The Covid-19 pandemic has erased US$420 billion from China’s retail market this year – but an analyst predicts a rebound in the second half.
Vijay Bhupathiraju, a retail analyst at GlobalData says before the coronavirus came along, Mainland China was on track to achieve 7.7 percent retail growth this year. But the resulting lockdowns from the pandemic wiped RMB3 trillion (US$420 billion) off total retail sales.
The lockdown was eased progressively from March 18 and in the epicenter, Wuhan city, was completely lifted on April 8, at which point malls, restaurants and retail stores rushed to reopen and recover some of their losses. By April 3, according to Chinese government data, some 80 percent of restaurants and 90 percent of commercial facilities had resumed operations.
But cautious consumers have remained confined to their homes, worried about the potential to be infected, meaning footfall at stores and restaurants reopened has been insufficient to ensure profitability for many companies in China’s retail market.
“Despite easing lockdowns, immediate increase in consumer sentiment is unlikely in the second quarter of this year, particularly for discretionary goods, as consumers remain cautious about visiting busy locations such as shopping malls,” said Bhupathiraju.
“A rebound in consumer sentiment can be expected from the second half, which will be translated into a faster sales pick up in the country. In fact, the rebound will be more positive than those we forecast for mature western countries such as Italy, Spain, the UK and the US, where consumer willingness to spend and financial stability will be weaker.”
By year-end, GlobalData projects China’s retail sales will be down by 1.8 percent – a far cry from the 7.7 percent growth expected, but if the estimate proves correct, it should be significantly better than many western retail markets can expect.
Next year, GlobalData predicts China’s retail market will bounce back, with sales growth of 8.3 percent against this year.
Examples of the weak footfall in the post-lockdown era include Walmart in Shanghai, which reported less than half the usual levels on March 28, and H&M, which recorded a 23-per-cent sales decline for the week commencing March 26 against the same week a year ago, despite 99 percent of its stores reopened. And customer footfall at Suning’s physical stores was running at less than half normal.
Meanwhile, a senior executive of e-commerce giant JD is predicting “unprecedented challenges” to the supply chain in the wake of the Covid-19 crisis as consumer behavior reshapes China’s retail market.
Bing Fu, logistics head of strategy says new consumption demands are constantly emerging, and product life cycles are shortening.
“Increased uncertainties caused by emergencies like natural disasters and pandemics lead to supply chain disruptions.”
During the coronavirus, customers bought products in any way available, turning to online solutions immediately if they could not get what they wanted offline.
“While Covid-19 is not welcomed, it promotes digitization of consumption, which concurrently drives supply-chain upgrade,” he said. “Only by shortening and digitizing the fulfillment process can we increase efficiency and access customers faster with increased precision.”
In recent years, he argues, the line between online and offline has become increasingly blurred. “In fact, many new channels such as WeChat’s mini-programs can’t be considered exclusively online or offline; omnichannel is the future trend.”
Fu says to adapt to the new environment, companies must take an integrated inventory approach to manage all sales channels, integrate supply-chain planning and optimization, use consumption data to design a more efficient supply chain to deliver goods to consumers more quickly, use big data and algorithms to optimize supply-chain performance and use a transparent parcel-tracking system.