1、 Asia Distribution and Retail Teresa Lam Vice President TeresaL Christy Li Senior Research Manager ChristyL Yvonne Mok Senior Research Manager YvonneM Tracy Chan Research Manager TracyChanSY Fung Business Intelligence 10/F LiFung Tower 888 Cheung Sha Wan Road Kowloon, Hong Kong T: (852) 2300 2470 F:

2、 (852) 2635 1598 E: W: COVID-19 outbreak has taken a toll on Chinas retail sector in 1Q20 The COVID-19 outbreak which is now a pandemic is posing a challenge to many brands and retailers operating in China. The impact of the COIVD-19 on retail has already been partially reflected in the steep drop i

3、n retail sales growth for the January and February period, which is typically a booming period for consumption. Total retail sales of consumer goods fell by 20.5% yoy nominally in the first two months of the year, while catering sales dropped by 43.1% yoy. Most product categories recorded a signific

4、ant drop in sales, except for grain, oil and food, beverages, and Chinese and western medicines. Yet, shifts in online consumer spending habits amid the COVID-19 outbreak present exciting opportunities for online shopping and digital marketing. Brands and retailers increasingly turn their focus onli

5、ne; social commerce and livestreaming, in particular, become indispensable for brands and retailers to sustain business during the tough times. Meanwhile, surging demand for fresh food, groceries and consumer staples provides tremendous opportunities for fresh food e-commerce platforms and on-demand

6、 delivery providers. We believe the disease outbreak will linger for another 2-3 months in China. By then, consumption will gradually return to pre-outbreak levels. The governments determined efforts to support companies affected by the COVID-19 outbreak will help shore up business confidence. Certa

7、in categories/sectors especially catering, offline entertainment and travel sectors are likely to see a faster growth or rebound as consumers increasingly unleash their pent-up consumption desire. Demand for personal hygiene products, healthcare products and dietary supplements as well as fitness-re

8、lated products and services such as sportswear, trainers, wearable fitness device, fitness training, etc. is set to increase as good health may become one of the most valuable attributes of life after the epidemic. 18 March 2020 | Issue 13 China Retail some product categories are more resilient The

9、impact of the COIVD-19 on retail has already been partially reflected in the steep drop in retail sales growth for the January and February period, which is typically a booming period for consumption. Total retail sales of consumer goods fell by 20.5% yoy nominally in the first two months of the yea

10、r to 5.21 trillion yuan, which is the first decline on record (Exhibit 1). Among which, catering sales amounted to 419.4 billion yuan, dropped by 43.1% yoy, doubling the drop in general. As shown in Exhibit 2, retail sales of different product categories were impacted to different extents 1) Severel

11、y impacted: sales of discretionary items such as gold, silver and jewelry, automobile, furniture, clothing, and home appliances were hugely impacted; 2) Moderately impacted: some product categories such as daily use products, cosmetics and telecommunications were more resilient; and 3) Recorded sale

12、s growth: Grain, oil and food, beverages, and Chinese and western medicines recorded sales growth in the January February period. Exhibit 1: Total retail sales of consumer goods, Jan-Feb 2019 Jan-Feb 2020 Source: National Bureau of Statistics, Fung Business Intelligence Exhibit 2: Nominal retail sal

13、es growth of enterprises above a designated size, by product, Jan-Feb 2019 Jan-Feb 2020 yoy growth yoy difference (ppt) Grain, oil, food 9.7 -0.4 Beverages 3.1 -4.9 Tobacco and liquor -15.7 -20.3 Clothing, shoes, hats and textiles -30.9 -32.7 Cosmetics -14.1 -23.0 Gold, silver and jewellery -41.1 -4

14、5.5 Daily use products -6.6 -22.5 Home appliances and video equipment -30.0 -33.3 Chinese and western medicines 0.2 -10.1 Stationery and office accessories -8.9 -17.7 Furniture -33.5 -34.2 Telecommunications equipment -8.8 -17.0 Petroleum and related products -26.2 -28.7 Automobiles -37.0 -34.2 Sour

15、ce: National Bureau of Statistics, Fung Business Intelligence 6.61 3.17 3.06 3.30 3.39 3.31 3.39 3.45 3.81 3.81 3.88 5.21 8.2%8.7% 7.2% 8.6% 9.8% 7.6% 7.5%7.8%7.2%8.0% 8.0% -20.5% 5.1% 6.4% 5.7% 5.6% 4.9% 4.9% -23.7% -30% -25% -20% -15% -10% -5% 0% 5% 10% 15% 0 1 2 3 4 5 6 7 Trillion yuan Total reta

