downstairs.

Through technologies such as the Internet of Things, big data and smart logistics, retailers can improve the operation efficiency at both ends and accelerate the convergence of online and offline.

Community-based marketing continues to grow

People are more dependent on social networking apps for communication nowadays, and this phenomenon deepened during the epidemic and generated an important channel for customer acquisition. Huge consumption potential is hidden in social networks, especially in China, where trust is naturally built in communities. Consumers are wide-ranging and highly active. Moreover, their social circles are highly diffusive, making it easy to expand and build reputations.

Many brand merchants, attracted by this hidden vault, entered major social platforms to promote and sell their products, improving marketing efficiency and reducing costs. 

Top players will integrate industry chain ecology

Top players with better industry chain capabilities can quickly expand their markets, an example of the Mathew effect under the pandemic. The integration of the new retail industry will speed up and small retailers with poor performance will either be eliminated or acquired. Large platforms such as Alibaba, JD.com, Meituan Dianping and Suning will take advantage of this opportunity to penetrate more into the low-tier cities and gain larger customer base, forming a more robust ecology.

Full digitalization

Data is the most crucial resource in retail. The contactless delivery during the coronavirus period is one of the most important applications in new retail. Applications in IoT, big data and other technologies will urge the data generation, collection, storage, transfer and analysis, pushing the industry to full digitalization. What’s more, the quickly evolving consumer behavior and technologies encourage flexibility in the internal organizational structure of companies. Digitalization will play a crucial role in developing agile management reforms for companies to establish fast decision-making models related to processes, marketing and consumers.

To conclude, the disruptive and evolving technologies have established the basis of China’s retail & consumer sector; the upgrade of industry chain capability underpins its robustness in the future. After the Covid-19 crisis, what won’t change are the more demanding consumers who no longer conform to traditional retail scenes and product categories. However, retailers in China are now aware of the urgency to collaborate actively and to commit to advance inclusive growth strategies.