The Impact of Covid-19 Outbreak On China's Retail Industry | A Summary From 14 Professional Institutions

April 1,2020

The Chinese and global retail industries have been affected by the outbreak of Covid-19 to varying degrees. A number of well-known investment institutions and consultancy firms in China and overseas have issued a report expressing their view of the possible impact of this outbreak on the Chinese economy and suggested some ways to mitigate it.

Luxe.CO. has compiled excerpts from the reports/reviews related to China's retail industry by 14 professional organizations, both in China and overseas, specifically those regarding fashion retail, for your reference only.

Bain & Company

In a report released on February 12 entitled How Much Will the Coronavirus Hurt China's Economy?, based on research of past outbreaks or natural disasters, Bain & Company explain that retail markets typically go through three phases: shock, recovery, and stabilization.

To examine the impact of the outbreak on consumers’ behavior and preferences, they divide retail into nine categories: fresh food ingredients, casual dining, parties and celebrations, maternity and child care, personal care, household cleaning, health protection, apparel, and electronic appliances, and find different patterns and changes in demand for different retail categories, which can be broadly divided into three types:

  1. Rapid recovery: Demand rapidly increases due to the panic of the epidemic, but it also normalizes rapidly after the outbreak. This is a typical scenario for consumption products like daily necessities, such as fresh food ingredients, maternity and child care products, etc. that need to be procured frequently.
  2. Short-term stockpile: Consumers initially make bulk purchases and stock up on large quantities of goods due to panic. This leads to low consumption frequency and demand after the outbreak. This is typical of daily necessities with a longer shelf-life, such as health protection and household cleaning products.
  3. Rebound/“revenge” spending: The outbreak severely affects this type of demand, and it needs to be released when the outbreak is over. This results in rebound or even “revenge” consumption, which is related to non-rigid consumption scenarios, such as personal care, parties and celebrations, apparel, etc.

Bain proposes that changes in consumers’ behavior and preferences will further affect the competitive landscape in consumer markets; Industry concentration will accelerate, the Matthew Effect is likely to become more pronounced, and SMEs will find sustainable survival more challenging. At the same time, the competitiveness of the modern channels will become even more significant, intensifying the squeeze on traditional operators.

Bain suggests that retailers can deal with the impact of the outbreak by "focusing on one thing in the short term, two things in the medium term and three things in the long term," as explained below.

  1. One thing in the short term: win the trust of customers and employees.
  2. Two things in the medium term: adjust the annual budget and improve the retention of old and new customers.
  3. Three things in the long term: strengthen the supply chain, meet the needs of all channels, and find potential cooperation or merger opportunities.

A.T. Kearney

According to a WeChat article published by A.T. Kearney on February 14, initial estimates suggest that the outbreak will cost the retail industry between $1.5 trillion and $3 trillion yuan in the first quarter of 2020 alone.

In the article, A.T. Kearney point out that the retail industry has been hit hardest by the outbreak. There have been different impacts across sub-categories, but three main impacts overall:

  • The impact on online trade is weaker than on offline and fresh food e-commerce changes from "crisis" to "opportunity". E-commerce is expected to increase from the current 21 percent of total retail sales to 24 percent or more after the outbreak.
  • ‘Nearby scenes’ suffer less than ‘remote scenes’. The core demand for fresh food and daily necessities is currently still strong for supermarkets, convenience stores, community fresh food stores and other "nearby scenes" that are located close to communities, and the negative impact is mainly due to the increased cost caused by some closed stores and policy-related epidemic prevention measures. However, "remote businesses" such as shopping centers, department stores and restaurants generally suffer from more serious cash flow issues.
  • Large platforms are more survivable than small ones due to their faster speed of response, better scheduling capacity and operational flexibility in the face of the epidemic. The industry tends to reshuffle and become more competitive after the outbreak.

At the same time, A.T. Kearney also believes that four aspects of the retail industry will accelerate in the year or two after the outbreak: deep-in online, socialization and fragmentation, unmanned and platform integration.

 Boston Consulting Group

On February 14th, BCG argued in a WeChat article that, although the retail industry will eventually recover and grow, this epidemic is so severe that the overall industry is much more negatively affected than it was during the SARS outbreak. The impact of this new epidemic on consumer retail segments was found to be different from the effect of the SARS outbreak in 2003, especially across the F&B, entertainment, tourism and daily-use retail/apparel retail segments, although cleaning products, health products, packaged foods, and electronics were likely to buck the trend.

