Posted: 23 Apr. 2020

A tale of two retailers: Responding to COVID-19 in China

In this crisis, a clear bifurcation has emerged

Over the past 60 days, retailers in China have been through nearly the full spectrum of the COVID-19 crisis. With the virus’s early emergence in China—and sales of consumer goods falling by 20.5% according to the China Chain Store & Franchise Association (CCFA)—China’s retailers are in a unique position to provide insight on moving from respond to recovery.

Deloitte recently held two events that drew on the combined experience of some of China’s largest retailers, featuring a discussion about their response to COVID-19. With China’s outbreak curve trending a few weeks’ ahead of most other countries, there are definitely some lessons to be learned.

Status check: China

While the entire retail industry has faced significant challenges in China during the outbreak, there is a clear bifurcation of the market between grocery retailers—and everyone else. Sales at supermarkets and fresh food groceries have skyrocketed, with some segments experiencing a more than 100% increase, according to CCFA. In contrast, sales at department stores, shopping malls, and specialty stores have plummeted.

With the epidemic in China gradually easing, many stores have now reopened. According to the CCFA, the opening rate of China’s supermarket industry has now reached over 95% and the opening rate of department stores and shopping centers have recovered to 85%. However, it will take time for consumer confidence to return, with traffic and sales at department stores only 30% to 40% of pre-crisis levels.

Grocery retail: coping with panic and pressure

With panic-buying surging early in the epidemic and the public cooking almost exclusively at home, Chinese grocery retailers found themselves facing unprecedented pressures. These were only multiplied by staffing issues, worker protection, and providing safe shopping environments. To respond swiftly and coherently, grocers took the following practical steps:  

  • Minimized workforce strain and promoted safety. Retailers used cross-training, financial incentives, and surge hiring from the food services industry, which was mostly shuttered, to meet staffing needs. They negotiated with restaurants to employ their staff at the same contracted rates to assist in fresh food preparation and pick and pack. Retailers also provided workers with key protective gear, such as masks and goggles.
  • Established cadence for crisis leadership. To nimbly respond to the crisis, which evolved at a rapid speed, retailers set up crisis response teams that met at regular touchpoints throughout the day, every day, to monitor the situation and plan immediate responses and strategies.
  • Promoted calm with customers. Retailers established trust with customers by connecting directly via social media about product availability. Retailers also established mark-up thresholds to avoid price inflation and follow-on panic. To provide additional protection, “community pick up points” were ramped up to minimize contact and rigorous cleaning routines were implemented. They also offered 24-hour delivery with no minimum amounts to health care workers at hospitals.
  • Scaled up online capability by scaling back assortment. With web orders surging, retailers reduced the number of SKUs available online to better manage systems and delivery, initially focusing only on critical products. As demand stabilized, retailers used app data to inform merchandising and inventory planning.
  • Prepared for “recovery” during “response.” Retailers began preparing early for a return to normal operations—such as restocking inventory and setting re-opening schedules—but incorporated continued vigilance and safety into plans.
  • Reduced supply chain risk and cost shocks. Retailers worked directly with suppliers to source items as needed and to prevent price gouging. They also fully leveraged regional distribution networks to enable flexibility for alternative sources of supply when different countries were impacted at different times.

Non-food retail: coping with empty stores and malls

For most department stores, malls, and specialty stores in China, foot traffic ground to a halt during the pandemic. As such, focus had to shift to online access to both communicate with customers and sell their products.

For retailers that already had a well-developed online presence and a way to both connect with and deliver to customers, the stark impact of the crisis was somewhat muted. Sales were down—but a minimal amount of activity could still take place. Those retailers that were in the process of building their online capabilities found themselves in the uncomfortable position of playing catch-up and doing it fast. This also meant accelerating outreach plans to customers via online platforms and social media.

One of the opportunities this crisis still presented, though, for non-food retailers was brand-building. This included communications focused not on selling and profit, but rather the best ways to make it through the crisis together. Reaching out to convey information about safety and well-being, news about socially-minded initiatives, and overall messages of support worked to remind customers that their favorite retailers were there for them once normalcy returned.

Moving through recovery

As China reopens for business, retailers can learn not only from how China’s retailers responded to the pandemic but also how they are using the recovery to start thinking about post-crisis opportunities. Top of mind, of course, is the role of digital. While online presence was maybe negotiable pre-crisis, it is mission critical going forward—especially as consumer habits when it comes to digital purchasing, may have shifted for good. That said, new online-to-offline (O2O) channels put forth in response to the crisis may also continue as a preferred way of shopping. Retailers would do well to build and improve on these efforts.

A crisis is never how anyone wants to learn valuable lessons. But watching Chinese retailers get back to business is one way to help us all get through it.

Authored by:

Evan Sheehan

Evan Sheehan

Global RWD Sector Leader

Evan Sheehan is the Retail, Wholesale & Distribution Leader for Deloitte Global. In this role, he is responsible for developing the global sector strategy and integrating businesses and go-to-market solutions across the Deloitte network. Currently the Global Lead Client Service Partner (GLCSP) for a leading retail organization in the United States, Evan has more than 20 years of experience serving a range of retail clients. Over the years he has helped clients with service delivery transformation, technology integration, portal management, and enterprise transformation. His expertise and interests also include analytics, finance transformation, infrastructure and capital projects, and mergers and acquisitions.  

Tianbing Zhang

Tianbing Zhang

AP Consumer Products & Retail Sector Leader

Tianbing Zhang is Deloitte Asia Pacific Consumer Products & Retail Sector Leader.