Lessons from China's Road to Retail Recovery
Reopening Doesn’t Mean a Rebound
As the Chinese retail sector begins the road to recovery, it’s becoming clear that
With consumers reluctant to spend, even as the economy reopens, brands and retailers will need to take proactive steps to stimulate demand. Some have made engaging with consumers a priority by capitalizing on new forms of digital engagement, issuing promotions, and aligning offerings to meet the needs of the post-COVID-19 consumer. As China sets the stage for what a reopening looks like, the lessons regarding retail’s recovery in the country could be relevant for firms, regardless of geography, as they seek to understand what the future may hold.
NPD’s Consumer Sentiment Study surveyed a representative sample of 1,000 consumers in 23 Chinese cities.
New Forms of Digital Engagement and Promotions Stimulated Online Spending
In the aftermath of the COVID-19 crisis in China, consumers spent more online. E-commerce sales of all physical goods were up 36% during China’s Labor Day period (early May) despite the fact that stores across the country were open by then, according to China’s Ministry of Commerce. In a number of industries, consumers showed a willingness to shift more of their spend online. In beauty, for instance, 58% of consumers said their preferred shopping channel shifted online, our May 2020 research shows.
One way e-commerce shopping is transforming is through livestreaming — video streams where influencers, retail sales associates, or brand ambassadors promote and answer questions about various products online and in real-time.
The SCMP describes the practice as a “mix between product education and entertainment,” with consumers enjoying the special giveaways and urgency of deals that are offered for a limited time. Major brands have taken note. To keep up with this online shopping trend, beauty brand L’Oréal hosted its own
With store closures still in effect in March, digital engagement and promotions helped bolster online prestige beauty spending in China. Promotions tied to International Women’s Day on March 8 contributed to strong sales. Major brands used social media site WeChat to conduct
In short, while changing consumer preferences and emerging digital shopping methods are likely to contribute to increased online penetration for a number of industries, much of this will depend on the specific industry being sought by consumers.
The ways in which consumers are engaging with brands are transforming. Monitoring digital shopping trends, while keeping industry-specific sentiment in mind, will be key to finding the right balance when allocating investments between online and offline experiences.
Despite Sluggish Spending, Shoppers Valued Quality over Price
Consumers in China have been cutting back on spending in the immediate aftermath of
Consumers born after 1990 (Post-90s), in particular, place heavy importance on quality goods. These consumers grew up in a much more affluent society than their parents. They have different values and attitudes toward brands and products than older generations. And given that Post-90s consumers have started joining the workforce and building their careers, they’ve been a major driving force of consumption, particularly for high-end goods, in recent years. Just a few months before the crisis an NPD analysis showed products at premium price points (RMB 1,000, about $140 USD) in the sports shoe category (popular among Post-90s consumers) outpaced the total category in both dollar and unit sales by a healthy margin.
How COVID-19 will impact the spending habits of young consumers in the long-term remains to be seen, however, our China consumer sentiment data from May offers some clues about the generations that will be more likely to contribute to retail’s recovery. Consider shopping trends in the footwear industry. Although shoppers across all generations tended to spend less rather than more for footwear after the crisis, younger shoppers, on average, displayed more resilience than their older counterparts. Looking at shoppers in the 15 – 24 age segment, 20% said they spent or planned to spend more on footwear after the crisis. That number was only 10% among shoppers aged 35 – 44. Across the
As the case of
Health Becomes a Greater Priority
COVID-19 has reminded people of the importance of staying healthy. Evidence suggests consumers in China are looking to change their routines as a result. Our CREST data shows that compared to last year, health was the biggest mover when it came to the reason consumers chose a particular out-of-home meal choice.
The trend toward healthy eating also impacted the types of groceries consumed.
Moving the Recovery Forward
With consumers reluctant to spend, it’s clear the road to recovery is not just a waiting game. Instead, businesses must proactively create the conditions for recovery in their industries. The post-COVID-19 consumer has undoubtedly changed. In order to meet their needs, it will be critical to
As different countries — or even different jurisdictions within the same country — reopen at varying rates, China offers early indicators as to how consumer needs will shift in the new normal. While the trends and examples discussed in this article were specific to China, brands and retailers around the globe should apply these insights within their own market’s context in order to plan for recovery as their economies reopen.
Stanley Kee leads NPD’s APAC business. Based in Singapore and Shanghai, Stanley is a frequent speaker at events that explore China’s consumer and retail landscape.
Ajay Shah writes and conducts research for npd.com. He is based in New York.