China Retail shuts down & British High Street stagnates

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This Week in Retail is back as Associate Consultant Lucy Herriot brings us more coverage of the Chinese retail landscape which has been rocked by the recent virus outbreak. She also speculates about how retailers may be able to turn the situation into an opportunity; and then swings back to the UK where the High Street crisis continues with little resolution in sight.

Hello and welcome to another edition of This Week in Retail. Coronavirus has been occupying headlines across industries this week, but in China the outbreak is hitting the retail and food service sectors especially hard, as it costs vendors billions in lost revenue. The unfortunate timing of the virus, clashing with Lunar New Year, meant that forgone revenue in both retail and food services is estimated between $31 billion to $124 billion (20% – 80%) in that holiday week alone. Sales of alcoholic drinks are expected to have been one of the worst hit as consumers cancelled their celebrations. Baijiu, a Chinese spirit, takes 30%-50% of full-year revenue during national festivals, so producers of the drink are bracing themselves for challenging first-quarter results.

As several cities on mandatory lockdown turn into ghost towns and others hunker down as a precaution, small retailers and major chains are shuttered across China. Apple has temporarily closed all of its Chinese stores and Starbucks has closed more than half of its outlets. McDonalds, KFC and Pizza Hut have closed 30% of outlets and sales at those still open are poor, down 40% – 50% on the same period last year. All said this week that they expect the closures to affect earnings for the quarter. Burberry said the outbreak is hitting trading harder than last year’s protests in Hong Kong, with a ‘material negative effect’ on luxury demand both domestically and overseas as travel restrictions dent Chinese shopping sprees in Europe and other destinations.

The paralysis has been less pronounced in online retail as consumers turn to the internet to avoid braving the streets – but the number of delivery drivers, postal workers and warehouse operators out working has reduced, possibly denting any gains to be had in the digital retail space.

Fourteen provinces and cities have extended the Lunar New Year holiday, saying that businesses should wait until at least the second week of February before re-starting operations. We’ll see how that plays out this week and next, but it’s unlikely that this will stimulate much up-tick in Chinese consumers’ appetite for going out to shop and eat, or to take the risk of greeting a delivery person at their front door.

In times of crisis however there are usually opportunities – the 2003 SARS crisis forced Chinese retailers to adapt to the worsening market conditions. Then JD.com was a media and electronics chain with 12 stores – all of which were forced to close during SARS, forcing founder Richard Liu to find all of his sales online by posting in forums and chat rooms. It worked – sales rose and less than a year later, Liu moved away from brick-and-mortar, launching his e-commerce website which would become JD.com. The rest is history as the company quickly became one of the largest online retailers globally. During 2003, the 4-year old Alibaba’s business grew 50% when both domestic consumers and overseas businesspeople turned to Alibaba’s online business to source Chinese goods after many countries issued travel warnings for China. Later that year, Alibaba used this growth to launch Taobao, which has since grown into the world’s biggest e-commerce website.

While the Chinese e-commerce industry received a boost from SARS during its development stages, today it is well established. However online retailers of fresh food, essential FMCG, and OTC pharmaceutical products could still see a surge in demand as more consumers stay home and stock up for emergencies. So, we’ll soon see whether new efficiencies and innovations emerge from the chaos this time round.

A retail apocalypse of a different kind continues to play out on the UK high street, as figures were released this week revealing that in 2019 1400 firms went into administration in England & Wales alone – including the demise and restructuring of a large number of high street retailers. The ‘Boris Bounce’ anticipated by UK retail is still yet to materialise with shoppers remaining as thrifty as they have been throughout the Brexit uncertainty. Among other news, the vegan boom continues as lunchtime shoppers are driving skyrocketing sales of vegan sandwiches and snacks at major UK supermarkets including Sainsbury’s, Waitrose, and Tesco – which saw an almost 75% jump in its plant-based sandwich sales compared to last Veganuary!

 

Thanks very much for reading and have a great weekend.

Lucy

Author


Lucy Herriot

Associate Consultant

 

 

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