Editor’s Note: Elaine Jiang is Aptos’ regional director for China. In this exclusive Q&A, Elaine discusses how China’s retailers managed through the COVID-19 crisis and how they are now adjusting their strategies as stores reopen.
What is the situation in China currently and are you starting to go back to some kind of normalcy?
EJ: For the first time after almost 7 weeks of lockdown I attended an in-person meeting a few days ago with a customer who is a well-known Chinese apparel retailer. Sitting around the same table and talking face-to-face (our masks obviously still on) was just simply a great feeling. And equally as great was realizing how much effort, motivation and creativity this customer, and China’s retailers in general, are putting into their path to recovery. I live in Shanghai and I can see stores gradually re-opening, some people stopping at bars to order coffee and the traffic getting jammed again. The retail activity is slowly picking up, but this doesn’t mean we will be back to normal shortly. At least, not to the ‘normal’ we all know. The crisis has modified the way we live, work, buy and consume – and I believe some changes are here to stay.
How much did the crisis impact customers’ behavior?
EJ: In my view, the pandemic has strongly accelerated a change in customer behavior that started long before the crisis. While China was already at the forefront in digitalization and e-commerce, online penetration rates have jumped to new levels during the crisis. Individuals who had not interacted with online shopping before or used a mobile app to buy started to do it and will probably continue to some extent. According to a study by Kearney, e-commerce sales in China could remain up to 24 percent higher after the crisis. Generally, the climate of uncertainty has made shoppers more cautious about their spending – a feeling that is likely to last for a while – pushing them to focus on brands they know and trust. Brand-building and customer engagement were already top priorities for many of China’s retailers, but now these things are more important than ever. Shoppers will place a preference on products they recognize and companies they respect.
How did retailers react during the crisis and what challenges did they face?
EJ: The first action most retailers took at the beginning of the crisis was a move into online and social selling. While many had already activated new ways to engage with customers, others had to react literally within a couple of weeks. With their shops closed, the priority for retailers was to handle the existing inventory – the winter collections in the example of apparel retailers – and most opted for heavy online promotions to generate cash. The focus was on keeping the business up and running. Challenges included reallocating the inventory for online, preparing the logistics, as well as containing costs due to the online market being extremely price competitive. Grocery retailers experienced a peak of online demand, but struggled to meet that demand with the right utilities, adequate labor and supply chain resources.
Do you have examples of retailers that found creative/efficient ways to handle these pressures?
EJ: A recent Forrester webinar shared a perfect case from Yonghui Superstores, one of China’s fastest growing grocery retailers. During the crisis, Yonghui decided to sell prepackaged ‘combinations of products’ online. Instead of picking up the single item, customers could only buy a ‘combo’ containing food essentials. This approach, which leveraged AI technology to establish pack configurations based on needs and inventory availability, has deeply simplified the order and delivery process as well as helped the supply chain cope with demand. Another great example comes from Hema, the grocery chain where I typically shop in Shanghai. Hema worked with several restaurant chains including Xibei, as well as with shopping malls, cinemas and hotels, to temporarily employ their staff. According to Chinadaily, more than 3,000 recruits have been onboarded by Hema from 32 different firms. This shared staff program benefited the grocery retailer who received additional forces to handle the huge surge in demand, as well as the participating firms and restaurant chains that were temporarily closed and under strong pressure to pay salaries.
What about apparel retailing, can you tell us about any inspiring cases?
EJ: An excellent example of a smart, creative response to the crisis was given by one of our customers, a tier-1 Chinese retailer. With thousands of stores temporarily closed, this apparel brand turned all of its employees into salespersons – providing them with the materials and training they needed to sell online. Everyone within the organization, no matter if they were from IT, marketing, finance or sales, started to post pictures on WeChat and to stream live while modeling the brand’s merchandise and trying on different outfits. By promoting and selling the company products across their social networks, all employees contributed to preserve the business in this difficult situation while also receiving commissions for their sales.
How are retailers now trying to adapt to the new reality and what is next for them?
EJ: The retailers I am talking to are working on different fronts to ensure recovery. They are gradually reopening their stores and looking to drive traffic through gifts, discounts and digital marketing activity to reactivate their customer base. They are working to rebalance how online and offline work together, knowing that continuing to make heavy online promotions could hurt their brand in the long term. They are prioritizing their buying and rethinking their spring assortments to account for a higher portion of online sales. Also, a hot topic among them is online sales accountability. With online sales occurring via platforms like Alibaba, virtual stores, WeChat and live streaming – it is extremely complex to understand where sales are generating in order to apply the right KPIs. Importantly, many retailers I met made it very clear that they have no plans to stop their journey to digitalization but rather are thinking about speeding it up by investing strongly. This emergency made them realize the importance of having a whole supply chain that is digital and integrated from product, to sales, to operations. Without the right data and with isolated departments, you cannot react properly to a market that is getting ever more dynamic and calls for new levels of resilience.
Is there a lesson we can share with people and companies that are now at or approaching the peak of this crisis to bring inspiration and optimism for recovery?
EJ: What we are seeing now is that not all retailers have been impacted in the same way by the pandemic; many have been able to react and preserve their business, and some surprisingly even posted positive results. These are companies that have always worked to raise their brand, build a community, as well as engage continuously and creatively with their customers. While retailers will naturally adopt cost containment measures throughout the emergency, I believe it is important that they amplify their digital capabilities and keep a continuous and authentic dialogue with their customers – including understanding their sentiment and showing empathy. Take a message from luxury retailer Louis Vuitton as an example: “Every paused journey will eventually restart. Louis Vuitton hopes you and your beloved ones stay safe and healthy.” This message was posted by the brand on Little Red Book, WeChat and Weibo channels. Those brands which will be capable of providing the best products, comforting experiences and the right values are likely to become the new champions.
Continuing the Recovery Conversation
Join Aptos as we continue the discussion of how retailers are recovering in China in our next Collaborative Conversation broadcast, “Stories of Recovery: How One Chinese Retailer Managed through the Crisis.”
Visit our Collaborative Conversations about Coronavirus resource page to sign up and participate in this and future broadcasts as we work together to navigate unprecedented challenges and identify real solutions during this time of crisis.