Green Shoots and 'Dangerous Opportunities' During the Coronavirus Outbreak
It has now been over a month since the city of Wuhan was locked down and the world learned about the coronavirus COVID-19. As the extraordinary measures continue in Wuhan and other cities such as Harbin, and cases outside of China accelerate, the risk is far from over. Yet there are some positive signs that much of China is returning to relative normality - albeit wearing face masks.
On Sunday, 24 provincial-level regions, including Beijing and Shanghai, reported no new cases. Whilst more than 100 million internal migrant workers are yet to return to their jobs, many regions are easing curbs and restoring workplaces. Some cities are going as far as flying, bussing and training workers back from their hometowns to get the wheels turning again. More than 90% of workers in Zhejiang province, and over 70% in Guangdong and Jiangsu are back on the tools. At a personal level, we are now allowed back in our Skinny HQ in Shanghai, except those who haven't yet completed the 14-day self-quarantine. With most workers back, many of the key frustrations of foreign brands selling in China, such as stalled logistics and holdups at the ports, are likely to diminish daily.
The mass-closures of retailers also looks to be thawing. Apple has reopened more than half of its retail stores and Uniqlo has added 100, Lululemon has reopened stores, in addition to other retailer re-openings. As this video illustrates, plenty of people are leaving the confines of their apartment to get their shopping done. They're all positive developments, but the telltale sign that everything is okay will be when China's precious children are allowed back to school.
The Chinese word for crisis is 危机 (Wéijī) - the first character, 危, means 'dangerous', and the second character 机, 'opportunity'. This holds true to crises inside and out of China. JD started selling online during SARS, Disney came into being during the Great Depression, and a host of other companies from Microsoft to GM began during challenging times. We're yet to see if budding new enterprises will arise from the aftermath of the coronavirus, but we have seen a major new feature from WeChat start to ramp up - Channels.
People often ask us 'what will be the next WeChat?' Although short video isn't a substitute for the omnipresent all-in-one app, it is certainly eroding time spent on WeChat and the subsequent advertising revenue. The parent company of Douyin, ByteDance, now earns more in advertising revenue than Tencent's WeChat, QQ, gaming and other apps combined. Although WeChat has been moving into the commerce space, with sales on mini programs now half of JD's turnover, tapping into the ever-more-popular short videos has been elusive.
The timing of WeChat Channels launch couldn't have been more appropriate given the soaring popularity of short video for house-bound Chinese over the past month. While still in 'testing' stage, Channels may add a new dimension to integrated WeChat marketing channels and is worth considering while it's still in its infancy. Never a better time to seize the opportunity? Go to Page 2 to see this week's China news and highlights.
Here are this week's news and highlights for China:
Coronavirus
Infographic: Coronavirus Impacts on Industries: Some industries have been hit, others have soared since the coronavirus outbreak. This infographic studies the app usage changes and their catalysts for industries such as tourism and travel, education, food and health.
Sheryl Shen’s Tour of Hema Supermarket During the Coronavirus Outbreak: 3 min video in Hema supermarket Shanghai on Monday 24 February, showing that people are out and about doing their shopping in Shanghai at present.
Kerr Shan’s Tour of Shanghai Streets and Aldi Supermarket During the Outbreak: 8 min video also on Monday 24 February, showing the busy streets in Jing'An district in Shanghai, yet empty buses and the quiet Aldi supermarket.
China's Virus-Hit Industrial Cities Start to Ease Curbs, Restore Production: By mid-last week big manufacturing hubs on the Chinese coast were starting to loosen curbs on the movement of people and traffic while local governments prodded factories to restart production. Cities in Zhejiang and Guangdong provinces have organised buses, trains and even planes to ferry workers back to workplaces. Macro and micro data suggest production activities are resuming at a slow pace in China, reaching 60-80% of normal levels by end-Feb and normalizing only by mid-to-late March according to Morgan Stanley.
Apple Reopens More Than Half of Its Retail Stores in China: 29 of Apple's 42 stores are now open, although some outlets will be open for fewer than 8 hours, compared to a typical 12-hour day.
81% of NZ Businesses Surveyed Expect the Coronavirus Outbreak to Lead to a 10%+ Downturn in 2020 China Revenue: 87% of 170 Kiwi businesses surveyed by the NZ Business Roundtable in China (NZBRiC) expected that the COVID-19 outbreak will lead to at least a 10% hit to their China revenue in Q1. 31% of businesses expected at least a 40% negative impact. The most common words used to describe the outbreak were: ‘Uncertainty’, ‘Challenging’, ‘Disastrous’, ‘Disruptive’, ‘Panic’, ‘Inconvenient’ and ‘Unprecedented’. Coincidentally, 87% of Australian companies surveyed by the Austcham Shanghai expect 2020 revenues to be impacted by at least 10% and 87% of businesses surveyed by the AmCham Shanghai expected the coronavirus to have a direct impact on 2020 revenues, with 24% expecting revenues to fall by 16% or more.
