Retail strategies in response to consumption changes in post-COVID-19 China

By Dr Lisa Qixun Siebers

China came out of the COVID-19 outbreak around March/April as the earliest in the world, when cities and provinces implemented policies to ease the lockdown. Life in China is a “new normal”, but it is gradually getting closer to the situation before the outbreak. However, retailers need to set up prompt strategies to respond to the changes in consumption and new types of shopping preferences originating from the outbreak, to meet the needs of consumers, as well as to make a profit. The “new normal” life creates challenges and also brings opportunities for retailers. This article discusses the strategies adopted by retailers in China, based on both the lessons learned from the outbreak and proactive approaches undertaken by retailers in response to consumption changes that form new and likely more permanent consumer behaviours. 

 

Changes in behaviour of Chinese consumers

China’s outbreak started around the Chinese New Year (on 25 January 2020), when the strict lockdown began. During the key days of the Chinese New Year (the first seven days), online retail sales skyrocketed. At the same time, the commodity structure also changed dramatically as a result, and some goods were kept in the warehouse while others were in short supply.

After experiencing the lockdown, consumer behaviour and preferences have shifted in several aspects. These are mainly reflected in the structure of consumer expenditure, cautious shopping psychology, sensitivity to prices, and higher expectations with regard to shopping environment. Consumers who originally preferred offline shopping, particularly middle-aged and elderly consumers, were forced to use online channels due to the impact of the epidemic.

Furthermore, Chinese consumption of foreign products through tourism and online sales has been restricted due to the pandemic. This led to increased consumption of high-end products inside China. Domestic luxury goods and Chinese high-end brand sales have been undergoing short-term growth.

 

Retail strategies for sales recovery

Simplifying and digitalising procedures

During the epidemic, some retailers’ organisational structure has become flatter and more flexible, which is achieved through process optimisation and the adjustment of their core businesses. This improves coordination across departments. For example, by adopting this approach, Wal-Mart China was able to make speedy decisions to deal with emergency situations during the epidemic that they would normally have discussed at length by going through more hierarchical procedures, with the potential for delays. Taking this lesson on board, Wal-Mart China now plans to integrate the key e-commerce businesses further with supply and operations at the organisational level, in order to simplify its operational procedures.

Many Chinese franchising retailers are making the most of digital technologies and artificial intelligence (AI) to expand their businesses during the lockdown period. Baiguoyuan (百果), a fresh fruit franchiser based in Shenzhen, has started to organise online franchising conferences. The company is collaborating with specialised online platforms to hold live investment conferences in combination with offline seminars, providing the maximum convenience to their potential franchisees by offering multichannel communications.

Accelerating expansion

Long-term isolation and protection make consumers realise more the importance of physical social platforms. This type of consumer psychology is fundamental to the growth of physical stores. Although it may not bring a rapid rebound to business in physical shops, it helps with long-term psychological support. Wangfujing (王府井) Shopping Centre, one of the biggest Chinese department stores, based in Beijing, plans to seize this opportunity and make adjustments to achieve accelerated development, taking advantage of this consumer psychological change. It plans to speed up the nationwide network during the recovery stage of the pandemic, increase collaboration with partners nationwide, develop more shopping centres, and outperform the market.

Enhancing live broadcast and refined services

Due to the lockdown, intentional consumption is strengthened, while random consumption is weakened. During the slow recovery period for physical stores, live broadcasting and delivery services have become the general trend. Thus, refined services for store members/customers have become fundamental for commercial operations. The solution to increasing sales for physical stores is to use public domain traffic for marketing promotion and private domain traffic for conversion management, achieving the interaction of the entire traffic flow online. Wangfujing’s various projects across China have already established capabilities of both online and offline interactive marketing and interactive omnichannel supply. The retailer uses online platforms to achieve strong conversion at a low cost. Since the resumption of the operation, Wangfujing’s nationwide shopping malls have reached an average of five million Yuan (£0.5m) daily sales, both online and offline.

By using consumer data, retailers can better identify customers’ needs and achieve accurate diversity of brands in the store. It is essential to use a digital operating system for cost control, because the increase in traffic cost is inevitable, as the cost of both customer flow and freight flow are rising. Thus, retailers compete for efficiency. Whether the same product can produce higher efficiency in a store depends on their operational capabilities. Dongbai (东百) Commerce, a conglomerate based in Fujian, has achieved good results from its department stores’ operations by using digitalisation and refined data management during the epidemic. Its sales of big international cosmetics brands are in the top five in China and the overall sales of beauty products were in the top 20 nationwide in the first quarter.

Social retailing means “being social” first, and then retailing. Only when a good relationship is established with the user can they believe that what you recommend is worth buying. The core of a live broadcast is to recognise each product user and influence their purchase intention. In addition to the strong selling ability that live broadcasting offers, it also helps to recognise each customer who buys the brand. Thus, live broadcast is deemed to create greater value than merely increasing online traffic. 

Repositioning brands

Some retailers are repositioning their brand and seeking new opportunities in the slowing-down market resulting from the epidemic. Retailers who implement these strategies are undertaking such activities as optimising sales channels, redesigning the commodity cycle, and engaging customer relationship management. Hongu (红谷) is a leather product brand with 18 years of history. The company has adjusted its brand positioning variously in different cities. It has closed 40 stores that made the lowest profit in China. Hongu realises that sales recovery in the first- and second-tier cities is slower than in the third tier and even smaller cities. Chinese consumers have now started to pay more attention to value for money, influenced by the epidemic. Accordingly, Hongu made a quick response in the supply chain by cancelling 50% of spring orders and promptly recovering a series of products with high cost-effectiveness, fully utilising the flexibility of the supply chain. It is also increasing live broadcast efforts, distinguishing online product positioning from offline brands, and operating sales channels involving all employees. By April 2020, its sales revenue had recovered to 88% of that of the same period in 2019. Hongu will target the third- to fifth-tier cities for new opportunities in the next step.

