In China, Brick & Mortor Retail Faces A New Reality

4 Min Read |

Almost three months after substantial areas of China went into quarantine because of coronavirus, the country is slowly adjusting to a post-lockdown life. For an industry that has been largely forced to shutter, China’s brick and mortar retailers are facing a new challenge – moving their businesses to digital channels. This is likely one of the first lasting changes in China as a result of the Covid-19 crisis.

Before the pandemic, brick and mortar retailers in China faced an unpredictable future. E-commerce players like Alibaba and JD.com were making inroads into offline retail, at the same time as shopping malls tackled three consecutive years of revenue decline from 2016 to 2019. Online retailers became increasingly competitive as they gathered cross-channel consumer insights data and the flexibility of multiple online and offline purchase channels.

During the crisis, many retailers shut, and those that continued to remain open saw sales collapse. By mid-February, H&M reported that 64% of stores in China had closed, and sales were down 89% from the same period in 2019.

As cases of COVID-19 declined in March, brick and mortar retailers swiftly reopened. A survey by China Commerce Association for General Merchandise released in mid-April found that 81% of retailers had reopened 100% of stores, and a further 15% had reopened at least 90%.

However, data suggests although despite the elimination of formal lockdown orders and prompt store reopening, the challenges for retailers is just beginning. The survey found that only 77% of brick and mortar retailers saw foot fall above 50% of pre-virus levels. Reports also circled that Suning and Walmart stores only received half of their typical store traffic. This is somewhat improving however, just a week prior only 61% of retailers saw foot traffic of at least 50%—but 50% foot fall is still far from a full recovery. Almost half of survey respondents estimated sales between 60% and 70% of 2019 levels, while a mere 3% claimed sales equaled pre-crisis levels. By mid-April, H&M sales remained down 23%.

The potential of a “second wave” of infections is a growing concern for offline retailers in China. In the face of public concern, local beauty retailer Wow Colour instructed that all employees undergo frequent temperature checks and follow specific hand washing procedures, including the use of specified disinfectants to be used regularly to clean its stores. JD.com also directed that limitation on instore customer numbers be implemented, with only three hundred shoppers allowed in a space at any one time. Though necessary, these measures place an additional burden of cost for already stressed brick and mortar retailers.

In an effort to ease fears, some retailers have also attempted to publicize their safety measures. In early April, Sephora rapped about its extensive precautions in a music video shared on the brand’s WeChat account.

The crisis proved to much for British cosmetics retailer Space NK, who exited China in April after a two-year attempt to gain a traction in the market. Its competitor Watsons, a health care and beauty care chain, who pioneered leveraging its three thousand brick and mortar retail units for digital functionality and online order fulfillment, appears better prepared for the challenges that lay ahead.

E-commerce has been a notable winner emerging from the pandemic. Many beauty and fashion brands have recently launched official stores on Tmall. Louis Vuitton launched its first livestream on social platform RED in late March, receiving over 150,000 views. Alibaba hosted an entirely virtual Shanghai Fashion Week, gaining 11 million viewers, and generating nearly USD 3 million in sales. 

The reality for brick and mortar retailers in a post-lockdown China is likely to bring challenges not anticipated before or at least not viewed as an immediate priority. The pressure to embrace digital channels faster than expected will likely create a broader rethink of existing business models and pressure to acquire the infrastructure and resources in an already dynamic landscape. Businesses dependent brick and mortar retail elsewhere in the world should now look to China, and learn from the challenges and opportunities that are likely to emerge from the crisis, and consider what investment needs to be made through digital transformation in order to retain their customer base.

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