COVID-19 IMPACTS CHINA BOARD SPORTS INDUSTRIES
Written by Miriam Deller
December 2019 seems like a century ago. Then, the world was yet to learn about the black swan scenario that would disrupt a seemingly well oiled machine: China’s exports were stable, the ever changing retail scene saw new horizons in o2o models and creative collectives, agencies and artisans serving increasing demands for fresh homegrown talent, were busier than ever while transitioning into the next decade. And then, suddenly life as we know it came to a grinding halt.
A global ripple effect caused by a virus called SARS-CoV-2 stunned industries and political leaders alike. In reflection, late January already showed a steep drop of 20,5% in retail sales compared to the same month in the prior year due to closed shopping malls and other consumer business being forced to shutter their doors.
After ramping up to Chinese New Year, factory output hit a record low as the official holidays were significantly extended and workers were quarantined in their hometowns, often thousands of kilometres away from their factory workplaces.
February and March 2020 turned out to become months packed with hastily created heavy-impact measures in order to curb the effects of the quickly spreading pandemic.
Throughout the outbreak of COVID-19, businesses were spurred to rethink, reorganise, and in some capacities also to retrain their employees. Tech savviness and the capacity to act flexibly are assets that are undeniably crucial factors into determining the stability and survival chances of businesses. For brands the time is now to rethink their approach to creating added value. Consumers have become even more discerning during the crisis and inevitably favour those who deliver and will show no mercy to under-performers.
The pioneer of snowboarding in China, Wang Lei, a highly respected figure in China winter sports, discusses the need to share and inspire, even from home: ‘As athlete I am happy to guide people to do something from home. The North Face always tries to motivate people to explore, and exploring from and in the home has become a really good opportunity for many people to cope better with the current circumstances.’
Charles Nadler, CEO of Ludwig, a global brand strategy consultancy reminds that local business development requires strong knowledge of the market and most importantly being connected with key decision makers. This is good advice for anyone looking to launch promotions or entering the market during these times.
Jia Wenting, the founder and CEO of Shanghai based niche retailer in the hugely booming second-hand business, Pawn Star, explains that more channels for selling online are being explored and in their case they see more of a move toward higher end customers who are less affected by the crisis and buy higher ticket items with less fuss. A hyper-digitized retail reality seems to become part of the updated, more post-corona era landscape.
Despite swift government measures including interest cuts, promised tax breaks and aid packages, factories suffer from lack of raw materials, a much lower workforce and significant less orders: slowly, around 95% of the larger companies mostly affected by the virus outbreak have reopened, and around 60% of small to medium-sized enterprises have taken measures to become fully operational Nevertheless, a historic contraction in China’s economic growth is expected by analysts, indicated by oversea’s freight shipping data, down 17,2% during January and February compared to 2019.
Retailers across the country report dramatic decrease in their business compared to last year: Sales in Hongkong are currently down 60%, the impact in Guangzhou is less sever with a minus of 20%, Beijing sees 15% less business and sales are down 30% in Jilin.
Ken Choi of XGame Hongkong kept his three stores running during the pandemic, as there were not any government measures imposed on small retailers. The surf,-skate,-snow offering remained the same and he did not lay off staff or implemented salary cuts. ‘I might not make any profit for a few months due to larger overhead costs, but the crisis won’t last one year, and I begin to see light at the end of the tunnel.’ says Choi, who currently keeps his business going with pushing seasonal gear like skateboards, wake surf boards, wetsuits, windsurfing boards and selling here and there some snowboarding products.
TianShang TianXia in Guangzhou is a retailer who’s clear focus is on improving their online offering without emphasising sales as key measurement. Entertainment, service and community building are at the forefront of their efforts to keep their customers loyal.
At Coldmountain with its Beijing headquarters, online sales jumped 20%, but the forecast is less optimistic with a need to cut operating expenses and lowering costs. Salary reductions across their employees have been implemented within a range of 10% to 25%.
All Coldmountain stores have reopened, and customers are rewarded with discounts. Epidemic prevention measures include temperature checks, registering customer’s information and regular disinfections.
