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China’s rebound from COVID-19 has been unique. It came faster, with more demonstrable economic tailwinds for the economy than other markets. But it has also been a bellwether that has helped point to consumer behaviors elsewhere that have inevitably followed China’s lead. An example is the rebalancing of retail playing out around the world.
Pandemic-led shifts to further online adoption and an increased focus on neighborhood and small-format stores have become an ongoing normal. Historically, China has demonstrated a mature omnichannel shopping base, with consumers that are already years ahead of the majority of other markets in online shopping. In the third quarter of 2020, online sales in China grew by 27% for the year to date, while physical store sales declined by 4%. The declines at physical stores were largely due to COVID-19-related closures, and there has been some recovery in the remainder of the year. China has four main city tiers, based on inputs such as population size, growth levels, location and infrastructure. Key cities (including Shanghai,Beijing and Guangzhou) and A cities (including Chongqing, Tianjin and Dalian) saw the highest closure rates, while B cities and C cities were less impacted. “Due to market resilience and robust foundations, by August, around 80% of stores has reopened, signaling both a rebound in physical and some fascinating new developments in the e-commerce space.”
Online retail has continued on its growth trajectory. In addition to sales growth, online shopping in China saw huge category expansion among shoppers during the onset of COVID-19.While e-commerce growth in China prior to the pandemic was primarily led by personal care categories, consumers began purchasing other categories like dairy, staple foods, beverage and liquor. For example, online growth in dairy has surged from 34% to 55% for the year to date October 2020, versus the same time a year ago, and staple foods jumped from 30% to 48%growth for the same period.
An adjacent trend that rapidly accelerated in China during COVID-19 was online to offline (O2O) shopping. Offering the best of both worlds,consumers purchase items online and have their items selected, (often by third parties) and delivered within a short delivery time of one to two hours. During the initial days of the epidemic, consumers valued the convenience and safety of these services, and the O2O growth rate jumped up to 20% from January to March. Between March and June, although COVID-19 was under control and consumers could return to normal,the O2O growth continued at a rate of 6%.
Retailers and brands that have resisted ada pting to COVI D-19-shifted spending,perhaps hoping for a return to old habits, now find themselves lagging behind faster-moving competitors that adjusted for the ongoing change. Those that have embraced the change in shopping preferences and pivoted their offerings to suit new consumer needs are already gaining traction. Areas they have addressed include distribution efficiency, sales force optimization,innovation planning, assortment and pricing.