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Could China’s Recovery Offer a Roadmap for Retail Rebound?

The fashion industry at large is looking to China as a model for COVID-19 recovery, both in terms of public health and the economy. While the rollercoaster ride of a global pandemic has provided more than a few ups and downs, the country appears to be coming out on top again.

With coronavirus cases in China mostly appearing to taper off, analysts at Edited recommend looking to the nation’s emergence from the crisis as a “guideline rather than an exact blueprint” for bouncing back.

Like the U.S., provinces and regions across China have experienced varying degrees of recovery. Many news outlets pointed to the reopening of the Hermès flagship in Guangzhou—which incited a buying frenzy that resulted in $2.7 million in single-day sales—as evidence that retail was on the mend.

But analysts said it’s not so simple. Shoppers in the northern region of the country, including Beijing, are still deeply reliant on e-commerce, and are skipping stores for the present moment.

And, according to Edited, the SARS outbreak of the early aughts is providing a possible framework for businesses wondering when sales will pick up again.

China’s National Bureau of Statistics said SARS prompted the country’s economic growth to drop in Q1 of 2003 from about 11 percent to around 9 percent in the three months following the outbreak. After two months of halved retail sales, commerce rebounded, particularly in the luxury sector.

The impact of COVID-19 has been much more severe, and McKinsey and Co. believes global revenue for luxury goods will decrease by anywhere from 35 percent to 39 percent this year—though the category could see positive growth of up to 4 percent in 2021.

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Managing excess inventory

For brands and retailers that have found themselves embroiled in a difficult selling season, new strategies need to take shape—and quickly. Edited analysts recommend they prioritize developing new inventory management plans for the current spring season.

New product arrivals in China decreased by 95 percent between Feb. 16 and March 1, and even though there was an uptick in arrivals when factories reopened later in March, they have now subsided. Retailers are shirking new deliveries as consumer confidence has not fully returned, and a flooding of the market with excess stock at this juncture could be disastrous.

“With the environmental and ethical backlash associated with destroying stock and canceling supplier orders, retailers need to get creative by reworking their assortments to maximize the products’ selling potential out of season,” analysts said.

Analysis from Edited reveals learnings and strategies from China's coronavirus recovery, and the resurgence of retail sales in the country.
People wearing protective face masks walk by luxury stores at Wangfujing pedestrian street in Beijing. WU HONG/EPA-EFE/Shutterstock

Keeping consumers close

The majority of Chinese consumers (57 percent) said they feel closer to their community stores in light of the pandemic, according to market research firm Mintel.

“Tailoring your offer and maintaining a strong relationship with your local consumer is paramount to building a loyal community and boosting consumer confidence, which will benefit your brand in the long run,” Edited analysts advised.

China’s shoppers have an affinity for luxury goods, and the sector is hoping for a delayed but strong showing of spending. But in the U.S. and other Western regions, a dearth in Chinese tourism and high unemployment rates have contributed to a 21 percent year-over-year decline in SKU sellouts.

Because of this, U.S. retailers should ensure they have diverse offerings across a range of price points that are accessible to all shoppers, analysts said.

Stop the race to the bottom

Deep discounts at this point in the game could be a mistake, even though the urge to liquidate product is strong.

“Retailers need to hold off discounting too much too early, especially if products will still be relevant trends in future assortments,” analysts said.

Retailers in China were cautious about discounting in February and March when the country was hit hardest. Consumers were not focused on shopping at that point, and discounts only resumed when the virus abated to a degree.

Discounts should be used to encourage sales momentum, analysts said, and China is still holding back on deeply discounting a number of products, like dresses and swimwear, that could retain relevance in the coming summer months.

Upping e-commerce strategy

Social shopping has exploded across China, and at the peak of lockdown, retailers selling on Taobao’s livestream platform increased by 719 percent. According to iiMedia research group, the trend is set to grow by more than double—to the tune of about $129 billion—this year.

Shanghai Fashion Week took place in late March, and the events were shared with the world via live and pre-recorded segments, attracting 2.5 million watchers in the first three hours. Alibaba-owned Tmall and Taobao hosted the event, potentially paving a new way for fashion week events to unfold across the globe.

Gaming has also seen a massive uptick in China and around the world, and fashion brands want in on the action. Net-a-Porter created avatar skins from Chinese designers for the Animal Crossing video game, which were sold exclusively through Tmall. Global phenomenon TikTok also presents opportunities for brands, though retail’s adoption has been slow.