BCG predicts a short-term impact on the sales of daily-use retail/apparel retail due to “dramatic industry disruptions"; for instance, lower consumer demand and less overall consumer confidence as quarantine measures lead to the closure or partial closure of stores, operations going offline, idle frontline staff and low morale, as well as overstocked inventory, insufficient logistical capacity, increased cash flow pressure, insufficient investment and expansion information. In the long run, the epidemic will stimulate daily-use retail/apparel retail enterprises to accelerate the development of e-commerce business, and promote the transformation of new retail layouts, O2O and other related businesses. Industry-leading enterprises will particularly increase the layout of their "omni-channel" strategy.


On February 14th, Deloitte wrote in a WeChat article that the Covid-19 battle was affecting the daily lives of consumers everywhere and at all times, especially in terms of the F&B, footwear and apparel, cosmetics, retail and education industries.

Deloitte proposes that these related industries will experience one of three states after the outbreak has stabilized:

  1. Rapid stabilization: F&B industry.
  2. Expected rebound: footwear, apparel, and cosmetics industries.
  3. Change of consumers’ behavior: retail and education industries.

The survival of many enterprises in the footwear and apparel industry will depend on two quarters of destocking and the withdrawal of funds, while the overall industry will face reshuffling and consolidation. In addition, brands will face temporary or even partial closure due to operational pressure, and dealers and store networks will be obliged to adjust their operation. On the consumer side, the demand for home-stay products such as indoor shoes is expected to rise due to the oppression of working, gathering, gym opportunities, etc.

The application of virtual technology has led to the replacement of the physical store experience in the cosmetics industry by online purchasing and WeChat purchase groups. Hence, it is imperative to decentralize this industry. However, the business of physical stores has entered a stagnant period, whereas demand for home beauty maintenance has increased. In addition, due to the reduction of opportunities to showcase make-up, “special” make-up needs have now appeared: home make-up, mask make-up and contrast make-up, all of which will have an impact on the pattern of growth of this category.

In terms of the retail industry, contactless demand has greatly promoted the growth rate of fresh supermarkets and will continue to change the daily purchasing habits of ordinary consumers in the future. The level of environmental hygiene in shopping malls, supermarkets and other retail stores will continue to be emphasized, and the use of unmanned supermarkets, unmanned cabinets and AI robots will accelerate. Building and maintaining online platforms and WeChat shopping groups will become the new standard for offline physical stores, and the integration of online and offline will be further promoted.

Mckinsey& Company

In a report released on February 15, McKinsey said that, although the impact of the outbreak on the retail sector was greater than that of SARS in 2003, Chinese consumer goods and retail companies can still weather the storm by acting quickly and implementing a combination of tactics and strategies.

McKinsey argues that the impact on enterprises within different industries will not be the same based on the sharp rise of consumption as a proportion of China's GDP. The consumer and retail industry is expected to bear the brunt of the epidemic; for instance, retailers with a strong physical store base and a large number of front-line employees are likely to face greater financial pressure, particularly on labor costs and rent. Consumer goods companies with large sales teams and manufacturing operations in China will face similar pressures, but will be more focused on the supply chain. However, it is possible that the supply chain will be so disrupted by the outbreak that consumer goods companies may fail to meet both Chinese and global demand.

In terms of the different impact on product categories, consumer goods companies and retail companies in different product categories face different challenges in product demand and supply. In non-rigid demand categories (such as clothing and beauty), enterprises are faced with plummeting customer demand and consequent cash flow pressure. Managers are facing challenges of maximizing cash retention, keeping the company afloat, and preparing a post-outbreak business plan to regain customers and resume business.

McKinsey advises companies to focus on both the short- and medium term. In the short term, they should take a series of urgent tactical measures to overcome the pain; in the medium- and long term, they should focus on post-crisis growth and recovery strategies, and look to the future by actively establishing the "new normal" and building a competitive advantage.

In terms of a long-term strategy, companies should consider the series of changes in consumers’ behavior after the outbreak, including the likelihood of an accelerated shift to online shopping, further health awareness, and an increased demand for access to more authoritative and reliable information. In addition, the risk of supply chain disruption or the M&A of SMEs will be significantly increased.

China International Capital Corporation

The China International Capital Corporation (CICC) issued a research report on February 10, in which it showed that the impact of the current outbreak on overseas markets and companies was reflected in two main ways: a decrease in consumption from domestic physical stores, and a sharp decline in outbound tourism and consumption:

  1. Decrease in consumption from domestic physical stores: multinational companies with revenue from China accounting for a high proportion of their overall revenue, especially offline channels that sell a high proportion of non-essential consumer goods, such as luxury goods, are more heavily impacted.
  2. Sharp decline in outbound tourism and consumption: Areas with a high proportion of Chinese tourists, as well as duty-free shops and airlines, will suffer more.

