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April 8, 2020updated 16 Feb 2022 10:20am

H&M’s China performance reveals how Covid-19 impacts retail post-peak

On Friday 3 April H&M published revealing weekly sales figures for its China division, providing other fashion brands with insight on how sales will be impacted in particularly hard hit Covid-19 markets over the next few months.

By GlobalData Retail

On Friday 3 April H&M published revealing weekly sales figures for its China division, providing other fashion brands with insight on how sales will be impacted in particularly hard hit Covid-19 markets over the next few months.

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What is the impact of China’s Zero-COVID lockdowns on economic activity, consumer goods and the foodservice industry?

While wanting to protect the country from being overwhelmed by Omicron, China’s adherence to a Zero-COVID policy is resulting in a significant economic downturn. COVID outbreaks in Shanghai, Beijing and many other Chinese cities will impact 2022’s economic growth as consumers and businesses experience rolling lockdowns, leading to a slowdown in domestic and international supply chains. China’s Zero-COVID policy is having a demonstrable impact on consumer-facing industries. Access GlobalData’s new whitepaper, China in 2022: the impact of China’s Zero-COVID lockdowns on economic activity, consumer goods and the foodservice industry, to examine the current situation in Shanghai and other cities in China, to better understand the worst-affected industry sectors, foodservice in particular, and to explore potential growth opportunities as China recovers. The white paper covers:
  • Which multinational companies have been affected?
  • What is the effect of lockdowns on foodservice?
  • What is the effect of lockdowns on Chinese ports?
  • Spotlight on Shanghai: what is the situation there?
  • How have Chinese consumers reacted?
  • How might the Chinese government react?
  • What are the potential growth opportunities?
by GlobalData
Enter your details here to receive your free Whitepaper.

The key takeaway highlights how retailers must carefully consider their store reopening schedule post quarantine and isolation measures, and whether consumer demand post peak-pandemic will be sufficient to support the cost of operating all stores or if reopenings should be phased more gradually.

While H&M’s extensive network of 518 stores in China meant that some stores could continue to stay open in less affected areas during peak pandemic, helping to protect its performance from being even worse (sales sunk 84% in February), in other markets where nationwide store closures have been implemented in abidance of governmental measures, fashion retailer sales declines are likely to be even steeper. Moreover, players with weaker online platforms, or indeed those with no transactional presence, should expect near to 100% declines during quarantine periods – these could extend over three weeks or more, with Italy currently on course for a five to six week isolation period.

Retailers must start planning a recovery strategy for each country they operate in, taking into account consumer sentiment and confidence, the country’s financial stability, consumer propensity to spend on fashion, online penetration and the time in the season and promotional calendar – all of these factors will impact how and when physical stores should reopen. Looking at H&M’s results in China, sales were down 79% in week 10 despite 89% of its stores in the country being open, raising the question whether this is a financially viable strategy in other effected markets due to the burden on operating costs. Understandably retailers will be keen to reopen stores to clear seasonal stock and recover lost revenue, but the impact to profitability by opening these stores too early could be severe.

In markets where the government is offering support to retailers (such as in the UK where the government has suspended business rates, removed landlords’ rights to take back shops for non-payment of rent, and provided income support to consumers who have been furloughed for set periods), it may be in the retailer’s interest to keep staff out of work until consumer willingness to spend on non-essentials returns and footfall picks up. Retailers can also use the current situation to walk away from long term lease contracts on underperforming stores, making careful planning essential now despite some markets not yet in peak pandemic.

Understandably flagship and tier one stores will be a priority to reopen as soon as possible, but retailers must consider what their neighbours are doing in each location as trading from under-occupied high streets or shopping centres will impede traffic and draw out the recovery period. In China nearly all retailers have now reopened stores, but consumer propensity to spend is significantly higher than in mature retail markets such as the US and much of western Europe so we expect store reopening schedules and the recovery process to be longer than what we have witnessed in China.

H&M’s performance in China paints a harsh reality for what is to come across much of the world’s major retail markets, with the US, Spain, Italy, Germany, France, the UK and Turkey now having the highest number of confirmed coronavirus cases (excluding China) leading to significant slumps in consumer spend on fashion. Moreover, H&M operates in a winning segment of the apparel market, it has the scale to negotiate with suppliers, it has a strong physical portfolio where many stores are new or have been modernised, and stores operate in core retail locations – making its recovery more advantageous than many of its rivals, especially smaller domestic chains.

Free Whitepaper
img

What is the impact of China’s Zero-COVID lockdowns on economic activity, consumer goods and the foodservice industry?

While wanting to protect the country from being overwhelmed by Omicron, China’s adherence to a Zero-COVID policy is resulting in a significant economic downturn. COVID outbreaks in Shanghai, Beijing and many other Chinese cities will impact 2022’s economic growth as consumers and businesses experience rolling lockdowns, leading to a slowdown in domestic and international supply chains. China’s Zero-COVID policy is having a demonstrable impact on consumer-facing industries. Access GlobalData’s new whitepaper, China in 2022: the impact of China’s Zero-COVID lockdowns on economic activity, consumer goods and the foodservice industry, to examine the current situation in Shanghai and other cities in China, to better understand the worst-affected industry sectors, foodservice in particular, and to explore potential growth opportunities as China recovers. The white paper covers:
  • Which multinational companies have been affected?
  • What is the effect of lockdowns on foodservice?
  • What is the effect of lockdowns on Chinese ports?
  • Spotlight on Shanghai: what is the situation there?
  • How have Chinese consumers reacted?
  • How might the Chinese government react?
  • What are the potential growth opportunities?
by GlobalData
Enter your details here to receive your free Whitepaper.