The COVID-19 pandemic – Navigating the rapidly evolving terrain of China’s new consumer landscape

Earlier this winter, the pandemic triggered a steep fall in China’s consumption as everyone hunkered down at home. But more importantly, it also abruptly changed people’s buying habits, preferences and mindsets.

• Consumer journeys ventured much further and faster into the digital economy, with activity surging across many e-commerce and social media platforms. People became acutely aware of the fragility of human health and the deep interconnectedness of today’s world, showing greater interest in health and sustainability-related issues.

• In response, many companies moved quickly to keep pace with customers’ new demands by dramatically scaling up their digital footprints – including those from sectors not traditionally associated with online platforms.

• With the outbreak having now abated, China’s consumer economy is recovering as people slowly return to their daily lives. Rekindling growth in consumption is an absolute priority for Chinese policymakers, particularly as the global economic outlook continues to darken.

• Yet it will likely be a long climb back. What’s more, the new normal will look very different, with the pandemic set to have deep, long-lasting effects across the consumer landscape.

• For brands and businesses, it’s imperative that they strategize for this post-crisis future and create a roadmap for success going forward. Accelerating their digital transformations and recalibrating their corporate purpose around the values embraced by consumers during the health crisis will be key.

In the aftermath of its COVID-19 outbreak, China continues to recover economically. And Chinese consumers – the country’s most powerful economic engine – are reawakening as well after being confined at home from late January through much of February. While still not rushing back to public places just yet, they are heading out again in steadily rising numbers.

The pandemic led to a sharp decline in China’s consumption. Some of the most heavily affected sectors included aviation, tourism, hospitality, automotive, entertainment, education abroad, and consumer and luxury goods. But the public health crisis not only curtailed spending; it also abruptly changed people’s buying habits and preferences as they migrated en masse to digital platforms.

For nearly three months now, brands and businesses have been struggling to navigate this new consumer landscape – an as-yet-undefined one being reshaped by the pandemic. Their future success will depend upon how well they can adapt to connect with their customers on the evolving terrain.

Even before the pandemic, Chinese consumers already ranked among the world’s most digitized. But the health scare pushed them even further into the digital realm as everyone stayed indoors. People shunned public venues such as shopping centers and malls. Most retailers either closed all or some of their brick-and-mortar outlets, with store traffic estimated to have collapsed by as much as 80% earlier this winter. China’s retail sales shrank by more than a fifth in the first two months of the year.

Yet there were still bright spots amid the bleak figures. Not surprisingly, an upsurge in traffic across social media and e-commerce platforms occurred as people spent more time buying, socializing, and entertaining themselves online. In response, the business community moved quickly to keep pace with consumers’ intensified online activity, leveraging digital tools and platforms to continue their interactions with customers and meet the demand for new services.

At the height of the national lockdown, digital shopping provided a lifeline for many brands and businesses to reach their customers through China’s thriving e-commerce marketplaces – the world’s largest by far, with nearly US$2 trillion in sales last year. Among those surveyed in a Nielsen study looking at the rise of the “homebody economy,” 80% said they had shopped online during the domestic outbreak.

Expectedly, fresh food and other groceries were among the standout categories, benefiting from a boom in online orders. MissFresh, the top domestic e-grocer, saw its sales soar by 350% during the Lunar New Year holiday, compared to the same period a year earlier. Chinese e-commerce giants Alibaba Group and JD.com clocked in growth of 220% and 470% on their online supermarkets, respectively. Carrefour expanded its delivery service coverage to a 10-kilometer radius due to surging demand – the French retailer’s vegetable orders skyrocketed by 600%.

What’s more, sectors not traditionally associated with online marketplaces – including agriculture and automotive – also jumped onto the digital bandwagon. Gearing up for the spring planting season, farmers turned to online platforms to buy supplies as the pandemic upended their traditional supply chains. Pinduoduo, China’s latest e-commerce darling, saw its sales of farming products soar by nearly 1,000% in February, with a spokesperson commenting, “We have observed a significant trend that farmers are now relying on their smartphones to buy their equipment online.” The next month Pinduoduo launched 300 million yuan (US$42.9 million) in discounts on farm supplies to help ensure this year’s spring plowing, putting more than 15,000 subsidized products on its platform for direct sale.

