How can retailers in China navigate the long-term impacts of Covid-19? How can businesses better relate to Gen-Z consumers and use technology to speed up the consumer journey? Insights from KPMG shed light on how businesses in China can meet the challenges of a retail ecosystem dramatically reshaped by a global pandemic
The Covid-19 pandemic has reshaped the retail industry forever. Consumers are buying online more than ever before, and when they are shopping in-store, they expect the offline experience to be integrated with the apps and websites they’re using at home. Retailers have not only been forced to respond to growing digital engagement, but also increasing demands for authenticity, sustainability and brands that demonstrate a strong sense of purpose.
“The retail brands who have best survived this rapid transition are those who have proven agile in their response to the growing demand for digital engagement,” says Alice Yip, Head of Consumer and Industrial Markets, Hong Kong, KPMG China, commenting on a recent research report. The report, entitled ‘Retail’s Realignment: The Road Ahead for Omnichannel across the Greater Bay Area,’ offers insight into six key trends that are reshaping retail in China.
Five key China retail trends
Shopping behaviours have changed for good
There have been significant changes to the way consumers shop. Due to the outbreak of Covid-19, there has been a rapid acceleration of the migration of consumers from physical to digital retail channels. KMPG’s report found that since the beginning of the pandemic, 50% of Hong Kong consumers and 59% of those from Greater Bay Area (GBA) cities – e.g., Guangzhou, Shenzhen, and Zhuhai – in mainland China feel more comfortable shopping online.
Consumers have developed new purchasing habits, with many shoppers choosing not to return to physical stores. Around a quarter of the consumers surveyed by KPMG said they could live without physical stores.
“The coronavirus is a catalyst, but it is not the critical factor – the consumer is. They want to change because the online model is significantly superior to the offline model in terms of choice,” says Ricky Wong, vice president and group CEO of HKTVmall.
Consumers expect integrated O2O experiences
An overwhelming majority of consumers expect a seamless transition from in-store to online – 77% of Hong Kong respondents, and 85% of those polled in mainland China’s GBA cities said retailers need to have a better connection between channels to create a seamless customer journey. Convenience is driving the preference for O2O (online to offline) experiences; consumers want to engage with brands across social media, access easy payment methods, and have the option to choose flexible delivery options.
These expectations are highest among Gen-Z consumers. Gen Z is the first generation of consumers to have grown up constantly connected to digital devices, particularly smartphones, and with so many options available at their fingertips, these consumers are putting experience at the centre of their purchasing journey. And the way Gen-Z shops influences the entirety of the retail environment. “Gen-Z consumers are the influencers for other generations,’ says Jessie Qian, Country Sector Head, Consumer & Retail, KPMG China. “[This includes] millennials who want to feel young and active, and parents and grandparents who will make purchases for their Gen-Z children and grandchildren.”
All the above suggests that brands and retailers who forge an online-to-offline solution that encompasses multiple digital points of engagement will enjoy a significant market advantage in the future, particularly in the apparel and personal care and beauty sectors. However, many brands are still behind the curve. Among the retail executives surveyed, less than 50% of businesses were currently adopting strategies that could help them create a more seamless O2O experience.
The coronavirus is a catalyst, but it is not the critical factor – the consumer is. They want to change.
Authenticity + purpose = trust (+ purchases)
The pandemic has sharpened consumers’ focus on health, sustainability and wellbeing. A brand’s authenticity and purpose have become the most important attributes that consumers pay attention to. Since the beginning of the pandemic, 68% of Hong Kong consumers and 65% of those from mainland China GBA cities say they are more conscious of a product’s origin.
Anson Bailey, Head of Consumer & Retail, ASPAC for KPMG China, emphasises that brands are facing an urgent imperative to be more purpose-driven. “We are seeing a perfect storm emerge with investors, bankers, regulators and consumers all calling out for brands and retail groups to become more purpose-led and demonstrate both their societal and green credentials in the communities that we live and work in,” he says.
Brands should also pay attention to how consumers search for product information and develop trust. Among the consumers KPMG surveyed, the most trusted sources of information are the opinions of family and friends, a brand’s website and online user reviews. Mainland Chinese consumers are also more likely to trust the opinions of KOLs and live streamers.
Sourcing, upskilling and reskilling talent remains a key challenge
The KMPG report also reveals that there is widespread concern about the availability of skilled talent, particularly in digital technology-focused areas. For instance, in Hong Kong, there is a current “shortage of talent in e-commerce, digital marketing” according to Plato Wai, General Manager of smart commerce solutions provider Shopline.
IT and systems support, data analytics and research and development as technical areas are also facing significant talent shortages. Sales, marketing and communication roles are also an area of concern. Luckily, research shows that China is set to produce more than four million STEAM graduates over the next five years, providing an essential resource for retailers to address talent shortages and future-proof their businesses. “Corporates need to come together with academia and EdTech providers to upskill and reskill our current workforce… covering the latest coding, AI, data and blockchain skills,” argues Bailey.
Consumers expect brands to deploy technology to speed fulfilment and reduce costs
As consumers become more adept at searching, shopping and paying for goods online, they expect brands to step up their implementation of technologies to make the shopping process faster and more efficient.
Many find online shopping much more convenient and are willing to pay a premium for added-value services, such as the ability to refund or exchange products that are usually non-refundable. However, concerns remain about data security, and about 76% of respondents in KMPG’s survey believe companies provide a moderate, low, or insufficient level of data security.
The future of the retail industry in China
More than two years since the onset of the Covid-19 pandemic, it is clear that consumer spending on online retail channels has greatly accelerated. But beyond that, there is overwhelming evidence that how consumers browse, buy and pay for goods will not go back to the way things were before once the pandemic subsides. Retailers operating in China should keep note of these trends and chart their own courses over the next few years.
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This article was adapted from KMPG, GS1 Hong Kong and HSBC’s 2021 report, ‘Retail’s Realignment: The Road Ahead for Omnichannel across the Greater Bay Area.’