Blog Post

Retail after COVID-19: First signals from China

The world has eyes on China right now for indicators of what the new normal will look like after the peak of the COVID-19 pandemic cases passes. But, what about retail? What can we learn as an industry about the early days after the crisis eases and government restrictions are lifted? What businesses can expect a quick rebound and what businesses are likely in for a longer road to recovery? For answers, we turned to SRS’ own Don Edrington, who leads our Hong Kong office and conducts business throughout China and the Asia-Pacific region.

While much of U.S. retail is temporarily closed right now, many are wondering how some of these retailers will fare after the COVID-19 threat passes. What are you seeing in terms of the types of retailers that are rebounding quickly and those that have a longer road ahead to recovery?

There is good news for apparel and beauty retailers as they seem to be responding quickly. Food and beverage may take a bit longer as people are still concerned about gathering. Luxury retail is also responding, but the growth of that sector in China was already slowing prior to the virus outbreak.

Travel retail and automotive will also be slower. Travel retail will recover more slowly due to the concern of traveling both domestically and abroad. Automotive sales will naturally start out slow as most people will be concerned about large expenditures.

Do you have a sense of how long it will take consumers and the retail industry to get back to pre-pandemic levels?

It’s a hard thing to predict, but the intelligence I’ve gathered leads me to believe China and Hong Kong will rebound quicker than most markets. Our best estimate is that we will get to the “new normal” later this year.

"The strength of their supply chains will play a huge part in any retail brand's recovery." - Don Edrington

Do you see a sort of rebound (some are even calling it revenge spending), or are consumers timid?

I do see “revenge spending” or “retail therapy” playing a big part in bringing people back to the stores. That said, restrictions on crowds by large retailers such as IKEA and Apple, along with the government calling for continued social distancing will definitely have an impact on brick and mortar until those restrictions are eased.

How do you see the retail landscape changing on the other side of this crisis? Was this a nudge that will push brick-and-mortar retailers to invest more heavily in e-commerce or is it making people realize how essential brick-and-mortar stores, restaurants, and entertainment are to their sense of community?

The largest changes will come in regards to contactless retail. Things such as drone or robot delivery, unstaffed stores, and vending and merchandise pick up points will play a large part in online (therefore all) retailing. Still, certain brick and mortar experiences can’t be had online. Cinemas, entertainment venues, and food and beverage will all continue to play an important role in the community, but will take longer to thrive again.

One other interesting observation speaks to a change in comfort levels of the older population with online shopping – something they were previously not used to doing on a daily basis. During the shut down entire families had to do everything online. We expect the older population to be more comfortable with online shopping as a result.

With COVID-19 cases not having peaked in the U.S., what advice do you have for U.S. retailers and landlords to better fare the pandemic and be ready for recovery?

China was able to shut everything down. The government system allowed for a shut down without much push back from the population. U.S. retailers have to be prepared to shut down and then be prepared, when it is time, to open the doors again. The strength of their supply chains will play a huge part in any retail brand’s recovery. China was, and is, the largest supplier to the U.S. of most consumer goods. As they come back online, retailers will need to manage expectations very carefully as to what they can and can’t deliver to their customer. Those with the strongest supply chain relationships will have an easier time coming back.

In an article in Bloomberg on March 20, they noted that half of China’s retailers didn’t have enough cash to survive the next six months. China’s government will have to dig in to help and I expect to see the same for some retailers in the U.S.

Reports from the East

Reports from the East from several retailers are optimistic, with many reporting life returning to normal. Starbucks’ CEO, Kevin Johnson, said that they have re-opened around 95% of the stores it temporarily closed in China. According to the CNBC article, it took about 45 to 60 days before stores started to re-open. He feels that the path for the U.S. is trending closely to what they saw in China, which gives them confidence that they know how to manage through the situation.

Apple has also reportedly re-opened all of their 42 locations in China and Apple CEO Tim Cook believes that things are getting under control.

Just like Edrington observed, luxury brands such as Hermès are reporting a return to normal with all but a handful of their 40+ stores in China re-opening.

At SRS, we are watching things unfold along with the rest of the retail real estate industry and preparing to serve our clients’ needs on the other side of the pandemic. Like our CEO, Chris Maguire, said in an email to the company, “We are confident we can navigate this and have risen to the challenge in the past.” If you would like to discuss your retail plans for the future with us, please contact Steve Dawkins.