In a report released on February 4, the CICC also pointed out that the effects of Covic-19 on the retail industry include:

  1. The epidemic had a negative effect on consumption during Chinese New Year, and offline consumption was negatively affected to a great degree. It also affected department stores, home appliance chain retailers, commercial property operators, and supermarkets. Based on the experience of SARS in 2003, offline retail channels are expected to recover after the outbreak is over, and some previously-suppressed consumer demand is also expected to be released.
  2. Due to rigid costs such as labor and rent, the profit side of retail enterprises may be more affected than the income side.
  3. The express delivery area of the retail industry may have a positive boost with a further increase expected in the medium and long-term.
    The CICC believes that the outbreak will have a short-term impact on the retail industry. However, new leading retailers offering full online and offline services are expected to continue to seize more of a market share with the gradual increased in the development of the consumption habit of "online ordering -- fast delivery to home". The number of leading supermarkets with a home delivery service will grow rapidly in the medium and long-term.

Huatai Securities

Rigid consumption will remain the same in 2019, but alternative consumption will be under pressure. The impact of the epidemic in 2020 will not change the medium and long-term trend.

According to the report, the outbreak will have a short-term impact on alternative consumption, with department stores and shopping centers closed and offline retail traffic sharply reduced, especially in the F&B and clothing sectors. However, some optional consumption will be deferred to a later period as the epidemic is gradually controlled, and consumption may even rebound. Hence, the impact of the epidemic will not change the long-term trend.

As for the cosmetics industry, the epidemic will affect its short-term growth. HTSC believes that the impact of the epidemic is more significant on offline channels, and the channel inventory may cause the impact on the reporting end to shift back. The outbreak is also expected to accelerate the transformation of offline retail stores.

The epidemic will have an obvious short-term impact on department stores, with a reduced passenger flow and terminal discount changes. The traffic of department stores across the country has dropped significantly since Chinese New Year due to the epidemic. A large number of stores have closed, and industry sales and rental income have been significantly affected. Spending in department stores tends to be optional, and some consumption can usually be deferred to a later stage. Hence, the demand is expected to pick up significantly when the epidemic is controlled.

The demand in the gold and jewelry industry is expected to recover swiftly. Since the purchase of gold and jewelry is generally optional, it will be greatly affected by the epidemic in the short term. However, since gold and jewelry will still be needed for weddings and other celebrations, demand is merely expected to be postponed.

Everbright Securities

Everbright Securities released a report on February 7, in which it showed that the epidemic would affect consumption in the short term, but would not change the industry’s long-term growth pattern. Indeed, short-term adjustments are expected to bring opportunities for businesses that are able to adjust to these trends.

According to the team, the annual revenue growth of China's listed cosmetics companies will slow down by 3-8% in 2020. Compared to SARS in 2003, the impact of the epidemic on the beauty industry in 2020 will be as follows;

  1. Category: Cosmetics emerged in recent years, and the proportion has increased. The diversity of options in the cosmetic industry is relatively broad, leading to an increase in the overall mix of beauty products available in the market. The impact of the epidemic in 2020 is expected to be greater at the demand end than in 2003, and mainly focused on cosmetics, whereas certain skin care products with essential properties are expected to be affected relatively less.
  2. Channels: E-commerce accounted for less than 1% of all retail sales in 2003, but this increased to 27% in 2018 and it is currently the channel with the highest growth by far. In terms of the overall situation of offline pressure caused by the epidemic, the pent-up demand could not be satisfied in 2003, but it is understood that this could be transferred to online channels in 2020 to enable the industry to combat the epidemic. E-commerce is limited by the short-term suspension of express delivery, but it is expected to improve when the express service resumes.
  3. Marketing: demand is generally weakened by the epidemic, and brands delay their advertising. The top five apps during the Chinese New Year were short video apps, which accelerated an industry reshuffle so that brands with good content marketing layout/effect are expected to win in the new round of industry changes.

CITIC Securities 

On February 7, CITIC Securities Co., Ltd., China's largest full-service investment bank, released a WeChat article entitled "Cosmetics Affected by the Epidemic: the Impact is Short and the Growth is Clear", in which it pointed to the short-term impact of the epidemic on cosmetics consumption, and the impact range of "CS (cosmetic store) retail > offline dealer > online retailer & TP > brand merchant > R & D (research & development)/ manufacturer".

