The outbreak of the novel coronavirus (COVID-19) epidemic at the beginning of 2020 has adversely influenced China’s retail industry, especially brick-and-mortar retailers. But some retailers were well prepared, and they responded quickly to the incident, turning the crisis into an opportunity.
The epidemic brings fresh inspiration to the retail landscape and enables the industry to usher in new opportunities for the future. Nielsen has closely tracked the developments in the retail industry since the epidemic emerged.
Recent Nielsen research, which involves data from key retail companies and more than 10,000 traditional grocery stores, has uncovered challenges retailers are facing in response to the outbreak, as well as the changes and opportunities the sector will face once the epidemic ends.
“The COVID-19 outbreak is a huge test for China’s retail industry,” said Justin Sargent, president of Nielsen China. “However, retailers generally have shown great flexibility and resilience in a very volatile environment. Many retailers have quickly organized resources, responded actively to a rapidly changing situation and adjusted their business strategy. Many retailers are telling us that they see opportunity arising out of this crisis and that the epidemic will accelerate the future development of the retail sector.”
Challenges for the retailers, and their responses to the epidemic
Nielsen findings showed that the impact of COVID-19 outbreak on retailers during the Spring Festival was polarized. Among the surveyed retail companies, 42% said their sales declined compared with the same period last year, with 29% of the group stating that their sales fell significantly. In contrast, 44% of retailers reported growing sales, with 28% reporting significant growth.
Across retail business types, most of the large businesses, such as hypermarkets / supermarkets, said their sales growth was good, and top retailers performed well, relying on strong supply chains. The sales of small businesses, especially convenience stores, slowed down. Stores specializing in personal care and cosmetic products, as well as some maternal and infant stores, have been greatly affected. Other maternal and infant stores, however, have generated significant growth by actively expanding online and across social media channels to meet consumer demand during the epidemic.
Nielsen research showed that in light of the COVID-19 outbreak, retailers are facing three primary challenges: insufficient inventory of some categories, difficulty in logistics and distribution, and inadequate staff to deliver orders.
Some retailers, however, were able to quickly organize the resources, respond actively to the epidemic, and launch a series of measures to help turn crisis into opportunity. These measures included flexible coordination of participants in the supply chain, ensuring the efficiency of product supply, showing care and concern for employees, rationally deploying staff, adjusting the store’s operating hours, expanding businesses through online channels and in community and strengthening corporate brand marketing to enhance consumers’ trust and favorable impression.
Changes and opportunities for the retail industry when the epidemic is over
As we saw in the retail industry during the SARS period, consumption will likely to rebound following the COVID-19 outbreak. The retail sector, which has been tested by the epidemic, will continue to face changes and opportunities.
That fact notwithstanding, many retailers can see beyond the outbreak. Specifically, 46% of the surveyed retailers say they are optimistic about the business prospects over the next half of the year. Comparatively, a total of 36% of retailers worry about the future and believe the operating pressure will increase.
In terms of the industry’s opportunities and business strategies in the upcoming year, 67% of the retailers say they will make efforts to expand online channels and accelerate home-based business / retail warehouse layout. Fifty-three say they would change their product mix according to the shopping habits of consumers and increase the inventory and on-shelf number of health, disinfectant and protection products. Forty-three percent of the retailers say that they will work on their supply chains, especially those for fresh food, strengthen the ties with various brands and enhance communication efficiency.
In addition to these trends of universal concern, such as accelerated multi-channel integration and strengthened supply chain, retail companies differ in their priorities for future strategic adjustments.
Hypermarkets and standard supermarkets are primarily planning to focus on two aspects. First, they plan to accelerate supply chain layout planning and self-employment capacity building. Through digital transformation, they aim to improve comprehensive retail capabilities to ensure a guaranteed supply of goods, process management platforms, and on time logistics and delivery. Second, they will expand retail business through omni-channel operation and deeply integrate online shopping and in-store purchase.
Small supermarkets specialized in fresh food located close to communities plan to accelerate their expansion, and convenience stores will continue to accurately match their products well with demand of nearby neighborhoods. Sixty percent of the surveyed small retailers say they plan to vigorously expand online channels and offer home delivery service in addition to standard store layout. Convenience stores are expected to foster customer loyalty by improving product mix, improving convenience to better serve consumers.
Among grocery stores, the priority will be breaking through bottlenecks in their supply chains so that the supply chain can play a central role in keeping neighborhoods vitalized. The COVID-19 epidemic has tested more than 5 million Chinese grocery stores and their supply chains: 60% of the stores faced shortages; only 1.1% of the stores purchased goods from other channels or dealers; and only 0.6% turned to new e-commerce channels. Therefore, it’s necessary for grocery stores to strengthen ties with local suppliers / distributors, seek ways to cooperate with large and new digital supply platforms, and break through bottlenecks in the supply chain.
Among personal care, cosmetic, maternal and baby stores, the focus is on speeding up the integration of online and offline channels, continuously promoting marketing innovation and community operations, and converting private domain traffic into profits.
During the epidemic, sales of personal care products and cosmetics—not daily necessities—were adversely impacted. But Nielsen found that retailers can turn online clicks into profits by using a variety of online tactics, especially increasing the traffic flow from outside the store and selling products in the store. Some maternal and baby stores with better omnichannel strategies coped well with the impact, and we expect the online and offline dual-store operation model will gain prominence in the future.
“There will be huge learnings for retailers from this epidemic, and many are already starting to formulate their growth and recovery strategies in the post-epidemic period,” said Sargent. “These strategies include enhancing resource allocation, strengthening supply chains and accelerating multichannel integration. In this epidemic, the retail industry has demonstrated its agility—and remaining agile will continue to be critical going forward.”
As this global health crisis continues to evolve, Nielsen will provide ongoing updates on the impact COVID-19 is having on consumer purchasing. Visit our content hub for the latest global consumer insights into the coronavirus outbreak.