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First in, first out: Lessons from China’s COVID-19 recovery

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Apr 30 2020

As most of the world continues the fight against COVID-19, China is beginning to emerge out the other side. Pockets of recovery have started to appear, and as lockdown restrictions end, China has had a taste of what life post-COVID looks like. Chinese consumers have an optimistic outlook about what the future holds – research by McKinsey reported that 56% of Chinese consumers predicted the economy will rebound in just 2-3 months, growing just as strong or stronger than before COVID-19. While only 3% think that the pandemic will have a lasting effect that will cause the economy to fall into a lengthy recession. In this article, we look at the strategies that brands in China turned to throughout the crisis, and what lessons the rest of the world can learn from the brands that are coming out the other side.

The outbreak: Communicating through digital, social and live content

When faced with a real crisis, many businesses had to swiftly adapt the way they do business. Consumer brands’ sales suffered from the last week of January, with February sales dropping up to 90% year on year. Many retail outlets were shut throughout February until mid-March, with all new store/counter openings put on hold. Chinese New Year used to be a lucrative period for retail sales, yet almost immediately after this year’s Chinese New Year holiday, brands began implementing cost-cutting exercises throughout their businesses.

Due to the pause in physical retail, COVID-19 highlighted the importance of a strong digital strategy. Despite cost-cutting measures, many brands recognized the importance of online investment, shifting spend from traditional marketing strategies towards their websites, ecommerce stores or WeChat mini sites. Brands that didn’t previously have a strong ecommerce strategy had to adapt quickly – Ikea, for example, opened their TMALL flagship store in a matter of weeks.

Xulu Wang, Tag Managing Director Greater China, also highlights the newfound importance of live-streamed content, saying “Brands have repurposed the live-streaming channel as a way to stay connected to their consumers and collaborate with trade partners during a time when they had to be physically distant. In doing so, brands were able to connect with consumers on an emotional level and show their brand values at a time when sales-focused messaging was not a priority, while also enabling businesses to gage customer sentiment in real-time.”

The rebound: Cautious optimism and buying local

In March and April, the Chinese Government and official bodies authorized several stimulus measures to boost the economy and aid recovery, including new bonds to fund infrastructure, subsidies and tax breaks for certain industries and cheaper loans for small businesses, allowing the economy to begin to revive. As lockdowns lifted, consumption began to rebound. Many brands looked to launch new campaigns immediately to quench consumers’ shopping thirst after months of limited consumption.

Xulu Wang commented on the quick rebound of the luxury industry amongst younger consumers, saying “Luxury goods, one of the hardest-hit sectors during the outbreak, came back in April with double digit growth driven mainly by Gen-Z, yet older generations continued to hold back and spend less.”

Modest spending may be prevalent for some months to come, with 93% of Chinese consumers believing their finances will be impacted for at least 2 months further, and 37% of consumers indicating they would be cutting back their spending longer-term.

‘Local’ will also be a key buzzword for the coming months. As China enters early recovery, the major threat for a resurgence of the virus comes from overseas. It’s unlikely that we will see widespread international travel as the pandemic continues to grow throughout the globe. This coupled with the rise of Gen Z, national pride and the US-China trade war, is leading many Chinese consumers to ‘buy local’. Local brands such as Comme Moi and Guo Pei have been growing in popularity in recent years, and we may well see a new surge in popularity of local brands exacerbated by the effects of the pandemic.

Learnings from China

It is difficult to predict the severity and duration of the effects that COVID-19 will have on the Chinese market. While they are emerging out the other side more convincingly than perhaps any other market, fears of ‘aftershocks’ and new waves of the virus are causing many consumers to remain cautious. Regardless, there are several lessons other countries can learn from the behavior of Chinese consumers during, and after, the outbreak.

  1. Buying power of Gen-Z

Gen Z were already beginning to emerge as a powerhouse consumer pre-COVID, growing up with a native affinity for social media, especially in China, quickly growing to outspend other generations in the luxury goods sector. During the COVID-19 outbreak, we saw their influence in full force. Gen Z were the drivers of many changes in consumer behavior – from livestreaming on TikTok, to turning to digital replacements for their routines such as online workouts, and we are now seeing this generation become amongst the first to return to a ‘normal’ life.