16、il salesNominal yoy growthReal yoy growth China Retail with the recovery of normal daily life activities and going-out frequency, along with the “lipstick effect”i, demand for apparel and cosmetics will see gradual increase. Health and hygiene related industries are expected to see strong growth, as

17、 good health may become one of the most valuable attributes of life after the epidemic. Demand for personal hygiene products, healthcare products and dietary supplements as well as fitness-related products and services such as sportswear, trainers, wearable fitness device, fitness training, etc. wil

18、l likely increase. In the post COVID-19 period, Chinese consumers may become more inclined to buy from brands and retailers that have increased corporate social responsibility activities during the crisis period such as making donations and helping people affected by the disease. Moreover, the suppl

19、y chain of some foreign brands may be disrupted due to the COVID-19 outbreak. This may provide ample opportunities for domestic brands with flexible supply chains. On the other hand, the COVID-19 outbreak has also prompted consumers to try new shopping channels, new digital entertainment, or new ser

20、vices such as adopting new online software/apps due to working or learning from home. This will create new opportunities for brands and retailers across different industries. i “Lipstick effect” is an economy theory that refers to the situation where consumers stop spending on big-ticket items in to

21、ugh times; instead, they trade down to cheaper products to cheer themselves up. China Retail social commerce gains traction Amid the COVID-19 outbreak, many offline brands and retailers have resorted to online shopping to maintain their business. Setting up online stores on leading e-commerce platfo

22、rms or social commerce platforms is a popular option. Taobao reflected that its social commerce platform “Tao Xiaopu”, which allows individual users or merchants to create their own “stores” on the platform easily, saw around 30,000 new merchants opening stores on the platform every day in the first

23、 two weeks of February 20201. 2. Livestreaming becomes an indispensable sales and marketing tool for brands and retailers to sustain business during COVID-19 outbreak During the COVID-19 outbreak, many merchants have turned to livestreaming tools as a way to connect with target customers. Many lives

24、treaming platforms saw a sharp increase in the number of brands and retailers using livestreaming to attract new customers and increase user engagement. Alibabas Taobao Live saw a sharp rise in brand activities in February as merchants partially resumed their operations and looked for ways to reach

25、consumers in the midst of the COVID-19 outbreak. The number of newly joined merchants on Taobao Live in February increased by 719% mom. These merchants are mostly from Guangdong, Zhejiang and Jiangsu. Statistics also showed that the number of orders generated from merchants using Taobao Live increas

26、ed by 20% week-on-week in February, while the transaction amount in February also doubled compared to last year2. Meanwhile, Tencents live commerce Mini Program Kandian Zhibo paired with a host of selected offline brands and retailers including Watsons, OPPEIN Home Group, Rainbow Department Store, P

27、agoda and others to hold a range of livestreaming shopping activities around the clock on 14-16 February3. Eyeing the huge market opportunity, a number of Internet players have also launched new livestreaming features and short-video functions for merchants and brands. For example, WeChat Mini Progr

28、am is testing its in-app livestreaming function. Merchants can broadcast live videos in the Mini Program without using third-party tools, and viewers can directly interact with merchants and place orders without leaving the app 4 . Xiaohongshu also offered free livestreaming service to selected merc

29、hants, and assist them with featured livestreaming content to increase their viewers traffic5. Pinduoduo launched a beta test for its new short-video feature Duoduo Video on its Pinduoduo app; viewers can click on a button on the video to search for the same products appeared in the video to facilit

30、ate e- commerce6. China Retail reduction or exemption of warehouse rent. Taobao Live: Waives entrance (service) fees for all brands and retailers. JD.com Launches an expedited channel for SME merchants to open stores on JD.com, enabling enrollment in as fast as six hours. Pinduoduo Provides subsidie

31、s (2-3 yuan per order) for merchants on its platform who take on the costs for offering logistics services at subsidized prices and keep on operating and delivering orders amid the COVID-19 outbreak. There is no upper limit on the subsidies; Pinduoduo has already set aside the first batch of 1 billi

32、on yuan subsidy funds rewarding merchants for maintaining services during the outbreak. S Suning Supermarket waives the annual service fees for merchants who join/renew contract in February. Meituan Launches seven measures, including a 350 million yuan fund to support restaurants and commission fee