Some retailers are accelerating channel diversity by using online to guide offline services. Supin (素品), a fashion retailer based in Guangzhou, has upgraded the entire brand to its online platform, using offline stores as the display outlet of the online platforms, and online platforms to generate customers to shop in stores.  During the epidemic, Supin has reconsidered its brand positioning and development strategies to meet the needs of consumers. It uses a one-week wardrobe plan to offer matching items and provide dressing solutions. In April 2020, the retailer’s sales had recovered to 80% of those of 2019.

 

The future of retailing in China

The “home economy”

During the epidemic, everyone was forced to stay at home most of the time. The Chinese call this the decade of the “home economy”, meaning that, during this period, consumers spend more time using mobile phones and electronic products, including games, video sites and social media. Simultaneously, Chinese consumers have redefined the importance of health and other more relevant and advanced needs. For example, Decathlon China’s indoor fitness equipment sales increased significantly during the epidemic. The online sales of these types of products exceeded the total online and offline sales during the same period last year. Indoor fitness activities also push consumers to have higher expectations for community/social interaction and improvement of living space. These phenomena provide a good opportunity to understand better where the biggest challenges and opportunities are in the future, especially in terms of the product line.

Chinese consumers have also started to prefer to spend quality time with their families, a change from their busy lifestyles before the epidemic. Therefore, products that are favoured by a small number of family members have become popular. That is, Chinese families will have higher expectations and greater demand for products and services that help to maintain or improve the quality time they spend with their families. In the future, this trend is expected to continue. As a result, many retailers have gradually returned their attention to the community and neighbourhoods, and the use of digitalisation to generate private domain traffic is becoming important. Watson (屈臣氏), a cosmetic convenience store based in Hong Kong, plans to strengthen its connection with each community and each block of residential buildings, generating one-to-one connections between online and physical stores.

The shopping environment

During the outbreak, Chinese consumers formed an awareness of the space that is necessary for the protection of health in the shopping environment, and this is likely to persist for a long time. The planning and design of new projects need to consider this psychological change in consumers, and existing projects need to be readjusted accordingly. From format matching to brand placement, it is necessary not only to measure the maximum operating income but also to consider the aggregation effect of the new format and the environmental impact on consumers. Physical stores are expected to upgrade towards improvement of space, environment and service. The advantage of physical stores is about the experience and the environment. It is sensible that shopping centres provide a bigger environment, and individual brands offer smaller environments. Both types of environment must interact and integrate. It is no longer possible for each store in the centre to conduct its own business separately. Hence, shopping malls can take the initiative in the upgrade process, and other brands in the same mall can jointly create attractive themes and scenes to enhance shopping experiences and to drive all the businesses to grow.

Customer relationship management

Chinese consumption is in the process of transformation. Such shopping behaviours as seeking value for money and pragmatic consumption are rising and consumption for showing off and random consumption are decreasing. A deep attachment to customers is becoming more important. Therefore, it is especially important to maintain good relationships with customers and communities in order to generate new business opportunities under the impact of disruption. To improve retail performance and the capability to respond to sales pressure, it is vital to strengthen customer engagement through enhanced intersections. That is, the epidemic has raised the importance of the customer relationship management (CRM) system. Retailers need to make their community / social marketing solutions as precise as possible to engage the minds of online consumers. One of the key strategies that retailers in China are using is acquiring accurate customer data in public domain traffic and then converting them to private domain traffic, aiming to market products and manage customers accurately.

Product development

The live broadcast has become a process of resource generation. It is the most popular method of promotion and is worth attention in the current retail situation. In addition to considering the value of the traffic and achieving good results through live broadcast, it is important to create good products and good broadcast content, as well as deliver high-quality after-sales service, forming a full chain of capability. With the development of technology, although the methodology of marketing has been shifting, good products and excellent operational capabilities remain important fundamentals for success.

Moreover, the products that satisfy human health needs, social needs and the need for a better life may be more popular in the future. A retailer will become more competitive by adjusting their product development strategies accordingly and continuously seeking a new market breakthrough.

 

Final remarks

This epidemic is a comprehensive test, but it also provides an opportunity to adjust retail businesses quickly and to develop new business opportunities in the future. The epidemic in China has required a broad range of changes for retailers, from employment to service delivery. For example, the flexible ways of using labour during the epidemic may become a new mode for hiring. Wal-Mart China has been considering what the most appropriate approaches could be in terms of labour utilisation. It plans to create a more reasonable employment mode according to the different positions and business categories required in the future. Many retailers in China recognise that the epidemic was a great opportunity to identify, train and develop the talents that emerged during the outbreak crisis. These talents are decisive, taking responsibility and committing to meeting customers’ expectations. Other countries, including the UK, are coming out of the outbreak gradually. Retailers in different countries may be able to adapt or modify the retail strategies implemented in China to prepare for the consumption changes in retailing for longer-term growth in both domestic and foreign markets.

About the Author

Dr Lisa Qixun Siebers (Qixun.Siebers@gmail.com) is from The Institute for Retail Studies, Stirling Management School, University of Stirling, Scotland, UK.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of All China Review.

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