Why China’s retail won’t go back to the way things were

China has all but eliminated the coronavirus threat and day-to-day life in its metropolitan cities has more or less returned to its normal pace.

But the coronavirus crisis may have irrevocably changed the retail industry and the way brands and retailers engage consumers.

We take a look at what happened and what it means for global brands looking to make their mark in what may soon be the world’s largest retail market.

E-Commerce Reigns Supreme in China

E-commerce showed strong signs of growth throughout the coronavirus crisis, as consumers stayed at home and logistics companies introduced safety measures to keep their deliverymen out of harm’s way. Many apartment buildings also introduced no-touch drop zones for couriers to drop off packages without having to interact with their customers.

Data from retail consulting firm Kantar shows that FMCG e-commerce sales grew by a whopping 39.3% in the three months leading up to April 17th, while offline FMCG sales fell by 12.6% YoY. E-commerce consumption is likely to continue to grow, as customers realize that they don’t really need offline retail and as platforms continue to offer cheap, 1-2 day home delivery.

This realization has hit luxury brands, which had previously relied on offline retail in Beijing, Shanghai, Paris, and London to reach Chinese customers and tourists. Prada, Alexander Wang, and Cartier all launched Tmall stores over the past few months, signaling that the luxury industry cannot afford to ignore the shift towards e-commerce.

Historically the luxury industry had been loathe to partner with Alibaba and invest in e-commerce. This was partly because of fear that they could not replicate the luxury experience online, and partly because China e-commerce was fraught with frauds and heavy discounting strategies to drive sales.

But luxury consumption in 2020 is being increasingly driven by millennial customers, who demand a high-quality digital experience. Because of this, Alibaba has done much to assuage brands’ concerns. On its Luxury Pavilion subplatform, luxury brands have much more website space to place artistic banners and videos and differentiate themselves from the rest of the merchants selling on Tmall.

In short, the coronavirus crisis has accelerated digital transformation efforts by brands and retailers that were in motion prior to this year.

A banner from Prada’s official Tmall store. Source: Official Tmall website

Livestreaming is Here to Stay

The practice of livestreaming to promote e-commerce sales has skyrocketed over the past few months. Everyone from cosmetics brands to rural farmers and auto shops began livestreaming to keep their businesses alive through the coronavirus crisis.

How does it work? The brand typically has an employee or influencer give a 60-minute presentation of its products, and viewers on the platform can type questions and interact with him/her in real time.

Oftentimes he/she will introduce the brand, offer raffles or interactive contests, and show how the products work. Typically, the livestreaming session is combined with a promotion that involves a discount or gift set to motivate viewers to buy on the spot.

Products that are more visual or can be demonstrated in real life are better. For example, cosmetics products can be used to apply on one’s face, farmers can show viewers how they grow their crops, and auto repair shops can demonstrate how certain parts can be used to fix one’s vehicle problems.

A farmer livestreams to show off his crops. Source: BJNews

Just how big is livestreaming now? Here’s a few stats:

  • Alibaba’s Taobao Live platform sold over US$280 million worth of goods in just 90 minutes, for China’s midyear 618 (June 18) shopping festival, which kicked off on June 1st. Over 300 celebrities and 600 company presidents will livestream on Taobao Live to promote their products
  • Alibaba saw e-commerce sales from livestreaming double year-over-year in the first quarter of 2020
  • For the same 618 festival festival, JD.com will host over 300,000 livestreaming shows to promote sales
  • Though Alibaba was the first to popularize livestreaming with its Taobao Live platform, other e-commerce and social media platforms such as JD.com, Little Red Book, Tik Tok, WeChat, and Kuaishou have all added livestreaming tools over the last year

Food Consumption Habits are Drastically Changing

The coronavirus crisis has also been a boon for China’s food & grocery delivery apps, many of whom were losing massive amounts of money to subsidize new user acquisition.

But during the coronavirus crisis, those who never or rarely used online delivery apps were forced to do so for the first time, and the lockdown led existing users to double down on online ordering. Food & grocery apps accounted for 79% of F&B-related app downloads in February, according to data from Statista. Alibaba’s Freshippo smart grocery chain saw online orders jump 10% YoY in the first quarter, surpassing offline retail to make up over 60% of total sales.

Meituan Dianping, China’s largest food delivery platform, saw food delivery orders hit 90% of their pre-coronavirus numbers in May, even despite many restaurants shutting down. Dada Nexus, which operates the JD-Daojia delivery network co-owned by JD.com and Wal-Mart, filed a US$280.5 million IPO in mid-May, highlighting its confidence in the industry’s growth prospects.

Elena Gatti, Managing Director of Azoya EU

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1 Comment. Leave new

  • Avatar
    Fatima Rizvi
    June 14, 2020 5:05 am

    Very insightful article. Clearly written, highlighting the changing consumer trends of China or if I say rest of the world

    Reply

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