At recent GELF events, we’ve detailed why we consider China the “Headwaters of Digital Retail Innovation.” As the world grapples with the immediate impacts of COVID-19, what can be learned from China’s ecommerce leaders as China’s shoppers come back online?
In late March, GELF spoke with leaders at Sunrise Cross-Border Services, GELF’s China-based research partner for our recent study exploring the state of ecommerce in China.
The soon-to-be-published 2020 China research study includes two sources of insights; one being qualitative interviews with US-based ecommerce leaders that sell on China’s marketplace platforms and/or that sell cross-border into China. The Sunrise team provides the quantitative, on-the-ground research about the purchase preferences and shopping journeys of consumers in China.
No “ Next New Normal” Yet
China is starting to get back to “normal” with citizens back working in offices. Restaurants are open and at least in Shanghai, bars are back open and offer a place to reconnect after months of staying away from public spaces.
But the on-the-ground reality is that getting back to normal will take time. Hong Kong is on complete lock down and some other port cities are as well. After five-to-six weeks of “dark times,” some citizens remain in quarantine in cities that are otherwise open for business. Simply put, the world is still a more dangerous place than it was before.
Chinese officials also fear that travelers from outside the country may bring back the COVID-19 virus. So passenger flights into China have been severely restricted. Very limited passenger flights mean that cargo space on those flights is no longer available to accomodate the delivery of cross-border ecommerce orders to shoppers in China.
Ecommerce and Delivery Spike. Luxury Stalls.
Ecommerce is seeing an unprecedented spike in delivery as face-to-face shopping moves rapidly online. What is selling well? Perhaps no surprise that “it’s a lot of Budweiser” – low-stakes, high-frequency goods are selling briskly online.
What isn’t selling well? Sales of luxury goods are getting crimped and high-end specialy stores like handbag boutiques are closing as shoppers get squeezed economically.
It is fair to ask a couple of questions. “Are people buying cheaper products in China now – or are they not buying at all? If they are buying, what will they be buying instead of luxury?” It is a little too early to know, but GELF and Sunrise are back in the field looking for answers now.
The GELF community also wants to know, “How else are shopping expectations in China changing?”
Let’s focus on delivery. Some would suggest that overall Chinese consumers are “ultra-spoiled” when it comes to expecting rapid delivery. It is safe to say that they are less spoiled than they were. Delivery is booming of course, but there are logistical headwinds beyond the lack of cargo space due to limited arrivals of passenger jets. At the end of the day, you cannot deliver what you don’t have.
Slowdown at the Ports
Legions of goods coming into China are sitting in containers at the docks in cities that are back open for business. Of course, a lot of this ocean freight cargo contains agricultural products. But then again, these high-frequency consumer goods are in demand.
The biggest issue is that the crews needed to offload the containers are in equally high demand – and there is a growing backlog of cargo without the necessary growth in numbers of longshoremen.
From an outbound perspective, China’s factories are back online as well. But the question is “can they ship back orders yet?” Getting product out of China can be just as challenging as getting product into China.
The good news is that non-passenger, cargo planes are being allowed to land. They typically don’t require the same size workforce to unload the cargo as does ocean freight. The Sunrise team mentioned that the US has a reserve of jets to help carry the cargo load when necessary. The U.S.’s Civil Reserve Air Fleet, or CRAF, includes selected aircraft from U.S. airlines that augment Department of Defense airlift requirements in emergencies when the need for airlift exceeds the capability of military aircraft. It is unclear whether China has a similar reserve fleet to add more outbound capacity – or if it even matters given that fighting COVID-19 is the government’s focus moreso than enabling cross-border commerce.
[NOTE: In 2018, there were 6,134 civil aircrafts in China, up 541 from 5,593 in the previous year. By comparison, the USA’s general aviation fleet in 2018 was 213,375 aircraft, and the for-hire US carrier fleet was 7,397 aircraft.]
China Ecommerce Contracts. How Much is Anyone’s Guess
Across the board regulations and policies are changing fast as officials deal with dynamic anti-virus protocols. And shopping behaviors are impacted on a daily basis by sometimes-conflicting rules. Making sure that the COVID-19 virus doesn’t regain a new foothold from imported goods is Job #1 for the Chinese government. So it is also too early to understand how shopping behaviors will change. But stay tuned.
What’s clear is that Chinese ecommerce in Q1 contracted for first time in 30 years. Yet many feel that the Chinese government’s numbers aren’t reliable; be it employment numbers or otherwise. Academics in China have their own shadow numbers based on proxies. 12% is the official employment number, but it likely understates the real number.
The bottom line is that the economy took a hit and ramping up will take time. Shoppers are waiting for big purchases. The World Economic Forum says that a survey conducted by a Beijing financial firm found that almost 65% of respondents in China plan to “restrain” their spending habits after the virus. WEF states that overseas demand is also suffering as more countries face outbreaks.
All is not bleak as the global ecommerce community looks ahead. The shift to ecommerce will likely accelerate and cross-border ecommerce will rise as consumers around the world embrace direct-to-consumer purchasing options from global brands they trust.
It will be interesting see whether people will buy products online that they haven’t before. The Sunrise team reminded us that even though we think of China as being advanced from an online purchasing perspective, there are millions and millions of tech-wary Luddites in China that have resisted shopping online.
Will China ecommerce grow? They have been ahead of the curve for years and we expect that will continue.
But for now, the focus of the global ecommerce community must remain on flattening the COVID-19 curve. Stay tuned as GELF’s latest China ecommerce research comes online in the weeks and months ahead.
And please stay healthy.