Details of the impact of the epidemic on the cosmetics industry are as follows;

Range of different categories affected: cosmetics > skincare products > daily chemicals.
- Cosmetics: lip > base > eye make-up;
- Daily chemicals: rigid and increasing demand for germicidal washing and care products; the degree of benefit: sterilization > cleaning > bathing.

In terms of channels: the epidemic will promote the further online transfer of cosmetics consumption, and enterprises with a high proportion of distribution will be relatively less affected in the short term.

Range of different links affected in the industrial chain: CS retail > offline dealer > online retailer & TP > brand merchant > R & D/ manufacturer.

CITIC Securities pointed out that the online and offline consumption of cosmetics is expected to rebound in March and April due to the progress of researching and controlling the epidemic; the trend of a "wide" and "long" cosmetics track will remain unchanged in the medium and long term.

In the mid-long term, the upgrading of each class in the context of consumption stratification is the fundamental driver of the growth of the cosmetics industry. The change of information media and the development of e-commerce channels are both important driving forces. The cosmetics industry is expected to maintain its high growth with the further development of tax and industrial policies, and achieve a CAGR + 10% ~ 13% within the next three years.


(Note: CTR is a joint-stock enterprise of China International Television Corporation and the Kantar Group)

On February 17, it was pointed out in the WeChat article entitled "Quick Report on the Impact of the New Coronavirus Epidemic on the FMCG (Fast Moving Consumer Goods) Market" released by the Kantar Worldpanel of CTR Market Research Co. Ltd. (CTR) that February 2 - 8, 2019 was the Chinese Spring Festival week of 2019, and January 25 -31, 2020 was the spring Festival week of 2020.

Sales in the first two weeks of this year's Spring Festival grew by 15%, far higher than the 5.3% in 2019. However, with the closure of Wuhan on January 23 and local governments’ suggestion that residents should reduce their parties and travel plans, the fast-moving consumer goods market fell by 24% in the Spring Festival week itself and by 41% in the second week of the extended Spring Festival holiday. According to the preliminary judgment, the scale of the FMCG market fell by more than 12% around the Spring Festival.

In terms of different consumer goods, the seasonality of daily chemical products is not obvious, but the sales volume of some categories soared during the Spring Festival this year due to the impact of the epidemic. The sales of disinfectants and 84 disinfectant products soared in the two weeks of the Spring Festival Due to the need for disinfection and protection. Since frequent hand washing is a key step to prevent the virus, the sales of hand sanitizers, wet paper towels, and handkerchiefs also witnessed an explosive growth. There is still a great deal of room for growth in these categories in future as consumers continue to develop these healthy habits.

The demand for hair care products has declined significantly. While the demand for shampoos and conditioners has declined in varying degrees, the demand for hair styling products has declined more significantly. Of course, the impact on these categories is controllable if the epidemic ends before the peak season. Cosmetic products are also facing serious challenges, with the sales of skincare products, cosmetics and perfume also dropping to varying degrees.

Kantar published a WeChat article entitled "Dangers and Opportunities in All Industries Under the Epidemic (2) - Retail" on February 7, in which it was stated that the epidemic had a direct impact on the retail industry, but new opportunities have also emerged in the physical retail arena, such as convenience stores, unmanned stores and vending machines, various types of e-commerce, and online and offline integrated retail.

It was pointed out in the article that consumers’ demand for some channels and formats has increased significantly in the short term and this challenge will play an important role in cultivating new consumption habits in the long term, leading to the formation of a new blue ocean strategy, and the promotion of the transformation and upgrading of businesses.

For example, Kantar believes that the short-term reduction of the passenger flow through department stores and shopping malls due to the epidemic will affect their businesses to varying degrees. In the long run, it may give them an opportunity to accelerate their digital transformation, strengthen online promotions and new tool applications, speed up the integration of online and offline, and fully tap membership data.

The importance of online shopping malls, official WeChat accounts, WeChat Mini Programs, and other department stores or shopping malls' online platforms will be highlighted this year. Member relationship management, in-depth data mining, personalized products, and promotional customization, high value and quality membership and sales growth will become companies’ core strategies. While experiential consumption is still the main theme of offline consumption, how to use new technologies to create an immersive online shopping experience is also worth exploring.

Guotai Junan Securities

On February 5, Guotai Junan Securities Co., Ltd., one of the largest investment banks and securities companies in the People's Republic of China, issued a report entitled "Retailing: The Impact of the Epidemic on the Retail Industry Predicted from Consumer Performance During SARS."