Cold Mountain CEO Lai Gang explains their short term strategy is focused on the reality that consumption capacity and consumer confidence have suffered tremendously because of the ongoing crisis. He says that his enterprise is well prepared to not fully return to normal within the next two or three years. This provides a significant advantage over businesses with a shorter contingency plan, should the next winter season proof to be difficult.
In the Northeast of China, at Hive in Jilin, the lean operation pays off and there are no layoffs or salary cuts expetced. The summer season looks good with an increase in sales of homegrown skateboard brands and a heightened focus on e-commerce vs bricks and mortar. Expectations towards the upcoming snow season are mild, but not pessimistic.
China’s official Purchasing Managers’ Index has shown a remarkable bounce back to up to 52.3% for March, following a plunge to 29.6% in January. Despite the reassuring increase, a return to ‘normal’ cannot be expected due to the disappointing speed of developments.
The accelerated shift to a digital economy with effects on brands, supply chains, and consumer demands and preferences has come more vividly to light as Hu Hao, Sports Marketing Director, APAC, The North Face confirms: “Our goal has always been to inspire and enable exploration for our consumer. This is always our objective. During the breakout of the corona virus, we switched lots of activation to purely online experiences. And as an athlete-led brand, we also encourage our athletes to create inspirational content for our consumer. The North Face continuously supports the community, and helps our consumers to keep engaged in indoor exploration for the time being.”
The North Face has activated its The Explore Fund platform also in China and already back In February has raised USD 100.000,- to support medical and community relief efforts in China with donations managed by GlobalGiving.
McKinsey reports that consumer brands had to swallow widespread and sudden drops in demand, especially in discretionary categories. Stepping up to survive the even more merciless digital market will be crucial for many to forge ahead in the months to come. Leaving more space for creative solutions, but a void for established processes, it is said that “Little sign of the emergence of a standard formula for consumer engagement during or after a crisis event. In addition, it’s probably too early to identify implications for best practice in the months ahead.” The one thing for sure is to counteract losses in the bricks and mortar retail section, the mantra remains to capitalise on growing digital channels
Hash, the co-founder of 'The Cooperative’, a creative consultant based in Shanghai, aptly states:
There is no ‘after’. What we are living in today is a new reality – this was latent in the time before the virus scare. We were aware of a deeper vector of a recessionary trend, and felt a correction was long coming.
We sincerely believe that staying healthy, physically and mentally is important. As is the ability to cooperate with each other. Perhaps exacerbated by this health scare, it is vital that people across man-made borders, races and cultures learn to work closer with each other.
As global unemployment rates soar, health care systems of each and every country are tested, the issues in China are both a mirror of how things look ahead of the curve, but also a stern warning of when demand shrinks to unseen levels.
The next normal, or how to re-think life in the post-COVID-19 modern age as expressed by Hu Hao, Sports Marketing Director, APAC, The North Face: ‘As we experienced the crisis with our community and consumers together, we know that after the crisis we need to help our community to recover from their economic loss and emotional traumas. The trends point to more outdoor or health oriented habits that will be formed or emphasised. We are preparing for that trend, from lock down at home to exploring the outdoors. The emphasis will be on messages that we care about wild places and the relationship between people among each other, and the relationship between humans and nature.’
Image © XiaoZai / Silk Road Resort
Miriam Hanna Deller is an Austrian Brand Strategist, Entrepreneur and available to fill C-Suite roles. Her excellent background is shaped through decades of experience and deep insights into the mechanics of China winter sports and economy of Greater China.
Since 2004 she spent most of her time in China but is currently stationed in the Austrian Alps due to the COVID-19 Pandemic caused by SARS-CoV-2.
Miriam Deller runs her 2014 founded boutique consultancy Token Consulting and her yoga start up Creative Kimiyo since 2016. At Beijing based Core Power Asia, she remains at the helm of the high performance sports and lifestyle agency that she co-founded with her husband, the Pioneer of Snowboarding in China, Wang Lei, in 2008.