How the coronavirus outbreak is affecting retail in Asia
The coronavirus outbreak that originated in mainland China has led to border controls in various countries, a decrease in tourist traffic and a drop in consumer confidence in the most affected countries. Shoppers are staying at home to avoid being infected and are staying away from crowded areas such as malls.
Similarly, brands and retailers are also adversely affected by the outbreak. Regardless of location, there are a few key themes that have emerged on how retailers in Asia are dealing with the outbreak.
Disruptions in the supply chain
Retail supply chains have become disrupted as companies operating factories have suspended production to curb the spread of coronavirus. With Wuhan being a major manufacturing hub in China and half of all Fortune 500 corporations having operations in Wuhan, the reduced production of finished goods, restrictions on logistics and labour shortages have all caused a major disruption in supply chain globally.
Foxconn, Apple Inc.’s primary manufacturer, reportedly shut down almost all production in mainland China through February 10. This in turn led to Apple analyst Ming-Chi Kuo downgrading his Q1 2020 iPhone shipments forecast by 10%. Tim Cook, CEO of Apple, commented that Apple is working on mitigation plans to make up any expected production loss.
To minimise disruptions in the supply chain, brands and retailers will need to diversify their sourcing origins. For instance, less impacted fashion brands such as H&M were already sourcing products from Vietnam and Thailand before the outbreak.
For brands and retailers planning to source from a new market, they will need to pay attention to varying compliance regulations and production capabilities. At the same time, brands and retailers should also communicate diligently with their existing suppliers to ensure that there are enough staff and production facilities to fulfil customer orders and minimize delays, especially during a virus outbreak.
Store closures and reduced brick-and-mortar sales
With reduced footfall from shoppers, and to combat the spreading of the virus, brands and retailers have made temporary store closures. In China, Apple announced that it was closing all its mainland China locations in response, and IKEA and Levi’s have followed suit by also temporarily closing half of their stores in mainland China.
Besides China, a similar scene has been witnessed in South Korea, where decreased visitor numbers of Chinese tourists during the Lunar New Year caused major retailers including Shilla Duty Free and Shinsegae Group to temporarily close down stores and suffer at least a 10% sales decline versus last year. There is likely to be further disruption to retailers as the outbreak has started to accelerate in South Korea from mid-February.
That said, the picture is not all dim for brands and retailers that are resilient and adaptive to challenges. For instance in Hong Kong, we see fashion brand Myaleshia achieving stable sales through its online channel, and it is continuing to focus more on ecommerce. On the other hand, HK cartoon brand Shiba Inc. is promoting its merchandise through Facebook and thinking about using pop-up stores instead of permanent stores to cut rental costs during the outbreak.
According to research conducted by Tofugear in February, 61% of Asian consumers are now preferring to shop online over physical stores, and they are also relying on social media as their key information source when purchasing products. Establishing an online presence and promotions through social media platforms can be very viable strategies for brands and retailers in the current challenging climate.
Online marketplaces and food-delivery platforms sales soar
Whilst physical retail is clearly suffering, companies with an online presence have reported soaring sales as consumers turn to ecommerce for purchases. Shoppers are also purchasing in bulk in order to reduce contact with delivery personnel.
For instance, JD.com’s instant delivery arm JD Daojia reported a five-fold increase in sales volume in China. Similarly, Korean online marketplace 11Street stated that twice as many staple goods were bought between Jan 27 and Feb 1 compared with the same period last year.
In regards to food delivery services, Ele.me in China has enjoyed a surge in demand during the virus outbreak, recording a nine times increase in food and grocery deliveries compared with last year. Similarly in Hong Kong, during the Lunar New Year period, food delivery platform Foodpanda recorded a 50% increase in site traffic and a three-fold increase in the number of orders compared with the week before.
The emergence of contactless retail
Whilst online marketplaces and food delivery platforms have gained sales uplifts due to the outbreak, a new form of ‘contactless retail’ has also emerged in response to concerns about transmission between customers and staff.
For instance, Alibaba and supermarket group Baicangchu set up a staffless store in Wuhan in just one day to satisfy customers’ grocery needs. The store operates 24 hours a day and has no staff, and customers can pay for purchases by simply scanning products’ QR codes with their smartphones.
In regards to food delivery, Yum China which operates the KFC and Pizza Hut brands across China, has launched a contactless food-delivery service. Once customers select the ‘contactless delivery’ option when placing online orders, the customer will collect the order with a minimum 10-foot distance from the courier.
Whilst the rise of contactless retail during the coronavirus outbreak does not necessarily mean brands and retailers have to set up staffless stores, it emphasises the importance of maintaining personal hygiene and reducing physical contact as an ethical measure for brands and retailers when doing business with customers during the outbreak. As long as the outbreak still lasts, we foresee that retailers will adopt similar strategies in other markets in Asia.
Brands and retailers making donations to combat coronavirus
To demonstrate the implementation of corporate social responsibility and to connect to consumers on a more personal level, some multinational brands and retailers are making donations to show their concern to local communities. Brands including LVMH, L’Oréal, Estée Lauder and Swarovski have pledged millions of yuan to tackle the medical supplies shortage in Wuhan, to care for medical staff and patients at hospital and for public health education.
For companies of a smaller scale, which may not have large funds to donate to the local community, consumers may still appreciate if a brand or retailer has their best interests in mind. There are simple things companies can do to connect with consumers on a more personal level and earn a better brand equity. Instead of offering sales promotions, they can teach the public how to stay safe or even hand out free masks or hand sanitisers to the public.
It is beyond doubt that the coronavirus outbreak has caused a decline in consumer confidence, reduced footfall for physical retailers and disrupted retail supply chains. However, the outbreak also poses opportunities for businesses to rethink their business model, sales strategy and also whether their supply chains are diverse enough. After all, today’s consumers are no longer buying from a single channel and they also demand brands and retailers to care about their needs. It is also uncertain how long the coronavirus outbreak will last – brands and retailers have to stay alert and react quickly to mitigate all potential risks.