Will the coronavirus shock push the retail sector in the US and Britain to adopt the China model?
- Coronavirus-related lockdowns and supply chain disruptions have dealt a severe blow to the retail industry in the US and UK, already grappling with the threat of online shopping
- The retail sector in Asia – particularly China – is better placed to cope, but also faces challenges related to supply and must anticipate post-crisis demand patterns
In the commercial property markets, the retail sector has been distinctly out of favour with institutional investors for some time. Last year, retail transaction volumes globally fell 3 per cent year on year, compared with a 24 per cent increase in deals in the logistics sector and 3 per cent rise in office transactions, data from JLL shows.
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In a brief published earlier this month on the impact Covid-19 is having on the global retail industry, consultant Bain and Company said “the crisis is a defining leadership moment for retailers”, adding that the “changes to operations demanded by the situation are vast, touching on sweeping matters of continuity of supply and availability, rapid adaptation of online and offline channel operations, channel capacity and more”.
In China, e-tailing has been the norm for some time, in stark contrast to advanced economies, where digital disruption has severely damaged traditional bricks-and-mortar retailers. According to data from JLL, online sales in China account for roughly 30 per cent of total retail sales, compared with 10 per cent in America. Even in the Asia-Pacific region as a whole, e-commerce accounts for 18 per cent of all retail sales, compared with 10 per cent globally.
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A report published by CBRE earlier this month noted that omnichannel platforms, especially in the grocery and fresh food subsectors, have reported a surge in sales during the Covid-19 crisis, with JD.com, China’s online shopping giant, posting a 400-500 per cent year on year rise in fresh food sales during the Lunar New Year.
Sharp slowdowns (and outright stoppages) in production and distribution centre activity due to quarantines and travel curbs have made supply “the biggest problem for retailers”, according to Bain, which notes that while 80 per cent of Chinese consumers expressed a preference for buying groceries online during the crisis, only half could make their purchases due to the lack of supply.
In a report published earlier this month, JLL noted that “many retailers [will have] to rethink their supply chains to ensure continuity of their operations and to mitigate risks of future shocks”.
Just as importantly, the retail industry, particularly in China where the government has contained the spread of the virus and will shortly lift the mass quarantine over Wuhan, must start preparing for the resumption of normal activity.
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Retailers will have to anticipate post-crisis demand patterns, ensure that measures that enhance safety and hygiene remain firmly in place, ramp up flexible omnichannel strategies and, perhaps most importantly, heed the lessons from the Covid-19 crisis to help plan for future shocks, including a new wave of infections if lockdowns are lifted prematurely.
In the coming weeks, China’s retail sector will be under the spotlight as Beijing seeks to restart economic activity. As far as defining leadership moments for the industry go, this will be one of the most important ones.
Nicholas Spiro is a partner at Lauressa Advisory
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