Business News

China is presently experiencing widespread economic disruption owing to the outbreak of the coronavirus disease 2019 (COVID-19) and stringent government measures to contain it. This in turn is taking a toll on China’s retail and distribution sector. While comparisons are inevitable with the economic toll taken by another coronavirus, SARS (2002-03), the difference for China, now, is that its economic fundamentals are more robust, its retail sector more vibrant, as illustrated by its thriving ecommerce sector, its technology more advanced, and its consumers more resilient. These present ample opportunities for retailers to transform and recover from the lost of business of physical retail.

This article outlines the potential impact of the COVID-19 outbreak on various retail sub-sectors and different responses of retailers, and provides some implications and key tips for foreign retailers operating in China.

Key takeaways

China’s retail sector will be negatively impacted in near term

- Retail sub-sectors/segments that are hardest hit by the COVID-19 outbreak include the services sector, especially food & beverages and tourism, apparel sector, gold, silver and jewelry sector, travel retail sector, luxury sector and offline entertainment sector. In terms of retail format, department stores and shopping malls will suffer the strongest impact from the COVID-19 outbreak.

- China’s retail sales growth are expected to drop around 4 percentage points from 8.0% in December 2019 to 4.0% or below in the first two quarters of 2020. Under a more optimistic scenario, if the COVID-19 outbreak will be under control by end-March, retail sales growth will bottom out in June 2020 and rebound in the third quarter. Otherwise, under a pessimistic scenario where the outbreak will only be contained by end-June, retail sales growth for the third quarter will remain weak.

Opportunities may arise for certain retail sub-sectors

- The COVID-19 outbreak will usher in another boom era for digital retail and e-commerce in China. Fresh food, groceries (especially health and personal care products) and consumer staples goods are expected to see rising online demand. Fresh food e-commerce platforms and on-demand delivery providers will also benefit from the surge in online orders.

- As people reduce outdoor activities, demand for other online services, such as online medical consultation, online education tools and mobile gaming will see a massive increase.

- Some traditional retail formats that can provide convenient and quicker services to consumers, namely community supermarkets and convenience stores, can better weather the crisis.

- New business models, unmanned and contactless services, and digital/social media marketing tools and solutions including KOL and KOC marketing, livestreaming and WeChat Mini Program marketing will flourish.

Download the full report here 

Posted on 2020/02/19