As Stores Reopen in China, U.S. Retailers Look to the Country for Answers

As businesses begin to reopen in China and life slowly returns to its streets, the retail industry in the U.S. may look to the country for guidance on what the post-pandemic world looks like and how to adapt to the new reality. That’s because the pattern of Chinese consumers’ purchasing habits in response to Covid-19 is now being mirrored in other countries as the contagion spreads, according to market analytics and ratings agency Nielsen. “China was the first place on the planet to emerge and is a quite compelling early indicator for the rest of the world,” said Scott McKenzie, head of Nielsen’s global intelligence group. On the other hand, China's experience may not be a perfect blueprint for what the U.S. is set to experience in the coming months. The two nations find themselves under different circumstances, from how each of their governments are handling the crisis to the digital capabilities of their respective retailers. For one, China’s national government has centralized control over the economy, McKenzie noted. And while China had little time to respond to the highly contagious virus, it was not unfamiliar with the threat of a pandemic, having experienced SARS in the early 2000s, said Deborah Weinswig, CEO and founder of advisory and research firm Coresight. That past experience resulted in China's "ability to frame [the crisis] and respond very quickly, with the population also realizing the challenges ahead," she said. According a survey conducted by Dentsu Aegis Network China, a majority of marketing directors were aware of the potential impact of the coronavirus precisely due to SARS in 2003. Despite the differences, there are a number of lessons retailers in the U.S. and beyond can learn from the Chinese experience that helped brands there stay connected to consumers and salvage sales, from a more advanced and accessible broadband network to a highly developed contactless payment system. China outpaces the world in digital development In many ways, what SARS was for China, the coronavirus may prove to be for the U.S., altering consumer behavior and exposing gaps in the nation's digital and technological capabilities, spurring necessary infrastructural improvements, said Iris Chan, a partner at digital marketing agency Digital Luxury Group. [kickout id="1" label="sars"] Importantly, China is more advanced in terms of developing its digital economy and the tools needed to facilitate online and mobile transactions, which in itself holds lessons for the U.S. As McKenzie put it: "Every country would index lower in digital capabilities versus China." Infrastructure is at the top of that list, with China rolling out a 5G wireless network that has the bandwidth to support virtual showrooms and livestreaming, capabilities retailers stateside will likely find themselves sorely needing. In addition, China’s 5G network is both affordable and widely accessible from rural to urban areas, unlike the U.S., said Chan, who has worked with companies such as luxury giant LVMH, cosmetics group Estée Lauder and American apparel brand Ralph Lauren. Just this past Thursday, China claimed to have built nearly 200,000 5G base stations, reaching some 50 million users who subscribe to the service. The country plans to build a total of 500,000 by this year’s end, as it aims to spend some $170 billion (1.2 trillion yuan) on the effort over the next five years. In the U.S., Verizon now offers 5G service in parts of 34 cities, including New York, according to its website, while AT&T now provides 5G service in some 100 markets. T-Mobile, the most aggressive of the three, claims it offers service in some 5,000 cities and towns, covering 200 million people, while spending $30 billion and building some 25,000 towers. The service has been characterized, however, as low-band 5G and only 20% faster than its 4G network, well below the 1 GB/s speeds Verizon offers, according to publications such as CNET. And though there are plans in the U.S. to offer more affordable 5G-enabled devices, currently the network can only be accessed with premium phones that cost hundreds of dollars, and service is limited to users who sign up for premium or unlimited data plans. But Chan said that where service is offered in the U.S., it can be unreliable, and emphasized that the cost is prohibitive for many people compared to China. [kickout id="2" label="5G tower Beijing"] The response to the pandemic here in the U.S., by comparison, involves AT&T nixing a $4 billion stock repurchase program, with a portion of that capital to be reallocated to developing its 5G infrastructure nationwide this year. Verizon, as well, is increasing its capital expenditure to ramp up its 5G initiative by $500 million, or to up to $18.5 billion total, also this year. U.S. service providers may have to spend more if China's outlay for 5G is any indicator. “The U.S. is behind China in terms of digital, so it has a lot of catching up to do,” McKenzie said. Online technologies got a major boost 5G may prove essential in a post-pandemic retail landscape, enabling both retailers and consumers to embrace augmented and virtual reality offerings. [article_summary section="1"]Livestreaming, for example, became an important tool for businesses in China from luxury brands to farmers to sell their goods while physical destinations were largely shuttered, Chan said. [kickout id="3" label="shopping online mall"] It allows shoppers to have more personalized shopping experiences, McKenzie said, noting that while shopping via livestreams existed prior to the pandemic, its use has consequently accelerated. “Seamless virtual shopping experiences are something that will stick,” he added. According to a survey conducted by Nielsen of CEOs in China, which asked about the top three actions executives undertook during the past two months, 45% increased investment in digital, while 60% stated that they plan to increase that investment going forward. “Those that invested ahead of curve around digital fulfillment and engagement are better positioned,” McKenzie said. But regardless of how much businesses spent previously, whether ahead or behind the curve, all plan to double-down on their investment in digital and mobile applications, he said. Contactless shopping goes mainstream [article_summary section="2"]Beyond aggressively expanding 5G, China has also already developed a contactless payment system via mobile devices and contactless