At the close of 2019, the National Retail Federation reported holiday retail sales grew 4.1% compared to the same period in 2018, to $730.2 billion. At the beginning of 2020, the retail industry was on its way to making a comeback after an egregious slump fueled by online shopping and the rise of direct to consumer (DTC) brands outpacing traditional retailers. Shopping centers transformed themselves as service-oriented and experiential retailers moved into anchor tenancies and aligned to the changing consumer behavior. Scant a month later, at the first rumblings of the coronavirus outbreak in China, and no one East to West could have anticipated the global impact COVID-19 would have on the retail market to date.

China experienced a 13.5% decrease in its retail sales of consumer goods in the first few months, and for the first time in half a century, the country suffered a 6.8% decline in growth. Like the U.S., China’s online sales saw a 4.5% increase as consumers turned to online services as they continued to “play-it-safe” indoors. As retail industry leaders and financial analysts keep a watchful eye on China, it remains clear that many factors will affect how the global economy reopens.

The Price of Social Distancing

Categorically, the primary influence in spending decline comes at the expense of social distancing practices. Chinese consumers have decreased participation in experiential retail (i.e., movie theaters) and service-oriented activities (e.g., gyms, hair and nail salons) wary of engaging near other shoppers and given rise to the preemptive support of China retailers’ investment in social commerce.

Social commerce, conceptualized by Alibaba, allows users to interact with one another while also making a product purchase within the native social media experience. Alibaba owns Tmall, an online marketplace that consists of  a cross-border ecommerce platform for global brands. Brands like Sephora —which recently launched its first flagship store to engage with Chinese consumers —  and Allbirds— which launched its first distribution channel on Tmall in January —have reported steady traffic and stable growth of its online sales since the pandemic.

Landlord Support of Tenants is Crucial

As we reported last month, landlords’ innovation in how they support tenants is paramount to the success of their shopping centers moving forward —a universal challenge; one that China is embracing with gusto. According to a recent study conducted by Colliers China, landlords that support tenant initiatives through exhibitions, discounts and pop-up stores, are likely to contribute to a rapid recovery in consumer engagement and, ultimately, sales. More than 40% of the tenants suggested they would make considerable efforts to launch new products or services, and market new formats, or even a concept store, to boost their performance. Our analysts advised landlords to focus on those tenants with innovative strategies to optimize their tenant mix and enhance the competitiveness of the property. Aside from marketing support, most landlords (encouraged by the Chinese government) proactively reached out to tenants with financial concerns, providing discounts (~50% reduction) for an extended period, or in some cases, rent-free periods.

Back at Home

Unlike China, the U.S. is struggling with an unprecedented unemployment rate and a staggering state-by-state approach to reopening. On June 8, 2020, we started Phase 1 of a three-pronged approach to reopening the U.S. economy. Like China, there is much speculation about what will work and how long it will take for the economy to rebound. Larger retailers like Costco, Home Depot, Lowe’s, Target and Walmart, who carried sales from late April to May, have performed exceptionally well as they quickly adapted to serving their customers. That is not the case for everyone, especially the small to mid-sized businesses that are the bread-and-butter of America.

While an apple to apple comparison of the two markets may not be copacetic, there is much to learn from China about how to leverage social innovations to connect with consumers. In our next blog post, we will highlight how China uses its digital platforms to establish consumer connectivity and influence U.S. retailers to engage in social commerce.