Going Digital: Helping Retailers Conquer the ‘New Consumption’    

The continued spread of the Novel Coronavirus since the start of 2020 has affected the entire world and includes confirmed cases in China and 150 other countries and regions as of mid-March. If the pandemic is not quickly brought under control, then the world economy faces the risk of a global recession. It has already stopped the growth of the retail industry in its tracks, and dealt a particular heavy blow to offline retailers.

The outbreak has significantly reduced customer volumes in China's retail industry over the last two months, put cashflows under pressure, and plunged many businesses into operational difficulties. China’s disease control measures appear to be working well at the moment, prompting the offline retail industry to try to return to business as usual quickly. Data from the Ministry of Commerce indicates around 95%, 80%, and 50% of China's supermarket chains, convenience store chains, department stores and shopping centers, respectively, across China were open by the end of February. Comparatively fewer street-facing specialty, boutique stores have reopened. Deloitte China and the China Chain Store & Franchise Association have jointly release the Impact of COVID-19 on the Finance and Operations of China's Retailing and the Industry Outlook in organizing a comprehensive view to the retail industry’s existing responses to the pandemic and to provide supportive insights, its main findings as follows:

• Above 90% of respondents declared an impact on customer volumes. 37% of those surveyed believed the epidemic had reduced customer volumes by more than 50%. Sector-by-sector, malls appear the worst affected as around 60% recorded a 50% drop in customer numbers. 57% of supermarkets and 38% of convenience stores announced between a 10% to 30% drop in customer numbers. On the other hand, this reduction in customers affected online malls the least, nearly two-thirds of which reported no impact at all. In fact, e-commerce retailers delivering e.g. to people’s homes actually reported a massive increase in order volumes;
• 59% of respondents surveyed expected a decline to first quarter revenues. Every single mall surveyed expressed pessimism about first quarter revenues, 80% forecasting a decline. 40% of these forecasts expected a decline of 30-50%, and another 20% over 50%. On the other hand, 65% of supermarkets believed revenues would remain stable or even increase. Approximately 25% of convenience stores expected first quarter revenues to remain flat with 50% forecasting a drop but within a 30% range. Online malls expected any impact on first quarter revenues due to the outbreak would be fairly minimal, as consistent with their responses around customer numbers;
• Approximately 26% of businesses surveyed expected to reach a funding shortfall within 3 months or had already, and the industry’s demand for financing had increased. Furthermore, around 26% of those surveyed expected a cashflow crunch within 12 months. Businesses’ main sources of funding pressures were expenditure on wages, rent, and supplier payments. The main methods respondents were planning to use to improve their cashflows included negotiating more favorable loan arrangements, cost saving measures, additional financing, and improvements to working capital;
• Logistics, Marketing and Sales, and Procurement were some of the departments most affected by the pandemic. 83% of businesses thought that their Logistics department had been affected, 73% Marketing/Sales, and 68% Procurement;
• The main factors highlighted underlying the decline in sales revenues include logistics and freight, sales, and service personnel not yet returning to work, the closure of places of business, and a drop in customer demand. The logistics and transportation issue was the most significant for supermarkets and department stores as more than 85% reported it to have had the greatest impact on sales. 66% of retail businesses’ sales revenues had been affected by retail and service personnel not yet returning to work, with 100% of department stores and malls recording a fall in sales revenues from business locations closing;
• Respondents were also hopeful about obtaining more favorable taxation and social insurance policies and/or rental and loan subsidies via the government or banks to tide their business through this difficult period.

 
All sectors of the retail industry had embraced technological solutions to accelerate the pace of their digital transformation in operations, sales and supply chain models to the online realm, new formats which also may bring about new opportunities for the sector’s growth also. We forecast the following retail market trends in view of each sector’s current situation and the driving impetus of digitalization:

Rapid growth in O2O and community-based services in supermarkets and convenience stores during this pandemic will also encourage supermarkets and malls to embrace a standardized suite of online services offering full product ranges, and also to quickly rework their stores’ digital presence. Online malls’ consumer products, fresh food and health product offerings should enjoy a period of rapid growth due to the outbreak, which will also encourage online retailers to further refine their online presence for a superior customer experience. On the other hand, malls, generally shuttered under the pandemic’s shadow, will accelerate their digital transformation of supply chains, channel, etc as the need for a comprehensive system of ‘omni-touchpoints’ connected to their consumers becomes even more relevant and pressing.

We recommend that retailers prepare a set of medium to long-term countermeasures to avoid the outbreak’s damaging effects in accordance with their severity and to try to improve their own competitive position. Retail businesses may want to exercise more stringent control and oversight over cashflows, actively seek out further financing and investors, and restructure if necessary in the short to medium-term as well. Long-term, companies must also accelerate the pace of their digital transformation and create a strong ‘omni-channel’ link to inventories, establishing a seamless connection capable of meeting customers’ stock demands in a more ideal manner; business should also attempt to use social media to engage with consumers to ‘lock onto’ consumers’ demands at key moments.