cards that not only makes it safer to purchase products, but also contributes to a more seamless experience between online and offline. According to Chan, the demand for and adoption of digital payment was a result of SARS as well. Today, Chinese consumers can use their mobile devices to pay for products whether online or at the local mom-and-pop grocer, she said. In the U.S., in contrast to China and other parts of the world, implementation of contactless payment has been slow. “Mobile payment has existed, it just hasn’t been adopted very readily,” Chan said. Historically in the U.S., it’s been a little bit of a catch 22 situation, Chan said. If the infrastructure isn’t set up to provide a seamless shopping experience, then consumers are unlikely to adopt it. But companies are reticent to invest if consumers aren’t already utilizing the technology. But as in China, it is something retailers in the U.S. are increasingly offering their customers, and consumers have begun asking for in light of the spread of Covid-19. [kickout id="4" label="contactless pay"] Southern grocery chain Publix Supermarkets, for example, installed a contactless payment system in all of its locations that was up and running as of this month, which lets customers purchase items using Apple Pay, Google Pay and Samsung Pay. Burger King, meanwhile, released an ad in March touting its ability to offer contactless payment, while Walmart modified its self-checkout to be contactless when customers use Walmart Pay. Seamless transitions from physical to digital retail [article_summary section="3"]As Nike proved in China, purpose-driven marketing that draws in viewers then connects that experience to products often converts to sales, noted Chan. Classes in particular work well for livestreaming, from cooking to fitness, she added. Nike’s Training Club workouts, for example, saw a significant increase in signups and engagement in China, CEO John Donahue noted in the company's third quarter earnings report. Weekly active users for all of Nike’s activity apps were up 80% by the end of the quarter versus the beginning. That in turn led to higher engagement with the company’s ecommerce app, with sales growing 30% online. In tandem with content, retailers in China also benefit from curated stores, where the focus is on experience and communicating the brand in order to create desire rather than facilitate an immediate transaction. In China, stores are limited to offering a thoughtful selection of products from a company's offerings by necessity because rents are relatively high, meaning brands must justify their square footage and inventory. That results in smaller store footprints. [kickout id="5" label="nike"] But because stores are carefully curated and digitized, it creates a seamless experience between offline and online, and makes the consumer think of the brand when they do set out to make a purchase, Chan said. The next step is to mirror what’s happening in the store to online, with sales associates connecting with customers via social media apps such as WeChat in the same way they may have provided assistance at a physical location. This process means retail staff are part of the entire ecosystem, regardless of whether stores are open or closed, rather than dedicated to a particular channel, Chan said. WeChat, which is both a messaging and payment app, also provided the benefit of allowing retailers in China to stay connected to their customers even though stores were closed during the pandemic. Product adjustments Companies in the U.S. will unsurprisingly need to adjust their product assortment, McKenzie said, such as increasing package sizes. Because consumers want to shop less frequently, they will purchase larger quantities. Retailers should also focus on offering products that focus on health and safety, as well as those that satisfy at-home activities such as cooking, he said. According to Nielsen's research, 80% of survey respondents said they would eat healthier after the pandemic is over, while 75% said they would spend more on sports and fitness in the future, and 60% said they would increase spending on regular medical examinations. "We’re seeing a move by Chinese consumers to be more homebodies," McKenzie said, especially younger generations who previously ate out a lot but are now cooking on a daily basis. Retailers may also find they have to put aside goods that embrace recent trends in apparel, as people shelter in place and work from home. Instead of dresses for weddings or evening events, consumers are going to look for career-appropriate clothing for job interviews and leisure wear instead of office-appropriate clothes, said Zahra Bahari, CEO of The Powell Cos., whose clients and partners include celebrities such as Beyoncé and Whoopi Goldberg, as well as retailers including Amazon, Alibaba and Neiman Marcus. "Social occasion outfits were important two months ago, but no one’s looking for a high heel," Bahari said. They are looking for fashion that has multiple uses. Children's clothing is also selling well, as parents purchase tops for online classes. Another area brands in China excel at and pursue aggressively are cross-brand collaborations, Coresight's Weinswig said. The U.S. is not seeing the same number of brand mash-ups as China, where such collaborations produce limited edition products that create desire and drive demand. "We all want to buy unique products," Weinwig pointed out. "It can be scary," Bahari said of all of the changes, "but brands have to do these things to survive." 'Don't wait for perfect' What’s clear both from China and here in the U.S. is retailers can’t afford to do nothing, even as they shore up their balance sheets, said McKenzie. For some American retailers, the tendency may be to pull back on new innovations out of fear because everything is changing so fast, he said. Retailers can take heart, however, from Nielsen's survey of consumers in China that shows 92% of respondents were confident in their country's ability to prevail over the outbreak. The hope is that because Chinese and U.S. consumers have displayed similar sentiments throughout the stages of the contagion, with the U.S. about two months or so behind China in its cycle, those in the U.S. will regain their optimism like their Chinese counterparts. That also means that retailers, rather than be frozen by fear, must act decisively. “Doing nothing is the worst thing you can do right now,” McKenzie cautioned. “Don’t wait for perfect.”