33、waivers in Wuhan, the center of the outbreak. Source: Internet sources, Fung Business Intelligence Exhibit 6: Selected e-commerce platforms which offer low-interest loans for merchants E-commerce player Details Alibaba Group Ant Financials online bank brand MYbank offers interest-free and low-intere

34、st loans to Taobao and Tmall merchants registered in Hubei. The one-year loans will total 10 billion yuan and be interest-free for three months, after which the rate will be reduced by 20% from current levels. Another 10 billion yuan in one-year loans will be available to merchants outside Hubei wit

35、h interest rates 20% below current levels. From now until March, payments will also be issued to merchants free of charge as soon as an order has been fulfilled. JD.com JD Digits reduces interest rates for loans and allows merchants to delay repayment; it also provides low interest or interest-free

36、loans to merchants. Meituan Meituan works with various financial organizations to provide no less than 10 billion yuan low interest loans for merchants. Source: Internet sources, Fung Business Intelligence China Retail while Suning Logistics also launched similar autonomous vehicles in Beijing, Nanj

37、ing and Suzhou to avoid direct human-to-human contact8. Soon after the COVID-19 outbreak, JD Logistics has deployed autonomous shuttles and drones to deliver medical and commercial cargo throughout coronavirus quarantine zones in Wuhan and other cities in Hubei. Since most people in the region order

38、 goods online to minimize human contact in offline stores, JD Logistics autonomous warehouses have reportedly fulfilled nearly double their usual number of daily orders, from 600,000 to 1 million between 24 January and 2 February9. Department stores and shopping malls 5. Previously closed stores are

39、 gradually resuming operation Since 25 January, many businesses across China had been shut down to contain the fast-spreading COVID-1910. Many provinces, municipalities and autonomous regions, including Beijing and Shanghai, told businesses not to reopen before 10 February at the earliest. Departmen

40、t stores and shopping malls had therefore witnessed significant drop in foot traffic and sales in January and February 2020. A survey conducted by property consultant Colliers International found that 65% of shopping malls suffered a foot traffic loss of 85%; around half of shopping mall operators e

41、stimated that business slumped by at least 70% yoy11. Towards the last week of February, increasing numbers of department stores and shopping malls have resumed normal operation, albeit at a slow pace. Many offered at least 15 days rent free for their tenants. As the epidemic prolonged, income from

42、rent is likely to deteriorate and will put pressure on companies liquidity. Department store and shopping mall operators may need to shelf their plans for expansion and put their long-term development or transformation plans on hold. 6. Operators ramp up online initiatives to mitigate the disruption

43、 To sustain their business, department stores and shopping malls have to accelerate the ongoing diversification of sales channels, including going online. Some worked relentlessly to enrich the functions of their Mini Programs, set up more WeChat private groups, produce livestreaming shows more freq

44、uently to reach out to customers and pilot contactless delivery services, among other efforts. Exhibits 7 and 8 show the key online initiatives of selected department stores and shopping malls. While large brands and merchants are well prepared to seize new opportunities provided by department store

45、s and malls, small and medium merchants may not have the resources and technological knowhow to set up and manage China Retail those sites can be accessed from WeChat official account) - - Parkson Parkson mall - access from WeChat official account - Nanjing Central Mall - - - Eurasia Group Ouya Weid

46、ian - access from WeChat official account - - Livestreaming Liqun Group Liqun Web Mall - access from WeChat official account - O2O delivery Source: Ebrun12, CCAGM13, Fung Business Intelligence Exhibit 8: Major online initiatives of selected shopping malls (as of 28 February 2020) Shopping malls Onli

47、ne channels Marketing Tactics and other O2O initiatives E-Commerce platform App Mini program WeChat private group Suning Plaza - Group-buying, flash sale Joy City Access from its Mini Program - CapitaLand - - - Aegean Commercial Group Ai Shan Gou - access from WeChat official account - - Livestreami

48、ng, points redemption Source: Ebrun14, Fung Business Intelligence China Retail they have also assigned more staff to pick and pack online orders and increased the number of part-time couriers. For instance, Yonghui Superstores recorded 150% yoy increase in order volume for its O2O delivery service Y

49、onghui Daojia during 1-10 February in Fuzhou. To cope with the increase in order volume, Yonghui added over 200 staff from different departments to handle online orders. It also adopted an “employee-sharing scheme” and lined up with several catering enterprise to onboard more staff temporarily15. Its on-demand delivery platfo