With the World Health Organisation (WHO) announcing Coronavirus COVID-19 as a pandemic, we are experiencing one of the greatest global crises for a generation. A question we at Catesby are continually being asked is what impact is this having on the greater China retail market.
Many retail groups including those in the luxury sector were quick to revise their forecasts in early February as the outbreak started to impact China. In addition to the growing sales, the opening of the new stores and ad campaigns were halted.
While Europe and the US struggle to contain the virus, China is starting to return to a sense of normality albeit slowly. Whether you agree with the Government's drastic measures or not, they have been effective in bringing the number of cases down significantly from six weeks ago. Hubei Province has this week lifted its travel restrictions, expect in the city of Wuhan which will lift restrictions on the 8th April. Businesses have again reopened although with certain new measures in place. Shopping malls across the majority of major cities have been allowed to reopen meaning stores are again trading although often with shorter than normal operating hours.
The impact on the economy has been enormous with retail sales down 20.5% for the first two months of 2020. It will obviously take time for China to return to normal and with people hesitant to visit crowded spaces, instead preferring to stay at home. This has driven a further boom in the online market. While the majority of retailers in China have an online presence, some luxury brands have been slow to go online. The local consumers have proved they have no qualms buying luxury items online and so we envisage this is an areas where there will be change with more luxury brands strengthening their online presence going forward. In the short-term certain categories will perform better than others although most experts believe that once the worst of the epidemic is over, China's retail market will bounce back quickly.
A lot of China's retail growth going forward will be driven by consumer confidence and thankfully it appears this is in abundance. The agency Wavemaker recently undertook a sentiment survey of 4,100 consumers across all provinces in mainland China. According to the report, 78% of those questioned were either very, generally, or somewhat optimistic about the impact of the outbreak revealing that they plan little change in their spending. As a result, it was anticipated that once all the restrictions have been lifted, there will likely be a surge in spending.
The results of this sentiment survey appear to now being played out. After being cooped up in indoors for so long, foot-traffic is rising and queues are starting to appear again outside some stores. Without making any big-ticket purchases during this time, they appear to now be willing to spoil themselves and make some luxury purchases. While historically many would have waited until they travelled internationally, due to the current situation in the rest of the world and the travel restrictions imposed, fewer Chinese are to be travelling internationally for the foreseeable future. Therefore we expect this to translate to strong luxury sales in China going forward, although this could be affected by the impact Coronavirus has on both logistics and manufacturing.
Unfortunately the same positivity cannot be said of Hong Kong which appears to go from one crisis to another. The retail market was obliterated in 2019 by the protests and 2020 has to date proved not much better given the impact of COVID-19. As this column is written, the Hong Kong Government have put further restrictions on visitors to the Special Administrative Region. Hong Kong's retail market has for too long been heavily dependent on visitors and as a result is struggling. There remains a continued threat and while landlords are offering rental relief, it appears too little too late. A number of brands are terminating leases prior to their actual expiry and it is Catesby's view that most retailers will consolidate their Hong Kong store portfolios over the coming months.
A version of this column appeared on Luxury Briefing (www.luxury-briefing.com)
Photo Credit: Bloomberg