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China Daily Global / 2020-02 / 24 / Page013

Winds of change

By CHEN KE | China Daily Global | Updated: 2020-02-24 00:00

Epidemic will have far-reaching influence on the retail industry and consumption

The novel coronavirus outbreak has had a big impact on the consumer goods and retail industries. But from an analysis of the economic impact of other natural disasters, it can be anticipated that it will be a short-term cyclical downturn. As soon as the epidemic ends and consumer confidence recovers, it will return to the previous normal growth rate.

The impact of the epidemic on consumer goods and retail industries can therefore be expected to be as follows.

First, assuming the epidemic will soon be brought under control, it is anticipated that the consumer goods and retail industries will return to steady growth throughout the year.

Second, the characteristics of consumer segmentation are different, and the short-term effects vary significantly. Daily necessities such as oil and food stuffs will keep relatively steady growth, but the consumption of services such as catering and entertainment have plummeted.

Third, the compensation for consumption during the epidemic period may make the probability of explosive growth after the epidemic small. Consumer demand during this epidemic has been compensated for by e-commerce and home delivery services.

The rapid development of e-commerce and logistics supply chains has caused great changes in consumption habits and consumption scenarios.

Many companies faced a sharp decline in sales during Spring Festival, and some companies with a high proportion of fixed costs are facing tremendous pressure on the capital chain. Although local governments and upstream companies have issued policies to support them, the problem of striking a balance between epidemic control and economic growth still exists.

The direct influence of the epidemic on enterprises has also indirectly affected some consumers' incomes and medium-and long-term consumer confidence. Different types of products are affected and therefore the effects of the epidemic and their future recovery cycles will display different characteristics.

The epidemic will have a limited impact on the short-term and basic needs, such as food and grain, oil, fast-moving consumer goods, and beauty and personal care, due to the rigid demand. Meanwhile, for mid-to long-term, non-urgent and basic needs, some industry segments, such as fashion and textile, and household electric appliances, might be able to compensate for current epidemic losses through delayed consumption. However, considering the risk of in-store contacts, this black swan event has meant big losses for the catering and entertainment industries. Their recovery depends on consumer confidence, which will not recover until people are convinced the epidemic has definitely ended.

At the same time, compared with the severe acute respiratory syndrome (SARS) outbreak of 2002-03, e-commerce and home delivery supply chains have been developed and popularized, which offers risk-averse consumers contactless e-commerce and home delivery.

Thus although the epidemic has caused damages, it also brought opportunities to retail and consumer goods industries to reflect on their business models. Larger platform-based enterprises could assist small and medium-sized enterprises to specialize in upgrading and accelerate the process of industrial supply-side reform. This would help micro, small and medium-sized enterprises realize digital operations, professional production, diversified marketing and the provision of smart services, which would then become the focus of future platform's business development. Sharing resources in the industrial chain and cross-sector collaboration in this way might become a normalized business model.

The epidemic has had a major impact on consumer psychology and behavior, and it has also strengthened the demands for safety, convergence, convenience and targeting. We can foresee that community business and online transactions will be further enhanced. Meanwhile, the delivery time will also become a more important decision-making factor in consumer purchasing behavior. "Targeted shopping" and "quick-fix shopping "based on brand presets will become popular. The time taken by consumers to make purchases will be further reduced. At the same time, farmers' markets which have problems in food safety and sanitation will be further replaced by modern channels that can better guarantee safety and hygiene. Thus the pace of transforming farmers' markets to supermarkets will be accelerated.

From the perspective of enterprises, they should change their business model from the linear growth in the dividend period to the probabilistic thinking model of stock market dynamics. Enterprises should accelerate the deployment of efficient and diversified channel models, enhance their capabilities to manage and control risks, and build strong brands, product recognition and their customer service capabilities.

These will be the core issues that the retail and consumer goods industries need to focus on after the epidemic.

The author is senior partner of Greater China at Roland Berger Management Consulting. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.




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