More recently, China’s e-commerce companies have been rallying to support Hubei, the epicenter of the domestic outbreak, as the province emerges from a three-month lockdown. Alibaba’s online shopping platform Taobao unveiled plans to sell 1.2 million tons of locally produced agricultural goods this year, while JD.com kicked off a “Buy Up Hubei Products” campaign to market provincial sellers across its various platforms.

Automakers also turned their eyes towards digital retailing as the pandemic decimated customer traffic at dealerships; retail sales of passenger cars fell by 47% in the first two weeks of March compared to the previous year, following an even worse sales collapse in February. For instance, Chinese carmaker Geely, the owner of Volvo and The London Electric Vehicle Company, created a service which allowed customers to order vehicles online and have them delivered to their homes.

As companies rethought their approaches to reaching consumers, commercial livestreaming proved especially useful. These online broadcasts enabled brands and businesses to bring entertainment, product demonstrations, influencers, and events straight into people’s homes.

For example, Taobao Live, Alibaba’s dedicated livestreaming channel, saw more than a million merchants begin livestreaming to sell products in February, up 719% over the previous month. On March 30, the platform later announced plans to help over 200,000 brick-and-mortar retail stores and 100 marketplaces, such as traditional wholesale markets, to leverage the platform this year. And Tmall, Alibaba’s online marketplace, recently teamed up with Shanghai Fashion Week to move the event entirely online during the last week of March. Alibaba described the decision as a bid “to turn the crisis into opportunity by offering a digital platform for brands to showcase their work and vocalize their creative visions while also engaging with consumers and generating sales in a first-of-its-kind experience.”

JD.com has also expanded its livestreaming capabilities. With most bars and clubs shuttered, the company has been streaming live shows with musicians and DJs every week through JD Live, partnering with Taihe Music Group and top liquor brands such as Budweiser, Carlsberg, and Pernod Ricard. Such virtual parties, or “cloud clubbing,” have become increasingly popular, and the participating liquor brands benefited from a sharp growth in sales during the online events. In mid-February, JD.com also helped Chinese technology brand Xiaomi broadcast the launch of its new flagship smartphone from the company’s Beijing headquarters.

In major Chinese cities, commercial shopping centers have embraced digital broadcasts as well. For instance, the Parkview Green Mall in Beijing has launched livestreaming services for brands, while Shanghai’s Century Link has held a similar series of online sessions, inviting influencers to endorse products and services available at the mall. Century Link’s marketing director said, “It’s definitely going to be a long-term strategy as livestreaming enables a successful online-to-offline loop. It doubles as a sales channels and, perhaps even more importantly, a showcase opportunity.”

Automakers jumped into livestreaming, too. On Valentine’s Day, Volvo launched a virtual broadcast showcasing its XC40 model which helped boost online orders for all its models, saying the effort aligned “with the consistent exploration and innovation in marketing that we’ve always pursued.” Mercedes-Benz ran a campaign on Chinese super app WeChat offering consumers a 360-degree interior tour of its new GLB SUV. And on March 21, Taobao Live featured a livestreamed group-buying event with over 10,000 dealerships of 40 automakers, including Audi, Maserati, and Volvo; discounts of up to 40% were available for some car models.

Jumpstarting China’s economy remains the top priority for policymakers. During the early days of recovery, the agenda mostly centered on reopening businesses and getting production back online. But in March, the official roadmap was quickly widened to feature a major new theme: tapping the vast power of Chinese consumers, whose spending accounted for nearly two-thirds of China’s GDP growth last year.