While we are seeing older generations remain cautious with how they spend their money, Gen Z have already began spending in categories such as luxury. As markets around the globe slowly return to business as usual, brands should consider how they approach this valuable segment and whether they should be adapting their strategy to appeal to this customer base.

  1. Pivoting to new communication channels

As much of China went into lockdown, brands across the country had to rethink the way they communicated with their consumers. Marketing strategies that were heavily focused on in-store communications or out of home advertising quickly became redundant, and time spent on mobile devices skyrocketed.

Luxury fashion retailer Net-A-Porter created a custom strategy for Nintendo’s game Animal Crossing: New Horizons, which has peaked in popularity as consumers are spending more time at home throughout lockdown (in fact, Nintendo DS sales increased +50% through the peak of the outbreak). In the campaign, Net-A-Porter worked with Chinese fashion designers to create avatar skins to be used in the game from designers’ spring/summer collections. Users were able to both purchase skins to be used within the game, but also the real clothing via Tmall. With consumer wallets tightening, brands who were able to create innovative ways to keep channels of communication with their consumers open were the ones who reaped the benefit in terms of sales and will likely benefit from greater brand loyalty as the market resumes to the ‘new normal’.

  1. Digital maturity provides a smaller trough and quicker recovery

Chinese brands who had invested heavily in ecommerce and digital strategies fared better through the duration of the outbreak and are expecting to see a swifter recovery as China comes out the other side. Nike have spent recent years building their ecommerce strategy, which they amplified through alternative communication channels throughout the outbreak such as providing consumers with free at-home workouts through their Nike Training Club app. As a result, they saw their ecommerce sales grow by over 30% during the lockdown period, helping to bolster the brand’s financial performance as their physical stores had to temporarily close.

According to McKinsey, China was already the most mature ecommerce market in the world with ecommerce accounting for 25% of total retail pre-COVID, and it’s likely we will see continued growth as consumers adjust to a new normal with consumer appetite growing but some hesitation around going out in public still prevalent. Investing in an effective ecommerce platform will be imperative for brands to navigate the post-COVID reality and mitigate risk for potential future crisis or similar outbreaks. The success in China of marketplace platforms such as AliExpress, TaoBao and WeChat also provide opportunities for brands to begin selling online or to reach a new customer base.

  1. Be cognizant of long-term consumer behavior shifts

The COVID-19 pandemic has affected many businesses and economies, but it has likely also had a long-term effect on consumer behavior. With weeks spent in lockdown forcing society to take a break from their hectic lives, many consumers have a newfound appreciation for a slower pace of life with a focus on health and wellbeing. Consumers may also look to live more sustainable, minimalist lives, both as a result of living more modestly during lockdown and longer-team fears about economic growth and personal finances.

It’s more important than ever for brands to be cognizant of consumer sentiment and feedback. While some brands will experience a quick rebound to pre-COVID levels of sales and engagement, many may find that their product or service no longer aligns with the values of their target audiences. Brands must consider the long-term effects that the pandemic has had on their core audiences, and whether they need to pivot or adapt their marketing strategy in the long-term in response.

  1. Build a local-first strategy

Over the past years as consumers have become more accepting towards ecommerce and logistics have allowed for brands to ship their products across the globe both quickly and cheaply, we have seen the rise of brands who have grown in popularity in other markets before even launching in their home market. However, as we have seen from China, overreliance on overseas consumers may place your brand at a higher risk during a crisis, as borders and international logistics routes are affected.

Building a marketing strategy that resonates amongst local consumers will likely pay off as the world begins to recover from the pandemic, and consumers turn to home-grown brands to boost their local economies. Ensuring awareness and loyalty amongst consumers in your own country will be imperative to surviving what is likely to be a slow return back to peak globalization.

Schedule a call today to find out how Tag can support your brand’s changing creative production and sourcing needs.

Related reads:

Adapting in a crisis: 3 lessons from the FMCG industry

Responsive marketing in times of uncertainty

COVID-19 and changing consumer behavior

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