What changes will brands see amid the coronavirus epidemic?
The impact of coronavirus (COVID-19) has sent shockwaves through the Chinese community far and wide. The effects on lives everywhere have been far reaching, affecting entire industries and businesses. Chinese citizens are experiencing the personal, social, political and economic changes closing in on them, and as a wave of anti-Chinese rhetoric and xenophobia rears its ugly head and infiltrates the conversation.
Humanity and compassion takes precedence here. It is times like these that community building, social sensitivity and consciousness ought to be at the front of everyone’s mind when it comes to talking about China and doing business in China. As the story is still unfolding, this means that the realities are changing every day. We have broken down some of the topics of discussion within this issue to put brands minds at ease, assess the forecasts, and discuss how retailers should readjust expectations for the new reality of life post-coronavirus.
The details so far
Unlike the SARS epidemic of 2003, China’s role on the global stage now takes a more central role in the performance of the world economy. The ramifications of widespread quarantines across Hubei province at the epicentre of the virus, and the rest of China, has put extreme strains on domestic and foreign businesses and brought production to a near-standstill across all industries who count on China’s labour force including the automotive industry, luxury and technology. This has also brought on a necessary reshuffle and rethink of global supply chains as major industries are hit hard. However, it is unlikely that it will reverse China's economic progress. We will certainly see a shift in consumer attitudes and consumption patterns, and so brands can hope for a renewed optimism amongst consumers. Some predictions are less optimistic about the future and predict that things will return to normality in 4-5 months, according to data from consultancy firm Rehub, however this remains to be seen.
Luxury and retail are amongst those who have been dealt a harsh blow to their sales, production lines and resourcing pools. Given that Chinese consumers accounted for 35% of global luxury sales in 2019, luxury players such as Kering and LVMH have reported a dip in sales and engagement in China. Particularly as the coronavirus outbreak has come during the Lunar New Year period - typically the busiest and most lucrative time for travel and retail - the global tourism industry is expected to lose an estimated $80 billion worth of revenue. Although the full scale of the impact is unknown, the losses from peak period will likely be felt throughout the year. However whilst recovery time may take a while, brands ought to continue pledging their support and engagement with Chinese consumers - both of which are necessary steps to help recover and minimise their losses. Furthermore, Rehub's analysis revealed that consumers do not intend to spend less than before, which bodes well for brands in the long term, and shows just how much consumers are craving normality to return.
Companies in China have had to adjust to remote working practices too to minimise the impact as much as possible. These changes have brought on a shift in purchasing decisions and data suggests that quarantined citizens are buying more non-essentials and fewer retail and luxury items. Instead, citizens are spending more time on their screens engaging in e-sports and gaming as a result of increased screen time, along with a growing interest in virtual shopping and omnichannel sources. Department stores all over China have closed or reduced their business hours and foot traffic has stalled almost entirely. As a result, a number of commercial real estate companies in China announced a reduction or exemption in commercial rents. Some insights from Kantar suggest that this may help ease cash flow problems for brands with a significant investment in brick and mortar, which gives brands time and resource to focus on other difficulties as a result.
Despite the bleakness of the situation, it is only a matter of time before normality returns and businesses can start thinking about how to readjust expectations for the new reality. Whether this is 2 months or 6 months is uncertain but the infection rate is slowing, precautions are being taken, and businesses are slowly reopening. Instead of entering panic mode by jumping to conclusions and making hasty decisions that could have lasting damaging effects, close monitoring and continued engagement with Chinese consumers is key. On a human level, what China needs is community building and support needed for people on the front line and support for businesses. We believe brands and retailers ought to remain optimistic, continue to pay close attention to the unravelling situation, and most importantly remain sensitive to consumers.
- Readjusting expectations to the new reality, review your situation and don’t make hasty decisions
- Crisis management: avoid coronavirus related campaigns
- Brands should send words of support, donate money and supplies
- Brands can expect to see a renewed optimism of consumers in the coming months
- Online shopping and ecommerce will drive growth during the epidemic