Doing so will be crucial to staging a successful recovery at home, particularly as the global economic outlook continues to darken. With Europe and the U.S. having become the new epicenters for the pandemic, China is going to face a huge drop-off in demand as its major overseas markets remain under lockdown and cut their imports. Chinese state-run media recently emphasized that “retail sales are expected to lead the post-epidemic recovery and provide the Chinese economy a much-needed cushion if the spread of the coronavirus elsewhere deals a much heavier blow to the world economy.”

Last month, President Xi presided over two top-level meetings which focused on reigniting domestic consumption. The first gathering saw policymakers vow to strengthen “coordination of policies to expand domestic demand” with the aim of “further unlock[ing] the consumption potential shackled by the outbreak and unleash[ing] new forms of consumption.” The official readout from the second meeting was more specific, calling for efforts to “orderly crank up resumption of malls and markets and ensure normal operation of the service sector” as well as to “expand household consumption, reasonably raise public consumption, activate brick-and-mortar businesses while maintaining the prevailing trend of new online consumption.” The emphasis on continuing to encourage the upswing in consumers’ online activities stood out, signaling the leadership’s appreciation for digital solutions to heal the economy.

In response, local authorities have turned their focus towards lifting consumer spending. Numerous Chinese cities have launched sales promotion campaigns over the last few weeks, with many giving away millions in digital vouchers and prepaid coupons. The municipal governments of Hangzhou, Nanjing, and Foshan have rolled out voucher programs worth 1.7 billion yuan (US$238 million), 318 million yuan (US$45 million), and 100 million yuan (US$14 million), respectively. China’s lead economic planner, the National Development and Reform Commission (NDRC), has been monitoring the rollout of such initiatives and encouraging other local governments to consider introducing similar programs.

Backed by official measures, China’s consumer economy is currently on the mend as demand slowly picks up again. Recent figures from the Ministry of Commerce showed that sales of key retailers rose by 7% from mid-February to mid-March; sales on some e-commerce platforms had performed even better, growing by more than 30%. By the end of last month, over 95% of department stores had reopened their doors nationwide.

But it will likely be a long climb back to normality. Restoring consumer confidence will not occur overnight, especially as the pandemic continues to wreak havoc around the world. Domestic consumption will probably stay suppressed for some time, with many people still wary of heading out to public spaces and concerned about their financial security. In the near term, they can be expected to remain more restrained in their overall spending and reluctant to splash out on big-ticket and luxury items. A recent survey by Chinese consulting firm Cefuture found that 41% of nearly 1,000 participants said they would cut spending to prepare for future crises; only 8% indicated they would be willing to do more shopping after the outbreak.

So a sudden boom in consumption is unlikely to lie just over the horizon. On the whole, spending will almost certainly pick up at a much faster clip in the second quarter, but regions and sectors will recover at varying speeds. Most significantly, the big changes wrought in people’s buying habits and preferences will not fade away entirely after the economy gets fully back up on its feet again. The viral outbreak reinforced the appeal and popularity of digital platforms; intensified online behavior among consumers should be expected to persist going forward. And they’ll expect brands and businesses to cater to their desire for new digital services.

The pandemic also heightened awareness not only about the fragility of human health but the interconnectedness of today’s world as well. Physical wellbeing is now top of mind for most consumers. For instance, Nielsen’s survey revealed that respondents showed a much stronger health consciousness, with the majority saying they would pay attention to eating healthy even after the epidemic (80%), spend more on sports and fitness in the future (75%), and increase spending on regular medical examinations (60%). Customers will increasingly demand healthier and more sustainable choices from the companies meeting their needs – and more concrete actions in terms of what they’re doing to be socially responsible.

This all means that the new normality will look very different. The pandemic will eventually disappear, but its effects will be left entrenched across China’s consumer landscape. For brands and businesses, it’s imperative that they strategize for the future and create a roadmap for success.

Harnessing technological capabilities and further expanding their ventures into the digital economy will be essential to continue reaching and engaging with their customers. But this alone won’t be enough. Their efficacy in recalibrating their corporate purpose around the values embraced by consumers during the health crisis – and integrating those values across their products and services – may well play an even more crucial role in determining whether they thrive or falter in the world after COVID-19.