Operating a retail business in China has never been a straightforward affair. Although first and foremost a human tragedy, the ongoing outbreak of the Covid-19 coronavirus is creating serious problems for those retailers who operate in the market.
Mike Rowe is managing director of Estate Retail, a multi-brand footwear retailer that was founded in 2011. It has four bricks-and-mortar shops in Xi’an, Shanghai, Beijing and Qingdao, and a Tmall store, stocking British brands including Church’s, Cheaney, Barker Shoes and Loake. He tells Drapers how the shut-down in China has impacted the business.
Building our business in China has not been an easy ride. [Chinese president] Xi Jinping came to power [in 2012] after our first two years of trading and his approach to opening up the domestic market was hailed as a significant move forward.
Like many of the luxury brands, we opened store after store. We reached 12 bricks-and-mortar stores and four online platforms after just three years of trading. We fell afoul of all the usual pitfalls of retailing – too many locations and not enough cashflow. At the time, we had egos bigger than our savings.
After some hard times, by last year we had turned our business around. We have a very focused and business model, running four stores in what we believe are the best shopping malls. We have built a thriving online business on Tmall and learned how to work the annual Singles’ Day shopping bonanza [each November] to our advantage.
After a very successful Singles’ Day at the end of last year, sales were picking up. The lead-up to Chinese Lunar New Year [25 January] bypasses Christmas, the European Sale time and the dark days of January shoe retailing. Sales are always strong in China during this period.
It felt like a case of “what could possibly go wrong?” – until coronavirus hit. The impact for us started immediately after Chinese New Year. Sales evaporated overnight in all stores except Beijing. The government then forced closures in Xi’an.
By the end of January, sales ground to a halt across all stores. Residential areas in Shanghai were closed and the mall was forced to reduce opening times to six hours a day – but shoppers stayed away entirely.
The situation throughout last month has been almost unbelievable, as our closed stores have had no customers. As of mid-February, we had two stores open with limited hours and almost non-existent sales. Online sales remain strong but fulfilling orders has been difficult, because stock is delivered not only from our warehouse in Qingdao but also from our stores. Our operations team now send daily motivational videos and pep talks to the staff via WeChat.
When people say to me, “You must be an expert on retailing in China by now,” I laugh. It is impossible to know what the next changes could be to our retail operations. In Europe, generally, we make our own decisions and mistakes. External forces – such as the storms last month – can change your business overnight but that tends to be on a local scale, rather than nationwide. In China, anything can happen.
The general short-term outlook after coronavirus is that domestic consumption in China will increase. Cabin fever will stimulate a need for entertainment and shopping is high on people in China’s entertainment list. We expect the government to release the hold on residents before the rest of the world will make them welcome overseas, which we hope to benefit from.
My big takeaway from this situation is that it could potentially be an opportunity for new relationship building between staff and senior management. The typical relationship between boss and worker in China is very formal. There has been more camaraderie since the outbreak, as this experience has been a big leveller for the citizens of China.