Learnings from China for UK retail recovery

What does the start of the recovery in China mean for UK retailers?

We’ve already seen non-food retailers in the UK respond in a variety of different ways to the COVID-19 pandemic: some have focused more online (or at least as much as possible), some have diversified their offerings, and others have temporarily shut up shop. But there’s one thing that many agree on: it’s uncertain how long this pandemic will affect the industry. While there are widely different views on how long this impact will last, there’s talk of significant impact for at least 12 weeks, with others suggesting the effect might be seen for a year or longer.

Regardless of the length of the UK lockdown, retailers need to be prepared for what happens afterwards. With China returning to some sort of normality as cases decline, we look at their trends to see what might lie ahead. 

China’s rapid response to the pandemic allowed citizens to return to work (and normality) relatively rapidly. While the UK’s lockdown is likely to last longer, consumer surveys coming out of China give some reasons for cautious optimism. One survey showed that almost half of Chinese consumers expect the economy to rebound quickly and their routines to return to normal within the next two to three months. 

Two very different approaches to spending

This is having an interesting effect on consumer spending, with a noticeable split among returning consumers in China. One industry survey has shown that some are spending significantly, while around 40% of consumers are being cautious with spending. 

It’s unclear why certain consumers are refraining from spending, whether that’s fear of venturing out and catching the virus, a current lack of disposable income or a marked change in their spending habits. It may be simply a reluctance to switch back to spending so quickly.

However, this survey also shows that the more confident half of consumers are back spending at around 80% of what they would under normal circumstances. So, it’s essential for retailers to quickly identify those that are back shopping again. 

Categories that have seen an early and sustained rebound include essentials, pet care and fitness and wellness. Other surveys have also shown consumers increase spending on apparel with those retailers that have a stronger online presence. In contrast, offline apparel is witnessing a marked decline to previous levels before the outbreak.

Online generally continues to do well, with Chinese e-commerce giant Alibaba reporting shopping activity is already approaching pre-out break levels.

Luxury items, however, are down. Some retailers in this sector are looking to target other sectors in the short- to medium-term, bringing high-end down to aspirational luxury spend. This is a significant - and interesting - shift for these retailers. In difficult times do consumers move more towards what is being called “quiet” luxury with less obvious branding.

A slower bounce-back than many would like?

While some consumer trends may mirror those seen in China after the SARS outbreak - such as a decline in those items that were previously ‘panic buys’ - there will be differences. The main one likely being recovery time. With the SARS outbreak, we saw a rapid bounce-back - something which many businesses will cling to. However, early indications suggest that we will see a slower recovery this time around. 

There’s lots of discussion around a ‘U-shaped’ recovery starting in the second quarter, which will see a lingering effect in the next month or two and then a gradual return to normal trading levels.

As retailers begin to look at their forecasting and scenario planning, they should take into account a slower recovery phase than they ordinarily might. It’s prudent to be particularly cautious about recovery forecasting, particularly because we are entering an unknown stage that may see significant bumps in the road - for example, unplanned or immediate additional lockdowns or overly cautious spending by consumers.

One reason is an expected drop-off in travel - especially in the medium term. Even as things return, there will still be travel restrictions, as well as a reluctance to move around as frequently. Those cities that rely on tourism may take longer to recover.

Critical areas for retailers to focus on

Supply chain

There may be emerging supply chain concerns as countries recover from the COVID-19 pandemic, particularly in relation to transport and logistics. Some businesses are already finding that some suppliers have gone or are unable to supply the levels that they need, so they’re having to find new suppliers. Others need to find new sources of supply or storage facilities as certain countries remain locked down, so there may be a need to look at new and additional supply routes. 

Retailers need to understand their supply base and where there might be issues and/or shortages. They should also look at their current suppliers and assess their relative levels of health, including staffing levels, as well as the cities and countries that they are located in. Do you have enough of a supply base to meet the demand you may see over the coming months?

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Consumer demand

It’s essential to think through any modelling carefully and plan for slower, longer-term return to normal. It’s also critical to identify those consumers that are looking to spend, as well as those that will remain cautious. 

For many retailers, an easy win is to focus on and strengthen online offerings. We saw when China was in lockdown, that online spend initially dropped but then picked back up and remains significant. Retailers should look to improve any limitations in their online offerings, at the same time as thinking about how to maximise online usage now and as they move forward. Flexible stock and a virtual stock pool may be two areas to think through now.

 

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In terms of identifying consumers looking to spend, retailers in China are using WeChat to communicate directly with consumers. Social media is an increasingly effective way to speak to consumers and most retailers appear to have upped their usage in recent weeks. Combining this with utilising existing customer data successfully to target the right audience has to be a winning approach.

Contact us

Sue Rissbrook

Sue Rissbrook

UK Retail Leader, PwC United Kingdom

Tel: +44 (0)20 7213 5080

Lisa Hooker

Lisa Hooker

Leader of Industry for Consumer Markets, PwC United Kingdom

Tel: +44 (0)7802 882562

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