Chinese Consumers
7 Lessons Western Retailers Can Learn from China: In the Western world, we still think of offline and online as two different channels, whereas in China, they are just seen as commerce. In the West, we start by either doing experience or convenience and it’s hard to combine them. Some of the biggest lessons western retailers can learn from their Chinese counterparts: 1. Cards are dead and cash is out; 2. Convenience is the name of the game; 3. Whatever, wherever, whenever; 4. Seamless frictionless AI; 5. The evolution of 'brandshipstores' such as the Starbucks Reserve in which merchandise accounts for almost half of sales; 6. Extreme transparency; and 7. New levels of personal service.
Digital China
WeChat’s New Channels – Douyin Killer? What It Means For Your Brand: WeChat has finally created its answer to the gaping hole in its content ecosystem.
China’s Facial-Recognition Giant Says It Can Crack Masked Faces During the Coronavirus: China’s facial recognition companies can now identify people even when they’re wearing face masks and also detect people who aren't wearing one. In addition, SenseTime is rolling out a product that incorporates thermal imaging cameras to help spot people with elevated temperatures, already in use in three public places. Samsung has collaborated with SenseTime for building access to its Seoul offices which can identify employees in 0.3 seconds with 99% accuracy even if they are using medical masks, glasses, and make-up.
Food & Beverage
Foreign Brands Still Dominate as Parents Do Not Trust China’s Home-Grown Baby Milk Formula Makers 12 Years on From Melamine Milk Scandal: Domestic makers of baby powder rebuilt their market share to 46.6% in 2018 from 45% in 2014, all down to Feihe which grew from a 3.4% share in 2016 to 7.3%. The local company uses cows imported from Australia and New Zealand, eating feed from the US and listening to European classical music. Foreign brands are seen as "way more trustworthy" and this reputation is likely to last for a very long time, particularly in tier-1 cities. Domestic brands are winning share in lower-tier cities. Some brands are using crises like the current coronavirus outbreak as a way to foster customer bonds, with Danone and Feihe launching free online medical consultation services for patients.
Walmart Says It’s Not Lowering Forecast Because of Coronavirus: Walmart says sales at the company’s 430 stores in China had not faltered, even during the quarantine, as customers turned to the retailer to buy food and necessities. Walmart has also invested in a grocery delivery venture in China that has continued to make home deliveries during the outbreak. Nevertheless, the coronavirus situation was still too "fluid" to make any definitive pronouncements about how it could play out for Walmart.
Clothing
Fashion
Adidas, Puma Warn of Coronavirus Hit to China Business: Meanwhile, Adidas says that its business in the greater China area had dropped by about 85% year-on-year in the period since Chinese New Year on 25 Jan. The company has closed a "significant number" of stores and seen a "pronounced" reduction in customers at those that remain open. Adidas said it had also seen lower shopper traffic, mainly in Japan and South Korea, but added it had not yet registered any major business impact beyond greater China.
Chinese Tourists
Air Traffic at China’s Busiest Airports Down 80% Since the Beginning of the Year: On 21 January 10,522 flights departed from China’s 25 busiest airports, but by 18 February, just 1,868 departed. Traffic in Beijing is down over 80%, Shanghai is down 70%, and Guangzhou is down nearly 80%.
Education
Parents Grapple With E-Learning as Chinese Schools Stay Shut: Online education platforms boom as kids stay home, leaving some parents are exhausted and frustrated. At least 50 million students have signed up to Dingtalk's online teaching programs as of 10 February.
Investments
The Novel Coronavirus Outbreak and Chinese Cross-Border Real Estate Buying: With travel bans to many destinations, there has been a reduction in the in-person presence of Chinese buyers at auctions and inspections, and stalling between contract signing and final settlements. Yet the early stages of the purchase journey - which mostly take place online and via phone and social media - are not obstructed at all, meaning there could be an unusually large number of transactions over one or two quarters. Since the outbreak, Chinese buyer inquiries online have increased most in Vietnam, followed by New Zealand, Singapore, Germany and Australia.
Trapped at Home, Wuhan Residents Take to Stock Trading: Over the past month, the number of "stock account opening" searches on Baidu made by Wuhan residents ranked second, just behind Beijing.That’s the Skinny for the week! See previous newsletters here. Contact China Skinny for marketing strategy, research and digital advice and implementation.