It was pointed out in this report that the impact of the current epidemic on optional consumption during the Spring Festival peak season may be greater than that of SARS in 2003, especially in terms of clothing and jewelry, whereas the market for required consumption, such as food, is relatively stable. For retail companies, the profit growth rate in a single quarter may be greatly affected, but the epidemic will only have a short-term impact. The competitive advantage of leading companies will be more obvious if the industry development trend does not change. The national economic development stage, epidemic characteristics (faster and more urgent), and consumption structure are all significantly different during the new coronavirus epidemic in 2020 compared to the SARS period. New online consumption, such as e-commerce, is less affected and is expected to develop faster.

On February 17, in the report entitled “Positively Deploying Leading Consumers of High Quality,” issued by GF Securities, one of the first full-service investment banks in China, it was predicted that the sportswear industry would continue to be highly prosperous and the industry concentration would continue to increase after the epidemic. Leading caterers have benefited from the contraction of the industry supply, and the only pain caused to the beer industry is the impact of the current drinking channel.

On February 15, Luca Solca, a luxury industry analyst for US investment research firm Sanford C. Bernstein, responded to an email from The New York Times that the watchmaking industry is particularly dependent on the Chinese market, "even reaching as much as 50% of sales. The further spread of the coronavirus will have a severe impact on it. "

On February 7, Flavio Cereda, an analyst of the Jefferies Group LLC, told the New York Times that the global luxury goods market was expected to grow by 5% in 2020 based on a constant exchange rate, but this is expected to be reduced to about 1% due to the impact of the Chinese epidemic. According to Cereda, "The difference will reach 12 billion euros, and in fact, this effect may last a whole year." Luxury spending by Chinese consumers will fall by 35% in the first quarter.

In a recent report by, Estee Lauder, Ralph Lauren, Under Armour, Moncler and other international luxury fashion companies successively released their forecast of the impact of this epidemic on sales. Some companies also lowered their full-year fiscal 2020 performance expectations, as shown below.

The Estée Lauder Group of Companies said that it had lowered its fiscal year 2020 earnings per share forecast from $ 5.85 - $ 5.93 to $ 5.60 - $ 5.70 due to the coronavirus epidemic. The company had also lowered the lower limit of its sales growth forecast range from 7% to 6%, while the upper limit remained at 8%.

The American multinational luxury fashion holding company, Tapestry, pointed out that the outbreak of the coronavirus epidemic has severely damaged its mainland China market with many stores temporarily ceasing operations. Sales in the second half of fiscal 2020 may decline by $200 to $250 million. The company's performance may be hit even more severely if the epidemic spreads further and affects the global retail environment.

US luxury goods group, Capri Holdings Ltd., said that it had lowered its revenue forecast for the fourth quarter and the 2019/2020 fiscal year by about US $100 million due to the impact of China's epidemic.

American luxury company, Ralph Lauren Corp (Raph Lauren), pointed out that the epidemic will harm its sales performance by US $55-70 million in the fourth quarter of fiscal year 2019/2020. When considering the current situation in China, Japan, and South Korea, the epidemic will hurt the operating profit of the Asian market in the fourth quarter from 35 to 45 million US dollars.

Burberry, a British luxury fashion house, said that it will lower its full-year financial forecast for this fiscal year due to the outbreak.

The American sportswear brand, Under Armour, predicts that the epidemic will adversely affect sales in the Asia-Pacific market in the first quarter of fiscal 2020 by $50-60 million, and the net sales for the full fiscal year 2020 are expected to decrease with a low unit.

The Canadian high-end outdoor brand, Canada Goose, has also been affected by the new crown virus epidemic and lowered its full-year forecast for the fiscal year 2020.

The Italian luxury brand, Moncler, said that it is cautious about its expectations for FY 2020 due to the impact of the epidemic. According to its Chief Supply Officer, Luciano Santel, “The epidemic has greatly affected Moncler ’s China business in the past two weeks and the current situation is very serious." The passenger flow of Moncler's Chinese stores has decreased by 80% since the outbreak.

Bernard Arnault, chairman of LVMH, said in an annual conference call: "If the epidemic lasts only a short period and can be resolved in the next 2 to 2.5 months, then it will not be bad. If it continues for two years, then it's different.”

The French leading luxury company, Kering, points out that the impact of the epidemic on the group's business is that its brand stores ’customer traffic has fallen sharply and more than half of its stores have been closed. However, since the Lunar New Year was early this year, it is difficult for the Group to compare the operating data at the beginning of the year with previous years to obtain the exact loss data.

The French L'Oréal Group points out that the panic of the new coronavirus “will have a temporary impact on the Chinese beauty market and will therefore affect L'Oréal's business in China and the travel retail business in Asia”, although it is too early to evaluate it.


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