What Brands Can Learn From China’s Recovery & The Lasting Changes Caused by the Coronavirus Pandemic

April 15, 2020

In this two-part POV, we look at vertical trends, buying behaviors and psychological consumer trends that are both emerging and accelerating as we witness China’s recovery from the extremely taxing months of the COVID-19 virus.

We anticipate that several of these trends will sustain and should therefore be top-of-mind for strong positioning and customer connection and loyalty in the future.

Below is Part 1.

While much of the world is still experiencing a more serious phase of the coronavirus outbreak period, people in China are beginning to remember what life before the virus looked like. Chinese consumers are returning to work, cautiously going about their daily routines in the outside world, and more notably, they are carrying some newly developed behaviors with them.

Where is China today?

According to Boston Consulting Group, as of March 17, the vast majority of China’s businesses have reopened their doors, though we suspect retail stores, restaurants and other local businesses will have taken a significant hit over the past few months, and the exact level of the impact may not yet be known. At this time, there is encouraging movement happening in China in both Luxury and Travel, two industries that rely heavily on behaviors that could not occur during peak pandemic periods – in-store shopping and traveling for holidays. China’s central and local governments are doing their part to support a boost consumer spending, as Beijing waived the value-added tax (VAT) in the Hubei Province, and the VAT was reduced to 1 percent across the rest of China, which will be valid until May 2020.

It’s worth noting that even with promising movement happening, countries approaching their recovery phases will maintain strong precautionary measures to avoid a second severe wave of COVID-19.

Here’s what we see so far at a vertical level in China:

Luxury

Digital performance has been crucial for luxury over past months in terms of maintaining close engagement with global consumers and influencing online sales – this will undoubtedly continue to be important. We’re seeing substantial improvements in online purchases coming out of the month of March – far stronger than February of this year, and in fact, for some brands, even stronger year-over-year than March of 2019. With Chinese consumers going back to work, they’re looking to buy new ready-to-wear pieces at fast pace.

Most notably, we see e-commerce resellers and retailers doing particularly well, but some luxury brands themselves are not having it quite as easy regaining lost share. This is happening for a number of reasons. Chinese consumers still make most of their purchases, over 80%, according to Boston Consulting Group and Tencent’s 2019 Luxury Report, in stores. Global tourism is still at a halt, and countries and communities in Europe and North America continue to suffer, signaling a major gap in luxury revenue. The reopening of stores will have a significant role to play in the luxury industry’s rebound efforts. A sign of hope for the post-pandemic market, and a proof point of this: Hermès is said to have brought in at least 19 million renminbi, or $2.7 million, in sales on the reopening day of its flagship store in Guangzhou’s Taikoo Hui last Saturday.

Opportunities & Learnings:

While it’s true that the in-store experience will always have an essential role, digital is more prioritized than ever. Behavior shifting online is a trend luxury has been made familiar with over the past few years, and this shift has undoubtedly accelerated during the coronavirus outbreak, where digital touch points (e-commerce, social media, content and influencers, search) have grown even more critically important to purchase decisions and overall brand affinity.

Luxury brands who continue to move in this direction towards improved digital experiences and brand building that both maintain the emotional connection and the product’s mystique will find themselves in a stronger position. Brands cannot afford to hold off any longer on evaluating what these long-term strategic shifts look like and entail from a business perspective, in a future where lasting, timeless value will take on new definitions.

Travel & Hospitality

Many global travel and hospitality brands opted to pause all media across the world as the COVID-19 pandemic progressed, but some are beginning to reactivate their programs in China, as the country recovers. In the ending weeks of March, many domestic travel-related searches increased by 76% week-over-week, and nearly 50% of people showed interest to travel within the next three months of 2020. Mainland China’s daily hotel occupancy grew to nearly 32% on March 28, versus 7.4% during the first week of February, according to preliminary data from STR.

Chinese consumers are proactively preparing for their future holidays, mainly in the year 2021. On April 9, the Chinese government announced that the May labor holiday would be extended from three days to five days, after which OTAs (Online Travel Agents) saw searches on their platforms increase by 300%. Domestic travelers for the May labor holiday reached 195 million in 2019, and it is estimated 2020 will see 100 million, a sign of steady improvement.

Another bright spot – we have seen substantial bookings for some luxury hotel brands in Asia, which is a sign of affluent consumers readying their plans and taking advantage of the best rates for the most sought-after hotel destinations. At the same time, other international travel searches and interest remains very low, as hotels around the world continue to suffer. There are many stories to celebrate, however, in the form of aid to front line hospital workers. This week, Hilton and American Express have teamed up to provide up to 1 million hotel rooms for medical professionals, a decision that won’t be forgotten by consumers.

Opportunities & Learnings:

While in many cases travel still cannot be conducted now, travel brands should look to keep consumers engaged with strong content that encourages them to prepare for a time when holidays will be just the escape they need. An interesting anecdote about uber-luxury hotel brand, Aman, is that earlier in the month of March, it teased the launch of a “spinoff” brand, Janu, which will not only be a more accessible price point for more consumers, but it will also focus on “soul”, “wellness” and “connectedness”, sentiments quite different than its flagship Aman brand. The new messaging and imagery surrounding Janu’s marketing campaigns are something many people will find highly appealing, as they seek to strengthen their connections with loved ones, with their inner selves and with the world around them. Aman is finding a way to thoughtfully shift to communicate in a different way with new customers – this is worth noting for all brands.

Emerging Verticals

There has been notable acceleration, and therefore business growth opportunities in other verticals, such as Health & Wellness, Telehealth, Housing & Health Insurance, Gaming, Online Education and Online Grocery, to name some notable areas. Chinese online retailer JD.com reported that its online grocery sales grew 215% year over year during a 10-day period between late January and early February. There is also experimentation happening with contactless delivery methods. JD.com and Ele.me utilized robots to deliver orders during the height of the outbreak, while Meituan deployed its autonomous delivery vehicles on public roads for the first time.

As we continue to watch our clients’ key business verticals in China, there is certainly cause for careful optimism, as we spot sustained trends and growth opportunities in the post-pandemic world.

Read PART 2 which takes a deeper dive into the consumer behaviors and buying trends we’ve seen develop and continue through COVID-19.

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