Nielsen, the global measurement and data analytics company, closely tracked the latest developments in the retail industry and released the report titled “COVID-19 is a Challenge, but also an Opportunity, for China’s Retail Industry”.
The research involves key retail companies and over 10,000 traditional grocery stores, and offers in-depth analysis of the retailers’ challenges and responses to the outbreak, as well as the changes and opportunities the sector will face once the epidemic is over.
The outbreak of the novel coronavirus epidemic at the beginning of 2020 has adversely influenced China’s retail industry, especially the brick-and-mortar retailers. But some retailers, who got well prepared and responded quickly to the incident, have turned the crisis into an opportunity.
The epidemic brings fresh inspiration to the retail industry, and also enables the industry to usher in new opportunities in the future.
Justin Sargent, president of Nielsen China, said: “The sudden COVID-19 outbreak is a huge test for China’s retail industry, 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 percent said their sales declined compared to the same period last year, among whom 29 percent fell significantly. In contrast, 44 percent of retailers reported growing sales, 28 percent of whom reported significant growth.
By 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 growth of small businesses, especially convenience stores, slowed down. Stores specialized in personal care and cosmetic products, as well as maternal and infant stores, have been greatly affected. However, some maternal and infant stores showed significant growth, as they actively expanded online and social marketing channels to meet consumer demand during the epidemic.
Nielsen research showed that in light of the COVID-19 outbreak, three major challenges facing retailers are insufficient inventory of some categories, difficulty in logistics and distribution, and inadequate staff to deliver orders.
About 62 percent of the surveyed retail companies believed that they had insufficient inventory of some categories in the early stage of the outbreak, and that their emergency organization mechanism failed to make quick response.
About 59 percent of the surveyed believed that the procurement costs of certain categories rose, logistics and distribution became difficult, and the supply chain was put under pressure. 48 percent of them said their hands are too short to deliver the surging online orders.
Some retailers, however, were able to quickly organize the resources, respond actively to the epidemic, and launched a series of measures to help turn crisis into opportunity. These measures included flexible coordination of the supply chain, ensuring the efficiency of product supply, assisting employees with solicitude, rationally deploying the 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
Like the retail industry’s changes in the SARS period, the consumption related to the industry is likely to rebound once the COVID-19 outbreak is over. The retail sector, which has been tested by the epidemic, is going to face changes and opportunities.
Nielsen research showed that 46 percent of the surveyed retailers were optimistic about the business prospect over the next half of the year, among whom 8 percent believed that the business situation would be very good, that the epidemic was both a challenge and an opportunity, and that they can outperform others in the very period. 36 percent of the retailers worried about the future and believed the operating pressure would increase.
In terms of the industry’s opportunities and business strategies in the upcoming year, 67 percent of the retailers said they would make efforts to expand online channels and accelerate home-based business / retail warehouse layout. 53 percent of them said they would change their product mix according to the shopping habits of consumers, and increase the inventory and on-shelf number of health, disinfection, and protection products. 43 percent of the retailers said that they would deeply work on the supply chain, especially the supply chain 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 also differ in their priorities for future strategic adjustments.
Hypermarkets / standard supermarkets focus on the following two aspects. First, they accelerate supply chain layout planning and self-employment capacity building. Through digital transformation, they improve the comprehensive capabilities of upstream, midstream and downstream, including guaranteed supply of goods, middle platform construction and logistics timeliness. Second, they expand retail business through omni-channel operation, and deeply integrate online shopping and in-store purchase.
Small-size supermarkets / convenience stores— Small supermarkets specialized in fresh food located close to communities will accelerate their deployment, and convenience stores will continue to accurately match its products well with demand of the neighborhood nearby. 60 percent of the surveyed small retailers said once the epidemic is over, they will vigorously expand online channels and offer home service / retail warehouse layout. Convenience stores are expected to foster customer loyalty by improving product mix, improving convenience to better serve consumers.
The grocery stores put a priority on breaking through bottlenecks in the supply chain, so that the supply chain can play a central role in the neighborhood. During the epidemic, more than 5 million Chinese grocery stores had their supply chain tested, and 60 percent of the stores faced shortages, but only 1.1 percent of the stores purchased from other channels or dealers, and only 0.6 percent turned to new e-commerce channels. Therefore, it is necessary for the 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.
As for personal care and cosmetic stores, maternal and baby stores, their focus is to speed up the integration of online and offline channels, to continuously promote marketing innovation and community operations, which converts 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 online clicks can be converted into profits through a variety of online innovations such as increase the traffic flow from outside the store and sell products in the store. Some maternal and baby stores with better integration of online and offline coped well with the impact, and the value of OAO (online and offline dual-store operation model) will also be the trend in the future.
Sargent said: “There will be huge learnings for retailers from this epidemic and retailers are already starting to formulate their growth and recovery strategies in the post-epidemic period. These strategies will include enhancing resource allocation, strengthening supply chains and accelerating multichannel integration. In this epidemic, the retail industry has demonstrated its agility – remaining agile will continue to be critical going forward.”
