BEIJING, Dec. 18, 2020 — According to the latest study by Nielsen, the global measurement and data analytics company, the onset of COVID-19 in 2020 has brought profound impact to the global retail industry and resulted in significant changes to the consumer market landscape. This is largely due to a shift in shopping concepts and behaviors. China is currently leading the pace in terms of the consumer market recovery and this can be attributed to the successful control of the virus in the country. While online consumption surged during the outbreak, offline channels are starting to rebound in full momentum.

The global retail industry is facing a challenging time, as COVID-19 continues to spread across the world, with an increasing number of confirmed cases in many countries and regions. As the pandemic continues to unfold, the international consumption market is showing a similar trend as observed in China earlier this year: online channels are demonstrating strong growth while retailers are accelerating the adoption of digitalization.

Justin Sargent, president of Nielsen China, said: "The pandemic has forced many people to stay at home instead of going out, and this has resulted in a significant change in the retail landscape. The way people shop is no longer the same and some of these changes may be permanent. We are also witnessing this shift globally and this means that retailers and brand owners need to rethink where, when and how people shop, and adapt their strategy to meet the consumers’ new needs."

The COVID-19 situation in China has been largely under control, as enterprises resumed full business operation while people’s life generally returned to normal. The consumption market has also shown a steady recovery momentum. According to the National Bureau of Statistics, total retail sales of social consumer goods in the third quarter grew 0.9% year-on-year, and this is the first positive quarterly growth recorded this year. Additionally, China will be the only major economy in the world reporting a positive growth this year, according to a forecast from the IMF.

Tina Ding, Chief Commercial Officer of Nielsen China, said: "As seen from China’s latest economic data, as well as Nielsen’s FMCG data, the overall retail sector is on a path to recovery. During the epidemic, offline channels were severely affected while digital platforms such as online office, online shopping, online education and online entertainment, grew strongly. However, we are now starting to see positive signs of recovery in the offline channels operated by FMCGs."

Online growth became rational while offline recovered in full momentum

According to Nielsen’s study, heading into the third quarter, online sales started to grow in a more rational manner while offline sales rebounded strongly. In fact, the importance of online channels reached a high of 34% in the second quarter, boosted by the epidemic, as well as the e-commerce shopping festival. However, in July and August, the growth of online sales became more rational, and the importance of online channels was 25% and 27% respectively. Meanwhile, offline channels started to recover in full momentum, and the importance of offline channels in July and August was 75% and 73% respectively, compared to 66% in the second quarter.

Through tracking offline retail channels in March and August, Nielsen found that by August, most of the offline existing stores had already returned to normal operation. Even the traditional channels, such as cosmetics stores and mother baby products stores which were hardest hit by the pandemic, had resumed operation by August. The in-business rate of existing stores in Modern Trade (MT) increased from 76% in March to 86% in August, while that of Traditional Trade (TT) increased from 64% to 80%; the in-business rate of existing stores in Baby channel increased from 67% to 80%, while that of Cosmetics channel increased from 53% to 75%.

Within MT, small and big format stores showed different patterns. The in-business rate of existing stores in Hyper channel decreased from 98% in March to 93% in August, while that of Super channel decreased from 95% to 87%. This trend is a sign of intensified reshuffle within big format MT. In contrast, small format stores showed strong resilience in terms of recovery. The in-business rate of existing stores in Mini channel rose from 73% in March to 84% in August, while that of CVS channel rose from 79% to 90%.

Intensified reshuffle of golden stores

Through continuous channel monitoring, Nielsen found that golden stores are becoming more fragmented, especially in lower-tier cities. Our data showed that the number of stores in MT increased 6.3% from February to September, while golden stores increased 10%. As more and more high-quality stores enter the market, the sales concentration of stores across various channels will generally reduce. Thus, assortment will become more challenging, and retailers will need to cover more stores in order to obtain the same share of sales.

Tina also highlighted that regardless of upper and lower-tier cities, except the CVS in upper tier cities, the sales concentration in almost all channels saw the decline, and the sales concentration in the lower-tier cities further declines after the epidemic, which means that it will become more challenging to penetrate deeply in the market and hence is imperative for brand owners to adjust their channel strategies.

Moreover, there is a big change of golden stores in the market. According to Nielsen’s study, from February to September, nearly 56% of golden stores have changed (newly-opened stores and store ranking up account for 33%, while store closures and store ranking down account for 23%). Small-format channels changed more dramatically, with minimarket golden stores’ changing rate as high as 58% and that of CVS as high as 42%.

Among the new golden stores, newly-opened stores account for 71% and demonstrate very strong potential. 26% of the newly-opened stores rank among the top-tier stores contributing TOP 40% of total sales. 74% are tier-3 and tier-4 stores which contribute TOP 40%-80% of total sales.

Target growth opportunities in O2O

According to Nielsen’s study, O2O, social commerce and lower-tier cities will be the major factors driving channel growth. When asked about what is their business focus in the next 12-18 months, 79% of the respondents chose O2O, 64% chose social commerce and private domain traffic, and 57% chose deep penetration into lower-tier cities.

During the pandemic, O2O witnessed a spike in growth, as more and more brand owners leveraged the O2O channel to gain access to more market opportunities. The adoption of the O2O channel is also becoming a new normal at a very fast speed. However, how to play well in the new channel is a big challenge for the entire industry.

So where can we find O2O growth opportunities in China’s vast market? According to Nielsen’s study, O2O growth is mainly driven by lower-tier cities. In June, O2O orders in lower-tier cities grew 43% year-on-year, and O2O orders in lower-tier cities accounted for 41% of O2O orders nationwide, up from 33% in the same period last year. Besides, the performance of O2O in different provinces varies significantly. For example, Anhui and Sichuan are both provinces with a large population. However, in June, O2O orders in Anhui increased 69% year-on-year while Sichuan recorded zero growth. This was because in Sichuan, the growth in lower-tier cities were offset by the decline in upper-tier cities. Therefore, brand owners need to consider carefully about where is the best place to start O2O.

In addition, brand owners should consider these questions: Who are my target consumers? Which O2O platforms are suitable for me? Which category and product should I choose? For example, through data tracking, it was observed that the ordering time varies across different O2O platforms, which means that the user base also varies across different O2O platforms. In addition, the penetration rates of categories on O2O platform are not the same either. Some categories have a very high repeat purchase rate on O2O, but not all categories will perform equally well.

Justin said: "As we operate in a new normal, retailers and brand owners should focus on omni-channel development including emerging channels such as O2O and pursue innovations that address emerging consumer needs and shopping scenarios. At the same time, they should also leverage the power of data to gain real and valuable insights in order to refine their development strategies in a timely manner to achieve higher ROI resource allocation."

About Nielsen

Nielsen Holdings plc (NYSE: NLSN) is a global measurement and data analytics company that provides the most complete and trusted view available of consumers and markets worldwide. Nielsen is divided into two business units. Nielsen Global Media provides media and advertising industries with unbiased and reliable metrics that create a shared understanding of the industry required for markets to function. Nielsen Global Connect provides consumer packaged goods manufacturers and retailers with accurate, actionable information and insights and a complete picture of the complex and changing marketplace that companies need to innovate and grow.

Our approach marries proprietary Nielsen data with other data sources to help clients around the world understand what’s happening now, what’s happening next, and how to best act on this knowledge.

An S&P 500 company, Nielsen has operations in over 90 countries, covering more than 90% of the world’s population. For more information, visit www.nielsen.com.

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